How MSPs Should Work with Vendors Today

Are you still selling IT products? I don't mean pulling them through in your projects; I mean actively promoting certain products to your customers. If so, you may already be finding yourself in the minority. 

Many MSPs have stopped actively promoting and selling products because they simply cannot make much money doing so. In fact, given the credit they may have to carry and the cost of operations to bring those products in and out, they may even lose money.

"I'm making plenty of money selling products." Some of you are probably thinking this right now. You have no problem selling products at high margin. If so, I congratulate you and encourage you to keep doing so...but that doesn't really change what I want to talk about today.

Back in the Old Days
There once was a time when all "resellers" could make great margin selling hardware and software. Personally, I saw that end around 1985. Others say it happened later.

At that time, vendors visited our offices regularly to show us new products in hopes we'd decide to actively promote them, add them to our line card and sell significant volume of them. In some cases, we did. Everyone made out well.

The Race to the Bottom
Eventually, some resellers decided to compete solely on price and discounted products down to basis points. Everybody lost; nobody made much money. But vendors kept coming in and a big part of their case for selling their products was the big margins we could realize on them.

That didn't work out too well. The discounters had knocked those whopping margins out of existence. Eventually we stopped the vendor when they started talking margin. Soon, they stopped even trying.

The Great Shift
Over an oddly long period of time beginning in the mid-1990s and continuing to this day, resellers stopped identifying themselves as resellers. An overwhelming majority of them adopted the title managed service provider (MSP) and shifting their focus from selling products to selling their own services.

Many resellers learned early to foster great relationships with their vendor partners. These came in handy when they had a thorny technical problem, or needed a pricing variation or other accommodation for a customer. In part, that relationship was easy to build thanks to the volume of product the partner was selling for the vendor.

As MSPs moved away from selling products, their leverage with the vendors faded. But they still wanted a good relationship with many vendors to enhance their access to technical resources and cooperative marketing opportunities.

Many vendors remembered the "Influencer" programs of old where partners were compensated directly for bringing deals even though they didn't sell the licenses themselves. They were paid simply for bringing the project and closing it. The most insightful among them realized that influence leverage was still available to them.

Clearly, MSPs benefited from having great vendor relationships, and so did the vendors. Sadly, some vendors still show up talking about margins.

Smart MSPs Know the Value of a Product -- to their Business
What is the value of a product to an MSP? It's clearly no longer a margin on the sale of it.

To find the value of any given product, start by thinking about how MSPs make money: They make the greatest profit selling their own services, if they manage them effectively. Consultation, provisioning, deployment, configuration, monitoring, management, capacity management and many more.

They can also make money on services provided by others, especially when they bundle them in with their own and others.

How Do MSPs Increase Their Revenue and Profits?
It's said that there are only two ways to increase revenue: Either sell more to your existing customers, or create new customers. And many will tell you its five times easier to sell more to existing customers than to create new ones.

The sales cycle for new customer acquisition is much longer, starting with finding candidates, then connecting with them, learning more about them, proposing solutions to the and winning their trust. With existing customers you cut all that out and start at the next proposed solution.

Add cost reduction to the formula and you're increasing profits, too.

What Do We Sell Next to Our Existing Customers?
Here's where vendors can come in really handy. (Vendors, if you're reading this, here's the shortcut to getting MSPs enthusiastic about selling your products.)

When a vendor visits, simply ask them what services you can wrap around their products. Think about it: You make money selling your services. If you want the fastest path to increased sales to existing customers, what you need most are new services to add to your portfolio of offerings. If you can wrap your services around an innovative product, you've just found exactly what you need -- more new services.

You can even go proactive with this. Ask your customers what they need that you aren't yet providing. Their answers will guide you to seek the right products to add to your services in order to fulfill their needs.

Advice to MSPs and Vendors
With all due respect, too many vendor representatives are still sent out with insufficient training. They learn their products' speeds and feeds, maybe some strategic advantages, and that's about it. Rare is the vendor who thinks through what MSPs need most for their customers.

As a result, when you ask what services can be wrapped around a given product, the visiting rep may not know, or have any ideas or inspirations. That's what vendors have product managers for. Ask that rep to get you on a call with their product managers to see if they can answer your question.

Vendors, my strongest recommendation is that you take time to prepare for this question, and answer it for your preferred MSPs even if they don't ask. The more services you enable them to provide to their customers, the more love you will earn from them -- and the more sales.

Posted by Howard M. Cohen on October 14, 2022