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Profiting from Microsoft's Profitability

Microsoft's goals are to make partners profitable. How do you intend to make sure it meets that goal?

Microsoft knows something about profits, having maintained one of the most impressive balance sheets in the history of business. After returning $30 billion to shareholders at one go a couple years ago, its cash reserves are back up to $34 billion.

So what do Microsoft executives mean when they say one of their goals for the coming year is to make partners more profitable? Sharing the cash? Giving partners better margins on sales of Microsoft products?

Actually, how Microsoft will make partners more profitable hasn't been explained in detail. So far the argument is that, according to research (conducted for Microsoft by IDC), Microsoft partners are more profitable than their counterparts who sell competing technologies. However, that raises the question: If Microsoft partners are already so profitable, why obsess about their profitability?

One reason is that the company wants partners to give it credit for their profitability. Another is that partners have choices, and Microsoft wants partners to know that other choices are not, according to research, as profitable as the Microsoft choice.

Finally, if you've worked with Microsoft for any length of time, you know that it is obsessed with metrics. One of the things that makes Microsoft so hungry, in spite of its enormous profitability, is its passion for measuring performance. All employees, even people who don't have a sales role, have numbers to meet, and they'll be on the table come the employee's performance review.

But you as a partner should spend less time worrying about motives and more about how you can profit from Microsoft's profitability campaign. For many partners, one of the first lessons will be to understand how important it is to measure from where profits come. A lot of companies worry about profitability only at the end of the fiscal year. Unfortunately, if they get bad news from their accountants then, it's generally too late to do anything about it.

The IDC/Microsoft research can help you do something about that. It identifies 14 performance indicators (such as cash flow from operations, how quickly the business can deliver on sales, how well it utilizes its service capacity and the average time it takes to close a sale) that are important for players in the software industry.

If you have a way to break down your company's overall performance into specific components like this, you're in a much better position to focus on the most profitable aspects of your business and to improve or abandon activities that aren't profitable.

For example, in the course of running your business, do you record the date of your first contact for every sales lead and the date that the customer signs the deal? If you don't, you can't track your sales cycle, and therefore you can't tell if you're getting better or worse at it. But if you can cut the average time it takes to close a $10,000 deal from three weeks to two, you can make 50 percent more deals over the course of a year. Other data, such as the source of the lead, can help you identify your most effective sales channels and actually quantify their value.

Microsoft backs up the metrics with tools that make it real for partners. The online Partner Profitability Assessment, for example, lets you plug in data for your business and see how your numbers compare.

I'd recommend that every partner take the assessment (available on the partner Web site), not so much because you need to know where you stand in comparison with other partners, but because it will help you understand what kind of data you need to track in order to measure your profitability.

What's in this for Microsoft? Keep in mind another of the company's strengths: its ability to take the long view (all that cash helps). Most people stick with a good thing, and if Microsoft is the company that taught you how to become more profitable, that's certainly a good thing.

About the Author

Paul DeGroot is principle consultant with Pica Communications, which provides consulting services for customers with complex Microsoft licensing issues.

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