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Tuesday, May 16, 2006

Solution Providers: Profit and Client Loyalty

According to Michael Vizard, technology editor for Ziff Davis Enterprises, the key to client loyalty for vendors is being able to increase partners’ profitability. Any successful solution provider will experience that profitability will bring client loyalty; the more a vendor helps drop profits to the bottom line of the solution provider, the more that solution provider will recommend a vendor’s products to its own customers.

This is particularly true today when there is very little difference between products. Where many vendors experience difficulties is when they assume that solution provider profitability is married to product margins instead of all the activities surrounding the product. Most solution providers actually make their money by providing services around the product, and similarly their biggest costs come out of building out those specific services. Therefore, the solution provider channel will live a longer time if vendors help provide service opportunities and investments that will help lower the costs of the services surrounding the product.

In reality, this means that solution providers will be much more loyal to vendors that don’t compete with them for service revenue, and are particularly dedicated to companies that use a direct sales force to bring more services revenue to the solution provider. This requires a very close relationship between the solution provider and the vendor. Part of this relationship should also be contributing to the reduction of important certification costs and product training. Many times vendors, as part of increasing profitability, can also provide important experts that can act as consultants to the end customer to improve services and keep clients coming back for more.

The best strategy for any vendor is to stop thinking of itself as just someone trying to manage an extended sales force. Vendors need to put themselves in the shoes of solution providers trying to run a business that will make money and best serve clients.

Added By: Joshua Feinberg