Plugging the profit gap

As the credit crunch adds to the pressure on profit margins in the IT channel, two new innovations have been launched to help plug the blight of profit leakage.

Foundation Network has recently appointed Mike Morgan – a former channel boss at both Compaq and HP - as its new chief operating officer.

It aims to bring its partner realisation management software to more vendors in the UK, improving the service that resellers get from their vendors, by giving vendors better information about the business skills of its partners.

Meanwhile Zilliant is a new entrant to the UK market. Last week it toured the UK, looking to persuade IT resellers that it can give them a more fluid pricing mechanism for their products and services, creating better profit margins.

According to Eric Hills, Zilliant’s vice president of marketing, the IT channel suffers from having too rigid a pricing structure. He claimed the plethora of ad hoc arrangements – such as rebates, cash back deals, shipment terms – that complicate most IT channel deals, make it near impossible for vendors, and resellers, to accurately set prices.

“Half the time companies are making a loss on their deals. And half the time they’re profitable,” said Hills, “Now we can show them which half is which.”

The system works by harvesting all the information and knowledge on a sales process, from various sources such as CRM systems and sales systems, and using that centralised information to calculate the best price point.

“The bottom line is that with better information, companies can reclaim the margin they are losing at the moment,” he said. According to Hills, that figure may stand at between ten and twenty per cent of all available margin on a product line.

Distributor Ingram Micro and chip manufacturer Quimonda have installed the system, a move Hills claimed would impress analysts.

“If analysts see you have a pricing system in place, they are likely to mark up your stock, which helps your share price,” he explained.

Morgan at Foundation agreed that the IT vendors and the channel need to make more detailed analyses of their trade. “The lack of channel intelligence is damaging everyone’s profitability,” he said.