Cutting costs alone will not winners make

Ian Kilpatrick explains why those who focus solely on spend reduction when times are tough may be misguided

Kilpatrick: When the going gets tough, you may still trade your way out

The natural reaction to a recession is to cut back on costs, trim staff numbers and reduce expenditure in areas that some may see as expendable, such as marketing.

However, that is what most of your competitors are doing. Conversely, a recession is an opportunity for you to grow margins and business by trading your way out of it.

There are still good business opportunities out there, and good profits to be made.

If marketing worked for you before the recession, it can help get you through these difficult times.

Look again at where your business effort is focused. Concentrate on business that lets you maintain your margins, such as value-add sales, where you can provide knowledge and services as well as maximise the benefits of your human resources.

This is also a great opportunity to make use of distributor and vendor help with sales, marketing and technical support. In the last recession, we saw resellers chasing business, focusing on turnover and letting margins slip.

It is tempting to chase deals, particularly when the customer is driving down pricing. But the old adage that turnover is vanity, profit is sanity and cash is reality holds particularly apt now.

Turnover at the cost of margins leads only to the door of the banks and that is not a good place to be.

Walking away from unprofitable business is a tough thing to do and can be a lonely furrow to plough, but during the last recession it proved effective for our resellers.

It certainly worked for Wick Hill then, and we have put our money where our mouth is now, increasing our marketing efforts and working with partners to grow business.
In security, there are still considerable opportunities and the National Gateway Security Survey 2008 showed that factors other than price are actually very important to buyers when they come to make a decision.

The survey asked end users about the importance of various factors in IT purchases. Price only came third, with 73 per cent of respondents saying it was the highest priority.

Performance was the top priority for 90 per cent of respondents.

Reseller and supplier knowledge was the top priority for 74 per cent of respondents. The supplier relationship was also rated highly, coming in at 66 per cent. Whether or not something could be bought online came bottom of the list, with only 15 per cent of respondents rating it as top priority.

It is important to know when to walk away from a sale, especially if customers cannot or will not recognise the value you bring.

Expensive pre-sales consultancy is wasted if you spec the deal for free.

Customers may actually pay more in a recession because they want to be sure they get something that works. If an investment does not pay off, their job is even more likely to be on the line.

Make sure you know the most profitable areas now and for the near future.

Security is prospering despite the recession. VoIP is a growth area for skilled networking resellers, as are hosted security services and WAN optimisation.

Some distributors and vendors will help you decide which markets are still buoyant and can bring you maximum profit. They can direct you to new markets where you can establish yourself early on as an expert.

The more support you have, the easier it is to make and retain margins. Look for vendors and distributors who can support you with leads, lead-tracking systems, sales and technical training as well as pre-sales technical support and sales support on deals.

Look for vendors and distributors that are still supporting and investing in marketing, develop a close relationship with them and give them feedback.

High close rates are a great way to promote even more marketing support and grow sales and margins.

Cashflow is also a potentially serious problem at the moment for any resell er. Some distributors are sensitive to this and coming up with creative financial packages to help resellers keep trading.

Ian Kilpatrick is chairman of Wick Hill