Here’s an interesting article which doesn’t go too far into the analysis of WHAT is being said. On the surface, it may seem that during Sage Summit UK Sage MD Laing is urging partners to adopt cloud technology.
I think Sage’s message is less about adopting technology and more about adopting a new way that consultants earn revenues.
The challenge they face is time to revenue. So if they had $100,000 or $50,000, or whatever, and then suddenly it goes to a much smaller percentage, they’ve got a challenge to pay their people. So it’s a volume game.
If you are a vanilla reseller out there, doing nothing else but passing through a technology from a vendor, I don’t think you’ve got a very long business plan ahead of you. That’s the reality. You need added value services, you need to be adding something, you need to be integrating something from one of the ISVs or from another partner. The relationship of customer – partner – vendor has gone. The relationships have become very complex, there are multiple partners in the sales cycle, and they’re trying to provide a single solution and that’s the way of the world.
However, I don’t think that’s the core of Sage’s message.
Let me translate.
SAGE: The challenge they face is time to revenue. So if they had $100,000 or $50,000, or whatever, and then suddenly it goes to a much smaller percentage, they’ve got a challenge to pay their people. So it’s a volume game.
ME: Consultants who were used to making up to 50% on a $ 50,000 – $100,000 license sales should get used to the new reality that the same subscription sales might be $25,000 with a margin that could be significantly lower.
SAGE: If you are a vanilla reseller out there, doing nothing else but passing through a technology from a vendor, I don’t think you’ve got a very long business plan ahead of you.
ME: Get ready for the world where the software provider makes the margin on licenses/renewals and the consultant earns money on consulting. The days of high margin on high initial software license purchases are closing.
SAGE: You need added value services, you need to be adding something, you need to be integrating something from one of the ISVs or from another partner.
ME: Consultants need to earn their money on their “special sauce” whether it’s industry expertise or technical experience with integrating multiple complex solutions. The days of high margin software sales and high margin hourly break-fix work is closing.
SAGE: The relationships have become very complex, there are multiple partners in the sales cycle, and they’re trying to provide a single solution and that’s the way of the world.
ME: Customers are sophisticated enough to learn about the various options available for their needs. Consultants need to be flexible, embrace the reality that they increasingly no longer act as the primary gatekeeper to a customer’s system. Learn to interact with third-parties and get good at adding value or customers will work around your services
Sage is putting out the message that in coming days, months, years license/subscription/maintenance margin on deals is going to shrink. As a result, I believe the message is partners must find a way to add their own services/value to the mix. Partners should rely on their own revenues even more and rely less on margin from any license/maintenance sales.
Certainly, almost every consulting firm is adopting cloud technology. Especially firms with 10 or more consultants. The “between the lines” message is to prepare your firm for the new reality when margin on selling solution licenses will reduce to a nominal percent and the bulk of consulting profits will be made by specializing and offering added services.
Consultants need to grow into the reality that publishers make money on the subscription and consultants make money on the consulting. Period.
On this week’s podcast, Peter Wolf and I speak about several opportunities that consultants have to provide additional services to customers, including:
○ After-hours data maintenance rebuilds
○ Industry specific knowledge
○ After-hours upgrades
○ Automatic patch application (after hours)
○ Creating a “safety” backup
○ Unattended connections
○ Second opinion surveys done through colleague surveys on solutions your customer may be thinking of subscribing to.
The speeded of response – this may be the most desired of all things we can offer a customer yet are we staggering responses so that only those on the highest level of support are receiving the fastest response?
○ Minimum fee for consulting projects, upgrades
○ Automatic annual upgrade built into your support plan
○ Fire the “oh this customer is so small I don’t charge them my full rate”
Match publisher price increases – why are we holding our prices when the publishers regularly raise theirs?
Most consulting firms have already started toward this goal of reducing the expecation that each new implementation will arrive along with a fat margin from their software publisher. As consultants we need to work even harder to prepare for the new reality of making the bulk of our fees from consulting and services that WE contraol as opposed to relying on publisher commissions.