With new services, channel partners can take a more strategic role and help increase the overall business each customer represents.
That's the question vendors should be asking as they consider their channel and go-to-market strategies in the enterprise. According to CompTIA research, more than 80 percent of managed service providers have a formal process in place for estimating Customer Lifetime Value (CLV). Those companies are always looking beyond the current contract; they're looking for growth opportunities that deliver more over a lifetime than hardware margins.
A successful channel strategy will give you a way to grow by regularly adding to the amount of business you do with each customer. Don't stop at device and network monitoring. Gradually step into higher margin services – like cloud back-up or data analytics – to incrementally increase the amount that customers spend.
The shift in thinking is from product to services selling is strategic; it forces a conversation with customers that lets them know that they mean more to you than just a place to sell the next new box that comes along.
The telecom master agents know this well. Those businesses were selling basic connectivity, which is ideal for recurring revenues, but the margins were in a steady decline. They had to adapt and bring the channel along with them.
Intelisys, for example, bought a cloud services company five years ago, knowing that it needed to change its business to embrace the cloud, as well as provide education to other channel partners.
"This is when we really started adding more value to our partners and helping them make the pivot to different kinds of services, away from the more traditional connectivity providers," Jay Bradley, president of Intelisys, told CRN.
Cisco appears to be helping channel partners build CLV with its new "intuitive network" architecture, announced this month. Along with updated hardware and software, Cisco is adding in subscriptions to network services, to help enterprises protect against malware and automate key business processes.
Chuck Robbins, Cisco's CEO, told CRN that partners could benefit from this shift in network architecture because it opens the door for partners to help companies tie business outcomes to their technology hardware and services spending. "The opportunities are huge and I do believe that this represents not only a new era of networking and [Cisco] ushering in a new wave of innovation, but I think it represents a new era of opportunities for our partners in the future as well," said Robbins told CRN.
In Cisco's case, we'll soon find out if the rubber meets the road. Does a vendor's new network architecture help the channel sell services? Are partners incentivized to bring in services revenue in a way that encourages a longer CLV than the sale of a shiny new switch?
These are important questions for the channel. CRN's research has shown for years that moving from product sales to recurring revenue sales means vendors need a new approach with how they work with the channel, how they educate the channel and what kinds of salespeople they hire.
For vendors, a new software- and subscription-based business model needs to usher in a new pricing model that truly supports "as-a-service" delivery. If it doesn't, product sales will conflict with solution providers that are selling the same technology as part of a managed service.
But if vendors do adapt and partner effectively with the channel, they'll thrive. Channel partners that work to increase their clients' CLV are more than technology suppliers; they're helping businesses solve strategic problems and making customers for life.