Multiple signs point to a technology industry that’s alive and well. Global IT spending is projected to increase 1.4 percent this year, suggesting the sector will continue its trend of outperforming overall economic growth.
Despite optimistic forecasts, IT organizations aren’t immune to turbulence. The rapid commoditization of hardware and software, paired with evolving enterprise technology adoption habits, is taking a toll on profitability. As TSIA analysis shows, 29 major IT organizations lost a combined $3 billion in product revenues during the first three quarters of 2016.
Technology manufacturers faced with shrinking product sales are leaning on their maintenance and support practices to offset the loss. But many are quickly finding that sustaining maintenance revenue with internal resources alone is easier said than done.
The Complicated State of IT Revenue Generation
Multiple factors have contributed to the diminishing state of tech product revenues.
For starters, the profile of the traditional IT buyer is changing. More procurement decisions are being made by line of business managers – not just the IT department. This decentralization of power means each team has a smaller technology budget to pull from, impeding managers’ ability to get approval on big-ticket deployments. At the same time, the industry’s move toward as-a-service subscription models lets customers only buy what they need or pay for usage, rather than lay out large amounts of capital.
In this new world of product sales, it makes perfect sense why IT vendors want to double down on maintenance contracts. Attracting revenue from current customers can be three to four times less costly than closing new prospects. The roadblock many IT organizations are stumbling into, however, is a lack of resources to efficiently secure support deals and renewals.
Account representatives are already tasked with both landing new customers and securing support contract renewals. Inevitably, the majority of teams’ time is often devoted to servicing marquee clients, leaving as much as 60-80 percent uncaptured maintenance revenue on the table. Rather than sacrifice those profits or admonish employees for failing to (essentially) do two jobs at once, IT organizations have another, much more cost-effective alternative: outsourcing.
Landing on the Right Outsourcing Partner
There are multiple business cases to justify outsourcing your maintenance practice, but few are as pressing as the need to accelerate revenue generation. Bringing in an experienced third party provider to oversee your maintenance practice eliminates the cost and time of hiring and training new renewals employees, so you can start closing contracts from day one. Rather than replace existing account reps, outsourcing providers free up in-house teams to focus on sales and major accounts.
Realizing these benefits, especially given the complexity of IT sales, hinges on finding the right partner. Here are four questions business leaders can use to identify the best provider.
- Do they understand our business? IT organizations are rife with complexity. From the various tiers of channel partnerships to the endless details that accompany each customer contract (e.g., licenses, warranties, prerequisite services, payment terms, etc.), IT maintenance is a nuanced operation that demands industry expertise. When vetting providers, do ample due diligence to gauge whether or not a firm generalizes across industries or specializes in IT.
- Do they understand our data (and what to do with it)? Just as important as a partner who’s familiar with your industry is one who knows how to handle maintenance contract data. Any potential provider should have the capabilities to help bring structure to your data, centralizing customer contract details regardless of format or source. A focus on data security, smooth data integration, and ability to parse data for different channel partners are all signs of a viable outsourcing partner.
- Do they know our industry KPIs? Successfully outsourcing your maintenance practice depends on having a provider that knows how you define success. Without an understanding of how average renewal rates vary for different products or services, an outsourcing provider can’t add value to your bottom line. For instance, one product suite might yield an 85 percent renewal ratio while others hover closer to 50 percent. Look for a partner that’s familiar with these benchmarks and can provide strategic direction to help your business meet or surpass them.
- Can they think creatively? Expertise with your industry and business requirements are table stakes for selecting an outsourcing provider – but what extra advantage do they bring? The right provider should be a true business partner, one that recommends strategies for maximizing your maintenance revenue rather than waiting for direction. Try to get a sense of how “hands on” potential providers will be, and how much effort they’ll devote to learning about your processes, challenges and goals.
The state of IT sales is changing rapidly. IT organizations that call in reinforcements, rather than weather the storm alone, will be best prepared to adapt.