If you do small business technology consulting and you wonder whether it still pays to resell hardware, you’re in good company. It’s a tough call that depends on a number of factors.
And the debate over whether to be in the hardware reselling business isn’t a new issue. In fact, this controversy goes back literally decades.
I first addressed this issue publicly way back in 1998 in a cover story for Selling Windows NT Solutions magazine. And you’d think over the past 15 years, as managed services-based and cloud computing-centric business models have evolved, that there’d be a more definitive answer. If only!
In this article, you’ll learn why the hardware reselling debate rages for those in small business technology consulting and what may be the “best” option for your company.
Look at the “Pros” and Why Many Still Want to Be in the Hardware Business
Is there still a profit in reselling hardware?
If you think of “IT” years as kind of like “cat years”, with something like a 7:1 ratio, revisiting my thoughts on this from 1998 is kind of like turning back the clock a full century (and then some!). And while I didn’t really think that I was writing a manifesto of sorts, and the lack of social media at the time pretty much precluded it from “going viral,” this debate’s enduring relevance speaks volumes about why owners of technology consulting firms that cater to small businesses still grapple with the pros and cons of hardware reselling.
At the time, that article drove home two main conclusions:
Reselling hardware is good business, but yields slim profits.
If you don’t provide the hardware, you’re leaving out a major part of the solution. (And the corollary to that: You’re leaving your business incredibly vulnerable to competitors that are willing and able to provide more complete solutions.)
So, to Resell — or Not to Resell — Hardware. That’s the Question.
Just as they have for decades before, small business technology consulting firms continue to grapple with this strategic dilemma.
After all, the price competition becomes more brutal each year and most product margins are razor-thin.
So what motivates a consulting firm to continue reselling hardware products? What prevents these same technology providers from sending their best clients to one of the leading direct market resellers (DMRs), or to the local computer, electronics, or office supply superstores?
While the explicit financial rewards aren’t obvious, to say the least, many technology consulting firms still resell hardware to their small business clients as a core part of their business models.
Asset lifecycle management – To better position your technology consulting services, your firm needs to make product recommendations, manage the procurement, handle the installation and configuration, train the users, support the devices, and ultimately dispose of the devices years later at the appropriate time.
Preference for vendor consolidation and a single point of contact – Simply put, non-technical business owners lack the time, skills, and patience to referee the all-too-common finger-pointing between a half-dozen different technology vendors. If your firm can’t cater to this vendor consolidation pain point, someone else will. But if your firm only bothers to have lousy and ineffective old-school marketing that attracts price-sensitive buyers of commodity IT services, these same customers will demand rock-bottom prices on hardware – and you will “cave.” So it’s critical that you attract the right clients with smarter marketing -- which brings me to my next point.
Better marketing and positioning eliminate the need to compete on price – Think about why certain eateries sell a slice of pizza for $2 (or your local currency equivalent) and why other finer dining establishments command upwards of $15 for a similarly-sized single-portion gourmet “personal” pizza. Location, ambiance, marketing, and perceived value all factor into the equation. If you want your small business technology services firm to be your local market’s dominant supplier of $2 “pizza slices,” you’d better be prepared to invest in huge economies of scale – with dozens of system engineers and hundreds, if not thousands, of retainer-based or managed services clients. Otherwise, barring realistic multi-seven-figure or eight-figure revenue projections, it’s much easier to be the “gourmet” technology consulting provider with the IT services equivalent of a full parking lot, one plus hour wait for a table, and a jam-packed reservation list.
Standardization frees up resources for more ROI-focused projects – Non-technical small business owners, without professional IT overnight, tend to take a fragmented approach to acquiring systems, software, and services. It’s kind of like chasing the best “deal” at the time, without giving much thought to intermediate- to long-term reliability and support cost consequences. Savvy small business technology consultants know better and need to emphasize this need for long-term thinking to their prospective and existing clients. You can help clients with more game-changing, transformational, ROI-focused projects by standardizing up-front and eliminating basic foundational IT headaches.
Consider the “Cons” and Whether Hardware Reselling is an Effective Front End
Now, some small business technology consulting providers aggressively advertise prices on their hardware offerings…so their website home pages look more like Amazon than a professional services provider. Is this a good idea or not?
Like most things in the IT channel, the answer largely depends on your business model, target market, and unique selling proposition (USP).
A typical hardware sales inquiry may start with a phone call or website contact form from a business owner with which you have no pre-existing business relationship. You think this person may be shopping for the lowest price. The prospect found your company’s name on Google or a channel program’s dealer locator.
This prospect is looking for a price on some tablets and blade servers. Would you put out a “competitive” price quote? In other words, would you resell hardware to a prospective client who doesn’t seem to be interested in purchasing value-added services?
Again, I posed these questions 15 years ago. And you’d think that with this time passed, and the development of the managed services and cloud computing industries, the answer would be clearer. But it still isn’t.
If your firm is squarely focused on and positioned as small business technology consultants, and your marketing and client acquisition strategy reflects this, you shouldn’t need to waste time playing the “bidding game” with potential customers that are frankly too small to be “bid worthy.”
On the flip side, if your marketing is anywhere from lame to non-existent, and you don’t really have any effective channels beyond word of mouth, you may feel compelled to bid on money-losing hardware sales – on the outside chance that Mr. or Mrs. Cheapskate decides to throw you a bone and buy some occasional consulting services. I believe this is a ridiculous leap of faith and is purely delusional.
Way back in 1998, some technology providers still liked to field these inquiries because they were able to educate a significant amount of the terminally clueless and sociopathically cheap – and convert the nearsighted into valued clients.
But as time has passed, more technology providers would simply shrug these off with a “sorry, no thanks” when confronted with a cherry-picking hardware buyer, under the theory of, “once a cheapskate, always a cheapskate.”
Also, remember that most small technology consulting firms that don’t have a strong in-house controller or CFO rarely have a good enough handle on their cost structure to understand what it really costs to engage with the cherry-picking hardware reseller crowd.
At the end of the day, there’s an excellent chance that the hardware reselling that you perceived to be a modest profit center is, in fact, a significant cash-bleeding cost center -- by the time you fully factor in your many less obvious, but traceable, overhead expenses.
Recognize That Even the Big Computer Distributors are Hedging Their Bets
15 years ago, the major computer distributors were still huge cheerleaders for hardware reselling.
Years ago, many technology consultants selling to small businesses were savvy enough to distinguish between hardware reselling on the desktop side and the server side.
But history hasn’t been kind to the commodity server business either – the kind of servers most appealing to small businesses. Heck, even IBM unloaded its low-end server business.
So while distributors do still offer many of the same classic benefits to help hardware resellers – like hardware integration, logistics, and setup – is this kind of backroom integration still needed on the low-end servers? Or is this business model now thoroughly conceded to cloud-based and managed services-based offerings?
Solve for the Single Point of Contact with Small Business Technology Consulting
Despite huge changes in recent years, with the available platforms for delivering small business IT services, there’s one big constant: small businesses without in-house IT managers still need some form of outsourced support.
So the technology consulting firms that have, over the years, listened carefully to their small business clients’ needs, delivered ROI-centric results, and evolved with the changing available platforms, will continue to thrive for many years to come.
So solving for this single point of contact, including reselling hardware (profitably…with decent margins), is key to delivering a complete package.
And with effective marketing and positioning, hardware reselling can be tackled as a low-margin business, rather than a no-margin or negative-margin venture (i.e. money-losing) .
Think of it as the price of maintaining account control.
Arrive at the Best Decision for Your Business Model, Target Market, and USP
So, you must know what your firm excels at and what it’s only marginally good at.
Often, partnering with a non-competing technology provider can make more sense for those marginal competencies.
Not all small business technology consulting firms will come to this same conclusion because not all firms function in the same environments. Not all have the same team in place. Not all have the same capital available or technical skill sets.
Although consulting firms and distributors may agree that reselling hardware is necessary, that doesn’t make it profitable. But as part of delivering integrated solutions, reselling hardware provides small business clients with one-stop shopping and a way to maintain account control.
Being involved with reselling hardware also helps your team keep up with the latest products and platforms, and ensures that solutions are built to your specs.
It should come as no surprise that hardware reselling margins alone won’t pay the bills – at least not without enormous economies of scale. However, just as has existed in the past, selling high-end networking hardware and related software to the mid-market can provide greater margins.
If hardware is not your firm’s strength, consider outsourcing the function. But choose your outsourcing partners carefully.
Consider one of the major distributors if you can’t find a local partner with complementary skills and non-competing business interests. They pose no immediate threat to your client base and have very solid integration chops.
The Bottom Line
In the end, the pre-sales and post-installation services make reselling hardware worthwhile. More often than not, these clients need many higher-margin cloud and managed services bolted atop the hardware.
And don’t ignore up-front opportunities such as design, planning, engineering, and procurement. After the installation, additional opportunities will emerge for ongoing support and training.
How do you think that technology consulting firms in the small business segment should be approaching hardware reselling? Are there any universal rules that apply regardless of the unique circumstances? Please let us know your thoughts and experiences in the comments section below.
And if you're looking to grow your tech consulting business, especially with SaaS or IaaS, be sure to enroll now in our free 7-day eCourse: Go-to-Market Strategy 101 for B2B SaaS Startups and Scaleups.