For system builders, low margins are like the dinner guests from hell: No one invited them in the first place and now they just won't leave.
Indeed, drawing on their massive economies of scale and super-efficient supply chains, big-time OEMs like Acer, Dell, Hewlett-Packard, and Lenovo continue to drive profit margins on new PCs ever lower--and there's no relief in sight. It's a stark reality that has spurred some system builders to exit custom hardware-making altogether.
Ace Computers, however, chose to get creative instead. Like so many of its system-building peers, the Arlington Heights, Ill.-based company has seen earnings on desktops and notebooks grow agonizingly slim. So over the past two years, Ace has gradually shifted its focus to more lucrative niche products, like high-end workstations for engineers, architects, and video production firms. "There's not a huge market out there for quad-core Xeon workstations, but we sell a ton of them," says John Samborski, Ace's vice president. Better yet, the company earns double-digit margins in the process.
Ace's shift into specialty systems is but one example of how system builders are employing the most powerful weapon in the channel pro's arsenal--ingenuity--to boost their bottom lines. Here are some other inventive strategies, large and small, that system builders can use to boost profits:
Join the managed services stampede. Selling specialty computers as Ace does is all well and good, but how do you earn money between hardware refresh cycles? The answer more and more system builders are turning to is managed services. "That's definitely where [system builders] are going to make a profit today," says Tina Fisher, senior director of purchasing for distribution giant D&H Distributing Co. of Harrisburg, Pa. Keeping the hardware you sell up and running for a monthly fee can help you turn a one-time sale into an ongoing source of revenue. Similarly, off-site managed storage services make an excellent complement to sales of storage hardware.
Add on and upsell. Sure, margins on desktops and laptops are razor thin, but they're often substantially better on accompanying products such as printers and productivity software. Yet too many SMBs end up purchasing such peripherals at their local Best Buy--and too many system builders let them. Recapturing some of the money your customers spend with retailers by attaching add-ons and accessories to your hardware sales is an essential margin-raising technique.
So, too, is selling upgrades, such as a bigger or second display, says Joe Toste, vice president of sales and marketing at Equus Computer Systems Inc. of Minneapolis. Even better, he adds, why not offer your clients three-year warranties on their new hardware? Most customers are willing to pay for such protection, and it's likely to be pure profit. "If you're selling great hardware, the probability of that hardware failing is very low," Toste observes.