How much is too much? The growing value of professional services

Posted by 2112Group Reports on Apr 23, 2014 1:00:00 PM

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Professional services are undeniably important to the channel. To solution providers, these high-touch, high-value services offer the highest margins and best profits, and can offset the costs and narrow margins of traditional product sales.computer_wrench

Professional services is the central way partners define value to their customers – and therein lies the rub.

In a recent research project by The 2112 Group and technology distributor Ingram Micro, we found that solution providers may be leaning on the formidable merits of the professional services model to a fault.

Our Driving Growth Through Partnership in Professional Services report finds many partners are so intent on the delivery of professional services to reinforce the value customers perceive that they overlook opportunities to expand their engagements, reduce costs and increase revenue.

With hardware margins hovering below 10 percent and software margins below 20 percent and falling, it’s easy to see why solution providers put so much stock in increasing perceived value with professional and managed services.

2112logo_newBut even those solution providers most convinced that professional services are vital to their success and sustainability admit they struggle to maintain services capabilities and capacities. Skilled staff can be difficult to find and retain, training and certification costs are high, and staffing investments are often rewarded with defections to higher-paying jobs.

While solution providers’ professional services are virtually saturated – 55 percent report utilization rates of 70 percent or higher – few reach out to third-parties to augment capacity because they don’t trust a third-party provider to deliver equivalent quality and because they don’t want to expose their customers to someone else’s services and the possibility of partner-poaching.

This reluctance is limiting solution providers’ ability to capture professional services customers and is hamstringing their ability to enter vertical markets. Most polled by The 2112 Group say they see more demand for services they can’t offer with organic resources. Their inability to hire staff or develop resources means they’re missing out on sales and revenue opportunities.

Our Driving Growth Through Partnership in Professional Services study concludes partners must overcome their fear of working with third-parties on professional services and develop practices that meet customer needs and define value through a marshalling of resources. Relying solely on what can deliver on their own is limiting and unsustainable.

"2112Group Reports" is a series of blogs produced by The 2112 Group and published exclusively to the Intronis Cloud Backup and Recovery blog, offering insights on business and technology trends in the channel. Visit The 2112 Group on the web at www.the2112group.com and www.channelnomics.com. Follow them on Twitter @the2112group and @channelnomics.

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Topics: Professional Services

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