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New Year, New Challenges. Who will be the Winners in 2018?

As we start a new year, it is a good time to take stock and think what we might do differently, to strengthen our businesses and generate better results over the coming 12 months. There is no shortage of challenges facing us.

 

  • Print Volumes are declining
  • Competition is getting tougher
  • Revenues and margins are being squeezed

“I need to find new revenue streams and ways to improve margins”

 

This is a familiar refrain at gatherings of print channel partners. But how to do it?

Changing a well-established business model is difficult, and involves risk. It is easy to say “we must become more solutions oriented”, “we must find new products and services for our customers”, but you might think, if it was that easy to do these things, everyone would be doing them already.

 

Well, it may not be easy, but some channel partners are doing these things, and doing better than the rest as a result.

We have looked in some detail at the performance of channel partners in the UK over the last five years. Around 70, mostly medium-sized and larger dealers, out of a total of around 450, report full financial results, which allow us to analyse their performance (smaller companies generally report publicly only abbreviated accounts).

 

Among this group of 70, average profitability (Operating Profit to Sales ratio) is around 7%. However, we can identify a superior performing group of around 15 dealers, who achieved over 20% on this measure last year.

At this point, you might be thinking, “ah yes, we can all achieve good results for one or two years, but I bet if you looked at those dealers over a longer period, they wouldn’t be so different from the rest”.

 

In fact that is not the case – these dealers appear to achieve consistently better performance than the others, not only in profitability, but also in terms of growth. Of the superior performance group, we have been able to obtain full financials for ten over the last five years – the remaining five only reported full financials in one or two years, so we have not been able to look at their trends. The ten who did report full financials show an average profitability of over 30% over the last five years, and in the same period they achieved compound annual growth in revenue of over 13%. Not bad – I think we’d all be happy with that level of performance.

 

So how do they do it? Of course there is no simple magic answer, but looking at these dealers in more detail, we can find some clues. Of the ten, seven were clearly solutions oriented, offering a range of ‘advanced’ services, from Managed Print through Document Management and up to full IT Services is some cases.  The remaining three were more traditional, hardware oriented dealers. So 70% of the superior performing group were ‘solutions-oriented’, whereas for the whole UK dealer community, the figure is less than 40%.

 

What is interesting is that the seven solutions oriented dealers achieved consistently stronger profitability (average 38% over the last five years) and good revenue growth (13%). The three ‘box-movers’ showed good, but less consistent profitability, with a five year average of 20%, and big variations, performing strongly in one or two years, and less well in the others. They did however, achieve strong revenue growth, CAGR 15% – perhaps chasing short term growth at the expense of longer term margins?

 

What can we learn from this? First we must recognize that this is a high-level financial analysis of a fairly small group of dealers, and of course there may be particular reasons why individual companies have performed strongly, which we have not been able to identify. Nevertheless, these companies do appear to deliver consistently well above average performance, and there does appear to be a correlation with a more advanced, solutions oriented business model.

How can you move up the value chain and join the superior performance group? As I said at the beginning of this article, I am not pretending this is easy – it requires sustained effort and investment, and it does carry risks. However, we think there are ways to do this which give you a better chance and reduce the up-front investment and risk.

 

We are launching a new initiative in 2018, in which we use the experience and contacts gained working in the print industry all around the world to find top ranked companies who can partner with you, to give you access to new services. We work with leading international organisations which have a successful track record, helping the print channel in other countries to build new revenue streams and improve operating efficiencies. These are large reputable companies, leaders in their fields, selected not only for their industry leading products and services, but also for their ability to provide practical hands-on support, to help you introduce their services to grow revenue and margins.

 

If this sounds interesting, please contact us, and we’d be happy to talk to you about it.

But whatever you do, we hope this has stimulated some thoughts, and we wish you every success with your business in 2018.

One Comment

  1. […] You probably have read our articles on how it is now urgent for channel partners to find new revenue streams in 2018. In case you missed the series, you can find them at the following address. […]

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This article was written on 06 Feb 2018, and is filled under Business Forecast, Point of View.

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