When Lenovo says it doesn’t want to compete with its channel partners in providing margin-rich services to customers, the company has not wavered.
In fact, Lenovo channel executives wear their Channel-First strategy as a badge of honor that solution providers say is a major differentiator in the vendor market landscape, one that boosts their profitability.
“I don’t recall at any point in time seeing Lenovo delivering a services engagement with one of our customers,” said Patrick Richer, vice president of sales, enterprise and education at ITI, a Quebec-based Lenovo Platinum partner. “Some other vendors have a big services play. In some cases, especially in large enterprise organizations, they’re going to go direct, which [does not happen with] Lenovo. At the end of the day, we want to bring value to the table. We want the customer to rely on us.”
Lenovo’s Worldwide Data Center Group Channel Chief, José Luis Fernandez, said Lenovo’s goal is to enable its channel partner community to reap the sales margins from selling their own services while at the same time increasing customer stickiness.
“We enable our partners to sell their services, not only their installation capabilities, but their professional services also as part of our solution—that’s key. That is extremely attractive for any channel partner,” said Fernandez, who is also president and general manager for Lenovo’s Data Center Group in Latin America and the Caribbean. “The fact that they don’t have to compete in any given deal and can boost their profits to the maximum level when winning a professional services project, that is extremely attractive for any channel partner.”
Fernandez said, unlike many of his competitors, Lenovo champions partners to include their own portfolio and managed services offerings into the overall solution.
“Selling the hardware is always nice, but selling the hardware and the services is much better, more profitable, more repeatable and generates more customer stickiness,” he said.
Last year, CRN parent The Channel Company’s IPED Consulting Group conducted a survey with more than 500 solution providers for its “2019 State Of Partner Profitability: Funding The Future” report. The report found a direct correlation between gross margins and a solution provider’s revenue mix of services sales versus product resale. The average gross margin for a solution provider is 22 percent if its total revenue is 78 percent product resale and 20 percent services. That gross margin climbs to 28 percent when services account for 34 percent of total revenue versus 59 percent product resale. For a solution provider whose services sales account for 68 percent of total revenue, gross margin skyrockets to 45 percent.
“The services are definitely more profitable. Lenovo is great about that,” said ITI’s Richer, whose company’s total Lenovo sales are up double digits in 2020.
With Lenovo pushing partners to attach their own services to deals, customers want to reach out to their solution provider when IT challenges arise. “I want the customer to call ITI to say, ‘Hey, I’m facing COVID. I need additional devices. I need some help with some things.’ We want to deliver a clear and secure experience to our end users,” said Richer. “It’s not just about the hardware, it’s about providing the expertise, providing design, providing infrastructure, software and services. For us, the goal is always as much as possible to leverage our pre-sales team. And working with a vendor like Lenovo that helps us push that forward with their program and own sales team is very beneficial.”
Fernandez believes many competitors that dub themselves as “channel-first” to the partner community fail to back up that motto in the sales trenches and go-to-market delivery.
“When we say ‘Channel-First,’ we back it up with 85 percent of our total Data Center Group revenue coming from partners,” said Fernandez. “Some companies talk about channel-first, but only half of their revenue goes through the channel.”
With channel partners now more than ever relying on services to drive profitability and grow their business, Lenovo understands the importance of not competing against the channel on various managed services opportunities, he said.
“All the partners are looking at, ‘How do I provide managed services to continue to be relevant and be able to have the profit that I’m looking for?’ By partnering with Lenovo in that managed services space in particular, it really sets us apart because we aren’t going to compete with them,” said Fernandez. “We are going to allow them to really leverage and capitalize on the margins that they can make in that space.”