SPECIAL REPORT
SMB CHANNEL
SERVICES TRANSFORMATION
PATRTNER PLATFORM
PAX8 PLATFORM
VENDORS
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State of Service Transformation Webinar
Service Transformation:
A Work in Progress
The SMB Channel Services Transformation study's common theme is that the smaller solution providers are the primary conduit of technology, managed, and cloud services to the SMB market segment.
As such, providers want to continue investing in services that can bring them predictable, recurring revenue. To do so, they’re mostly relying on services that extend from the sale of legacy hardware and software products. For providers to keep adding services and meet their growth goals, they need to consider investing more in strategic sales and marketing plans, as well as upping their reinvestments to cover the new service costs.
Ultimately, this study shows that solution providers have the right elements and foundations to achieve service success. Any gaps in current capabilities are obstacles rather than roadblocks and can be overcome via the support and resources of vendors and distributors.
Reinvestment
is Lacking
Despite the average provider making relatively healthy profits (16-20%), almost half are only reinvesting 10% or less into service development. If providers want to add new solutions to their portfolio — and cover the costs of doing so — their reinvestment strategies are a key area to evaluate.
Unpredictable Revenue and Account Retention Problems
Solution Provider Reinvestment Growth Plans
Business Instruments
Used by Solution Providers
Challenges Facing Solution Providers
Providers are bullish on the growth of services, especially ones that support traditional products. They see strong growth potential across most common technology categories with more than 80% seeing growth opportunities in cloud infrastructure, security services, and cloud-based backup and recovery. In fact, 72% of providers plan to increase their service offerings in the next 12 months.
Products and Services Offered by Solution Providers
say they’re vexed by business churn.
say they’re challenged by account retention
Solution providers are indifferent about their account retention issues.
Account acquisition and account retention are essential to making a successful recurring revenue model work smoothly. The ratio of acquisitions to losses shows that while a vast majority of providers add one to 10 new accounts every month, around a third of them report losing the same amount. That can mean trouble for the average provider, which has fewer than 50 accounts. To reduce this risk, most providers look to grow their services portfolios, increase marketing, or standardize their tech stack.
of providers are adopting more services that provide recurring revenue in order to put less pressure on generating
net-new sales.
of solution provider revenue comes from professional, managed, or cloud services.
For the past two decades, solution providers have evolved their business models to adopt more services as a way of staving off the declining profitability of commoditized hardware and software products. While traditional hardware and software offerings remain foundational for solution providers, they’re increasingly looked at as a means to sell the services attached to them, such as backup and cloud services
for hardware devices.
An explanation for this trend could reside in a lack of planning from providers, with most stating their organization does not utilize a sales plan or goals for sales and marketing. Only 60% claimed to have a general business plan. While this may not have a substantial impact on revenue or profitability, it does increase operational pressures and make accurate growth forecasting more difficult.
What are the biggest hurdles solution providers face? According to the survey, the most significant obstacles lie in attracting clients and generating revenue. Specifically, sales and marketing lead the charge as the most listed challenges. This is not surprising, as previous research has identified these areas as long-standing issues for providers.
More than 400 qualified solution providers participated in this study, capturing results that reflect the current state of solution providers in the Pax8 network with a 95% confidence level.
These providers primarily serve the small-to-medium business (SMB) market of clients with 250 employees or less and are typically SMBs themselves. The majority of providers surveyed (56%) have also been in business for 11 years or longer.
Challenges Hindering Growth
ABOUT THE
PARTICIPANTS
In the modern channel, solution providers are defined by the services they choose to offer. To better understand what goes into those key decisions, we teamed up with renowned research firm Channelnomics to study how our partners approach their portfolios. This collaborative report offers valuable insight into what service providers are adopting, what their challenges are, and how they can plan for the future.
Annual Revenue
GROWTH
IN SERVICES
OVER PRODUCTS
75%
What percentage of solution provider revenue do you think comes from professional, managed, or cloud services?
25%
50%
75%
100%
9%
7%
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Watch Pax8 Channel Chief Ryan Walsh and Channelnomics CEO Larry Walsh break down the key findings from the SMB Channel Services Transformation report and answer partner questions in this on-demand webinar.
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60%
34%
14%
33%
6%
4%
8%
$499,999
or less
$500,000-
$999,999
$1M - $4.99M
$5M - $9.99M
$10M
or higher
Don't
know
11%
Less than 2 years
Business Age
13%
20%
31%
25%
2 to 4 years
5 to 10 years
11 to 20 years
More than 20 years
Number of Full-Time Employees
69%
21%
6%
4%
1 to 10
11 to 25
25 to 50
50+
57%
Midmarket
(251 to 1,000 FTEs)
5%
SMB
(25 to 250 FTEs)
38%
Small business (<25 FTEs)
Size of Average Client
20%
40%
60%
80%
What percent of providers are adopting more services that provide recurring revenue in order to put less pressure
on generating net-new sales?
20%
40%
60%
80%
What percent of providers are adopting more services that provide recurring revenue in order to put less pressure
on generating net-new sales?
54%
Endpoints and client devices
9%
15%
Unified communications and collaboration
47%
Cloud infrastructure/services
Networking
38%
35%
Network security
22%
Cloud security
21%
Off-premise data storage
5%
Application development
4%
Printing and imaging
3%
Mobility
1%
Big Data/business analytics
Business continuity and disaster recovery
89%
Cloud infrastructure/
services
87%
Security
85%
BCDR
77%
Mobility
76%
UCC
73%
Endpoints and client devices
72%
App development
Data storage
70%
69%
Big Data/business analytics
66%
Networking
65%
IoT
64%
Printing and imaging
61%
Servers/data center
55%
62%
54%
52%
59%
65%
47%
53%
45%
74%
58%
58%
68%
Servers/data center
Product Sales
Servers/data center
Product Sales
60%
General business plan
52%
General marketing plan
45%
Overall sales goals
33%
Sales plan
18%
None of these
14%
Cloud-specific marketing plan
12%
Cloud-specific sales goals
Funding for new investments
Business churn
Customers’ ability to pay
Customer retention
Increased competition
Tech skills gap
Generating & managing
cash flow
current
w/ latest technologies
15%
Price/
margin
erosion
18%
Recruiting/
retaining talent
19%
Security threats
20%
Economic uncertainty
28%
Lack of time/
resources
28%
Marketing
33%
Sales
43%
12%
11%
10%
9%
9%
7%
7%
11-25
26-50
50-75
76-100
23%
21%
12%
10%
19%
1-10
15%
Number of Active Services Clients of Solution Providers
Service Account Acquisition-Loss Ratio (per month basis)
5%
67%
88%
31%
5%
1%
3%
1%
Zero
1-10
11-25
>25
Acquisition
Loss
Investment Plans for Increasing
and Retaining Services Clients
56%
Increase services offerings
51%
Increase marketing
50%
Standardize tech stack
49%
Improve ease of doing business for clients
46%
Increase product offerings
44%
Increase sales outreach
39%
Provide educational opportunities for clients
Add consultations
29%
20%
Host targeted events
18%
Add vertical specializations
14%
Add customer success specialists
6%
Reduce prices
5%
Invest in omnichannel capabilities
49%
32%
9%
Percentage of Solution Providers
Percentage of Profits Reinvested in Growth
10% or less
11-25%
> 25%
Technologies With
Highest Growth Potential
25%
50%
75%
100%
What percentage of solution provider revenue do you think comes from professional, managed, or cloud services?
of solution provider revenue comes from professional, managed, or cloud services.
75%
20%
40%
60%
80%
What percent of providers are adopting more services that provide recurring revenue in order to put less pressure
on generating net-new sales?
of providers are adopting more services that provide recurring revenue in order to put less pressure on generating net-new sales.
60%
60%
General business plan
52%
General marketing plan
45%
Overall sales goals
33%
Sales plan
18%
None of these
14%
Cloud-specific marketing plan
12%
Cloud-specific sales goals
Business Instruments
Used by Solution Providers
Funding for new investments
7%
Business churn
7%
Customers’ ability to pay
9%
Customer retention
9%
Increased competition
10%
Tech skills gap
11%
Generating & managing
cash flow
12%
current
w/ latest technologies
15%
Price/
margin
erosion
18%
Recruiting/
retaining talent
19%
Security threats
20%
Economic uncertainty
28%
Lack of time/
resources
28%
Marketing
33%
Sales
43%
An explanation for this trend could reside in a lack of planning from providers, with most stating their organization does not utilize a sales plan or goals for sales and marketing. Only 60% claimed to have a general business plan. While this may not have a substantial impact on revenue or profitability, it does increase operational pressures and make accurate growth forecasting more difficult.
Challenges Facing Solution Providers
say they’re vexed by business churn.
7%
say they’re challenged by account retention
9%
Solution providers are indifferent about their account retention issues.
60%
General business plan
52%
General marketing plan
45%
Overall sales goals
33%
Sales plan
18%
None of these
14%
Cloud-specific marketing plan
12%
Cloud-specific sales goals
Business Instruments
Used by Solution Providers
Price/
margin
erosion
18%
Recruiting/
retaining talent
19%
Security threats
20%
Economic uncertainty
28%
Lack of time/
resources
28%
Marketing
33%
Sales
43%
An explanation for this trend could reside in a lack of planning from providers, with most stating their organization does not utilize a sales plan or goals for sales and marketing. Only 60% claimed to have a general business plan. While this may not have a substantial impact on revenue or profitability, it does increase operational pressures and make accurate growth forecasting more difficult.
Top Challenges Facing Solution Providers
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ABOUT PAX8
Pax8 simplifies the way organizations buy, sell, and manage cloud solutions, empowering our partners to achieve more with cloud technology.
Become a Partner | Contact Us | Terms | Privacy Policy | Data Privacy Request
©2021 Pax8, Inc.
5500 S Quebec St Suite 350
Greenwood Village, CO 80111
1-855-884-PAX8
ABOUT PAX8
Pax8 simplifies the way organizations buy, sell, and manage cloud solutions, empowering our partners to achieve more with cloud technology.
Become a Partner | Contact Us | Terms | Privacy Policy | Data Privacy Request
©2021 Pax8, Inc.
5500 S Quebec St Suite 350
Greenwood Village, CO 80111
1-855-884-PAX8
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