Profit Margins when Offering IT Support to SME

[macfanuk]

We have been asked to provide a local SME with an IT Support Agreement and we have already agreed on a monthly fee for the actual support but what I'm struggling with is whether or not to add a 'profit' on top of hardware/software prices and if so, how much is a reasonable percentage to add?

We have accounts with the large Computer Distributors but we always find that the likes of Overclockers and Scan beat these prices hands down, however, we have to consider that we often have to deliver and install the new hardware and we are the point of contact if things go wrong (however, being the point of contact is covered in the IT Support Agreement).

Any advice would be much appreciated.

 

[Simon.P]

Hi Macfan,

I assume you are supporting Wintel devices when you are talking about supplying hardware from Scan and the alike

Um, interesting question. I guess it depends on your clients (is this your first one?) - Would purchasing directly be of benefit to them in any way?

Don't forget, its great to make a profit on items supplied but you need the cash flow / credit with supply in the first place.

 

[macfanuk]

Hi Macfan,

I assume you are supporting Wintel devices when you are talking about supplying hardware from Scan and the alike

Um, interesting question. I guess it depends on your clients (is this your first one?) - Would purchasing directly be of benefit to them in any way?

Don't forget, its great to make a profit on items supplied but you need the cash flow / credit with supply in the first place.

Thanks for your reply. We are a fairly established Web Hosting company and this is something that crops up more and more so we've decided to add IT services as another bow to our company. Cash flow isn't a huge issue because we do have some credit accounts with the large distributors and smaller things we'd get from the likes of Scan aren't all that expensive anyway.

I don't think purchasing direct would be a benefit because we'd still be called on to provide the 'aftersales' if you like and we would still have to setup/configure anything they buy.

 

[TotallySport]

as long as the hardware price is still competitive then I don't see a problem, if the hardware is still a little cheaper than they could buy it for then they will be happen, the more % it is than they can buy it for the more % they will be unhappy.

 

[Simon.P]

Cash flow isn't a huge issue because we do have some credit accounts with the large distributors and smaller things we'd get from the likes of Scan aren't all that expensive anyway.

If thats the case, sounds like a good way to earn some extra profit!

I don't think purchasing direct would be a benefit because we'd still be called on to provide the 'aftersales' if you like and we would still have to setup/configure anything they buy.

and you have the option to point clients at the correct spec of things rather than something the same price and not the same as what they actually need.

All the best with it.
H

 

[macfanuk]

exaclty. One of the things we pride ourselves on is getting clients better hardware for the same price they would pay elsewhere. As an example, where one particular client was going to pay almost £300 for a netbook (due to not wanting to pay for a full sized laptop), we sourced them an i3 based Dell Business Laptop.

 

[KM-Tiger]

I offer clients a choice to source their own hardware and pay a fee for install/configure, or an all in price.

Some take the first option, some the second, but I think they appreciate having the choice.

But if you do supply hardware, there should be a markup.

 

[leemason]

Depending upon your relationship with the customer then you could come to a cost plus arrangement with them (so you add a % known to them onto your purchase price). This works very well if you have a reasonably open and honest relationship with the customer.

 

[DarrenMcCabe]

When we first set up in business we passed on hardware at cost plus an install charge.

However when you factor in the time you spend researching an item, dealing with suppliers to find best pricing and the potential for returns and restocking fee's then if you dont charge any markup you're going to be losing money in the long run.

We dont hide the fact that we charge a markup as we stop the client from purchasing some dog end machine or paying over the odd for an under powered device with a shiny badge.

If the client finds the item cheaper elsewhere, we have no issue with them ordering it and us setting it up.

 

[Quest Cloud Solutions Ltd]

Agreed with what's been said so far; if you're supplying hardware then you should be marking it up. After all, you've had to sort the suppliers, arrange credit (if you have it), and will ultimately be the clients' point of contact if it goes wrong.

Depends on your buying power and the value of the item, but 8-15% isn't unreasonable. There isn't much to be made on hardware these days; services are where you make the moolah!

Cheers,

Ryan

 

[alcomcomputing]

I agree with everything that's been said already, but just a little side note...

Remember to add your 'direct costs' to the cost of the parts. The simplest being your time.

Take for example that you employ a member of staff at £10 per hour all in (taxes, bonuses, and Employers contributions). How long will it take that member of staff to deal with the enquiry, quote the customer, order the part, take delivery, check the packaging and unpack, prepare it for delivery to customer and call the customer?

Let's say 30 mins to do all that over a few days. That's £5 COST to be added on that part.

I would always recommend that you attribute your 'direct' costs to the parts being purchased and be sure that afterwards it was worth selling the part in the first place. There really is no point competing on price if I give away £2 for every part I sell!

Overheads such as rent, electricity etc should all be covered by your maintenance contract.

Ooh and while I think of it, I also add a portion of delivery from my suppliers as a direct cost too.