Make The Move To VoIP
Slumping Ethernet and phone cable sales led to this VAR checking out VoIP (voice over Internet Protocol), getting certified, and projecting 100% revenue growth for the second year.
As Michael Lauria, president of COMTEL, looks back on his last two and a half years in business, he finds it hard to believe the transformation that's taken place. COMTEL used to be almost exclusively a cable company — not in the Time Warner sense, but a company that installs telephone and data lines within the four walls of a building/facility. It also sold Avaya and Nortel digital phone systems. Installing cable used to be a profitable venture, earning the VAR 40% profit margins, with average installs in the $30,000 range. That utopian circumstance took a turn south in 2006. "We started losing way more deals than we were winning," he recalls. "There were even times when we bid a job at breakeven, or even at a slight loss, just to get the phone install, and we still lost the deal."
By the end of 2006, COMTEL had lost more than $1 million in cable installation bids. "Massachusetts is saturated with companies and individuals offering network and phone cable installation services, and the competition has driven prices to unprofitable proportions in most cases," says Lauria. Fortunately, Lauria didn't wait until the end of 2006 to take action. He had been paying attention to where phone technology was heading and had positioned his company to capitalize on VoIP. Within the first year of becoming certified to sell Nortel BCM (Business Communications Manager) VoIP phone systems, COMTEL doubled its sales revenue. This year, the VAR expects once again to double its revenue.
Future VoIP Growth May Mean Initial Employee Downsizing
Once Lauria made the decision to become a VoIP reseller, he had a hard decision to make. He had two project managers/estimators barely keeping busy. He also had several cabling techs working less than 40 hours per week. He couldn't afford to keep everyone on staff any longer. What would you do? "I made the hard decision to lay off both project managers and most of my cabling techs, then train two of my phone techs and a phone salesperson," says Lauria. "It wasn't easy to say goodbye to people who worked for me for many years, but they understood it wasn't possible to move them into a new and unknown position and maintain the salaries they were earning."
One of the big changes Lauria knew he had to prepare himself for with regard to selling VoIP was learning data networking. For example, "Phone techs were accustomed to handling simple analog and digital phones," says Lauria. "With VoIP, they'd have to understand routers and switches, and they'd have to learn how to install and configure new software applications." Another change with VoIP was that techs and sales reps would have a lot more interaction with the technology users, and the COMTEL reps would need to explain the new phone system's features and functions to customers.
Six Months To VoIP Certification
Lauria made the decision to send two technicians and a sales rep to Nortel BCM certification training. "Through our value-added distributor [VAD] partner Westcon [see sidebar on this page], Nortel provided us with a list of requirements we had to fulfill," recalls Lauria. "For example, within a two-month period we sent our guys to classes on IP, telephony, and data networking. After each class, the employees had to take a test to prove they retained the information." According to Lauria, each course cost about $1,000 for classroom-based training, about $300 for any self-paced e-learning courses (e.g. intro to SIP [session initiation protocol]), and $150 for each exam. Another part of the process included three and a half days of hands-on training, at a cost of about $1,575. Lauria figures that the cost to get each of his three employees certified to sell Nortel BCM 50-, 200-, and 400-series products was about $10,000 and took between four and six months. "The biggest cost with VoIP certification is lost labor time," says Lauria. "You still have to pay employees their normal hourly wages, and you're not able to bill anyone for that lost time."
How To Land Your First VoIP Sale
One other initial requirement for a VAR to become certified to sell Nortel VoIP solutions is to purchase a demo kit, which costs about $5,000. "We have our demo in a black travel case with wheels and a telescoping handle. The kit includes a BCM 50e [internal router] and a couple of Nortel phones with several Nortel apps installed." COMTEL uses the demo kit to allow a prospect to experience a working VoIP phone system at the prospect's office. For small groups of four or fewer people (typically the business owner, secretary, and one or two office managers), the VAR demonstrates how the phones work by connecting the phones and a laptop to the BCM appliance. Then, from the laptop, the prospective customer can view the Nortel Element Manager program, which COMTEL uses to show prospects how to perform basic administering operations such as setting up voice mailboxes, assigning phone names and extensions, resetting passwords, and configuring the programmable phone buttons. "I also use my laptop to demonstrate the Nortel 2050 IP softphone and the Call Pilot Unified Messaging application [i.e. used for receiving voice mails over e-mail]," says Lauria. "For larger groups, we bring a projector, so people can more easily see the presentation. The phone demo lasts between 1 and 3 hours, and it results in a sale more than 95% of the time."
When COMTEL earned its accreditation status, it had to sell a minimum of $100,000 the first year to maintain its status. The VAR easily surpassed that quota within its first couple of months of being a VoIP reseller. Lauria discovered early on that the key to successfully selling VoIP was to focus on existing customers and talk to them about the benefits of an IP-based system. "We have nearly 200 customers with Nortel Norstar systems," says Lauria. "We focus on customers that have a system that's at least four years old and are therefore more likely to consider making a change."
Two benefits Lauria and his sales reps emphasize when pitching VoIP are: hot desking and unified communications. Hot desking refers to a workstation that is used by different employees throughout a workday or workweek, and it's also used for employees who work part of their week at the office and the remainder of the time from an other location such as a customer's facility, a hotel, or home. "With an IP-based phone system, an employee's phone number and extension follow the employee to whichever work area they are at that day," says Lauria. "All they need to do is enter their PIN into a Nortel IP phone, and the phone will automatically provision itself as if the employee were connected from their primary office."
The other function COMTEL's SMB customers are interested in is unified communications (UC). Enabling a cell phone and desk phone to ring simultaneously (find me, follow me) and/or having faxes and voice mails sent to an e-mail inbox (unified messaging) are two examples of UC apps COMTEL sells.
The nice thing about pitching a Nortel BCM system to a customer that has a Nortel Norstar system is that the BCM is a hybrid system, meaning that it supports analog, digital, and IP phones. "If a customer wants, it can keep its existing phones, and it can simply replace its PBX [private branch exchange] and voice mail application," says Lauria. To help incentivize customers who are hesitant about upgrading their legacy phone system, COMTEL educates them about legacy product trade-ins and stackable discounts. Some legacy phone systems and phone equipment qualify customers for a 10% to 15% discount on a new phone system. "Also, the more complementary hardware and software a customer bundles with a BCM purchase, the more discounts we can pass along from our vendor," says Lauria. "For example, if a customer purchases a BCM system with Nortel IP desk phones, Wi-Fi phones, data products [e.g. Nortel routers and switches], and advanced applications [e.g. find me, follow me; unified messaging], the customer can qualify for a 'stackable discount' from the vendor of 25%." What's nice about this is that the vendor discounts don't hurt COMTEL's profit margins, which further incentivizes the VAR to help customers take advantage of available vendor discounts.
Read "Find New Markets For VoIP" at BSMinfo.com/jp/3610 to see how another VAR is successfully selling VoIP to SMBs.
According to Lauria, COMTEL is much more successful now than it was when it was earning 40% profit margins on cabling installs, even though the average VoIP install brings in a 20% profit margin. "With VoIP, we're bidding on jobs that are averaging twice as much as cabling bids," he says. "Plus, it takes half the resources to sell and maintain a VoIP solution compared with a cabling install." And, the best part is that COMTEL gets paid much more quickly on a VoIP installation than a cable installation. "With a VoIP system, we get a 50% deposit prior to the install, then the remaining balance within 10 days of the implementation," he says. "With cabling, we get no deposit; then we often have to hound the customer for months to get paid."
Let VoIP Services Revenue Offset New Hire Training
Lauria is already making plans to hire additional VoIP technicians and sales engineers in the near future and considering how this will impact his business. After thinking about what it costs to train those future employees, Lauria started looking at ways to earn additional recurring revenue. The logical answer was by creating service contracts and selling services. "I used to think selling services was a gimmick, but with VoIP it makes sense because some customers have specific response time needs and other customers have specific tech support needs, and they're willing to pay for those needs to be met," he says. "They can pay someone else, or they can pay me." Since formalizing its services program three months ago — rather than just giving services away — COMTEL already has $10,000 of services revenue coming in, which is enough to get a new hire VoIP-certified.