Identifying hidden channel costs and how to eliminate them

Growth remains a key objective for businesses, but in this digital age, fast and rapid growth can often unveil red flags, and cracks can reveal themselves with pre-existing inefficiencies and harbour hidden costs.

Hidden costs are pervasive in channel distribution for the vast majority of partners today, including Managed Service Providers (MSPs) and resellers, as well as distributors and vendors. Varying in size, many partners continue to work with multiple channels and systems which can become complicated, affecting their ability to track information. As a result, these inefficiencies of shadow IT, on average, accounts for between 30% and 40% of IT spending in large enterprises.

There is no single root cause to hidden costs. An array of issues such as wasted resources, labour, time constraints, poor implementation oversights and maintenance issues are all contributors, and the cuts only get deeper as partners scale. Here are the ways service providers can eliminate hidden costs going forward.

How to find hidden costs

In general, unaccounted or unattributed costs originate from four areas, with the first being shadow IT. Shadow IT is the use of systems, devices, software, applications, or services without explicit IT department approval. The phenomenon has grown in recent years due to the adoption of cloud-based applications and services, with the average company using 30% more unique SaaS (Software-as-a-Service) apps than they were in 2018. Thanks to the ease of adding new software, departments are going it alone and buying platforms that can be niche, or duplicate processes, and even in some cases using multiple versions of chat apps to communicate internally.

The next hidden cost stems from implementation and integration. Channel partners need to work within different systems and almost always underestimate the budget needed to work with new software solutions. A consistent blind spot across the industry is the inconsistency of implementation and integration at budget. 

In terms of maintenance, it is especially difficult when partners create homegrown software to handle provisioning, relationship management, or data management. While such proprietary software might perform well for initial purposes, maintenance and upgrades can be a nightmare. Likewise, internal knowledge transfer in this situation is crucial.

And finally, the scalability of expanding from one market to the next is not linear and neither is the cost. Partners that have already launched in one part of the world often think that it will cost around the same to expand into another region, like between the US and Europe. However, this thinking does not consider the additional effort to contend with the new currency, language, audience, and regulation, as well as local operations within the region.

Combating hidden costs

The good news is that there are multiple remedies to hidden costs. Integrations, for example, successfully bring together disparate systems and improve efficiency. Partners that have manual processes and pull information from one system before typing it into another are wasting time and resources by dedicating an entire person to this process. Clearly, this should be automated to cut down on human errors and save in the long run.

Along with integrations, partners should purchase software with scalability and unification at heart. There is no magic platform that does everything entirely so companies should opt for the best of breed, even if the initial investment is a bit more. This will help to offset the concerns of scalability, maintenance, lack of expertise, and potential unforeseen overheads. Moreover, best-in-class platforms help to paint a consistent long-term picture of the health of channel operations.

For channel health, it is also integral to integrate outside experts to perform an overall business diagnostic. These can be consultants, solution architects, and those alike that know channel software and best industry practices to help architect a scalable and efficient platform. Working in conjunction with the team, these objective outsiders work to find the gaps and tighten any software screws.

Tackling inefficiencies to help the channel

Hidden costs can run rampant, and the reality is that channel partners without oversight essentially pay twice the price for half the output.

More than the financial downside, though, hidden costs should be thought of as hidden inefficiencies. Especially in today’s accelerated digital transformation, inefficiencies can make or break fast-growing channel operations. Therefore, weeding out hidden costs with improved efficiencies can work wonders by saving budget and running a tighter ship.

This is where integrated software and platforms can make all the difference. By unifying and standardising existing systems, managers receive a single view of contracts, reporting, sales, marketing, and day-to-day operations, thereby empowering them with the right tools to achieve sustainable growth. Instead of overwhelming teams with multiple different platforms and software, this single operational view can grant the much-needed oversight that is necessary to set a business up for success.

With the rapid growth of businesses in the digital and cloud spaces set to shape the market leaders of tomorrow, it is essential for channel partners to seize the moment and eliminate the perils of hidden costs.