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ASPs: Increase your profit margins with these two ideas

As the economy continues to slow, ASPs must focus even more closely on profit margins. Columnist Tim Landgrave suggests two ways ASPs can cut costs and boost profits.


As the number of ASPs continues to shrink, the ones that remain are focusing on a new metric: net income. In the early ASP days, it was all about market share, so the focus—right or wrong—was on the top-line revenue number, with the assumption that profitability would follow.

In hindsight, it turned out to be a formula for failure. You can only build an organization so fast and consume so much cash before you inevitably burn out. So if you’re one of the ASPs left standing, how do you increase your margins?

The most obvious short-term answer is to increase sales. While it comes as no surprise that ASPs with bad business models continue to collapse, the interest in ASP technology itself is definitely increasing, as the slowing economy forces companies of all sizes to find ways to cut costs. The ASP shared-services model is still the right answer for a large number of companies.

I'll discuss two issues that ASPs need to keep in focus: choosing the right customers and automating support.

Streamline your customer base to boost profits
One good source of new business for ASPs is the ISP customer that is seeking higher ground now that its old ISP has gone under. ISPs, under pressure from the ever-expanding AOL and MSN, are looking for creative ways to partner with ASPs to secure their customer base.

But before jumping headfirst into a partnership with an ISP, most ASPs should review the cost side of the equation. Few ASPs escaped the lure of taking on business whenever and however it came their way, without realizing the need to examine the real cost.

One way to increase your profitability is to determine which customers cost the most money to serve, and then decrease that cost by either selling that line of business to another ASP who can handle it profitably or by approaching the customer and offering to help them move the application in-house.

If you determine, however, that all of your customers are unprofitable, you will need to attempt profitability by decreasing your overall operational costs. It's critical to do the customer review first and quickly, because once a customer is live, your biggest operational cost is support.

Automate support to reduce costs
You can decrease your support costs by offering electronic support for common problems via discussion groups, electronic newsletters, or by creating Web sites on which customers can post questions, preventing you from having to handle all questions with live operators.

Further, by providing customers with automated ways to perform their own additions, changes, deletions, or other software configuration, as well as giving customers a way to view the current status of their machines and applications, you can reduce the number of calls clogging your support lines.

In the rush to acquire customers, ASPs have often overlooked the need to support customers profitably. Now is the time to correct it.

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