Determining markup on resale to your clients

IT consultant Chip Camden offers advice to a TechRepublic reader who is having a hard time figuring out how to charge customers for network monitoring.

I recently received an email from TechRepublic reader Scott Billups, who is having a hard time figuring out how to charge customers for network monitoring:

Network monitoring is something we would like to offer, but [we're] not sure how to charge customers. We were looking at Spiceworks, but to me Spice works is good, but slow to operate. We do like GoToManage a lot (we are very interested in their GoToPro), but see that for $89, their lowest price is fine, but [we're] not sure how much to mark it up on our end. How [can we] define how much to mark it up but fairly?

It sounds like you're trying on the reseller hat. The question to ask yourself in that case is "What value do I add?" What is my involvement in the transaction worth to my client? Why would they pay me to help them buy and use this product?

Back in the days before Amazon and others revolutionized Internet sales, resellers provided a value merely by bringing products to the consumer -- the trouble and overhead of selecting and stocking inventory, as well as the activity of concluding an individual sale, were all worth something. Nowadays, websites typically provide all of those functions at near zero cost. Perhaps you can charge something for the selection process based on your informed opinion as a consultant, but it can't be much. The Amazons, Googles, and even Facebooks of the world are tirelessly working to render that business model obsolete.

In some reseller agreements you may be able to secure a discount from the original seller. In that case, you can mark the price back up to at or near retail to make money without apparently charging your client anything. If you split the difference, providing a discount for your client while still making money, then it's a win-win. It could be an even bigger win, though, if you give the product to your client at cost -- and make a point of letting the client know about it. The payoff in goodwill is enormous.

Rather than charging extra for the product itself, perhaps you should consider charging only for the associated services you will provide. Will you be installing and configuring this product for the client? How will you participate in its ongoing operation? If these are all activities that the client would rather have performed by you than by themselves, then you can charge for them. But don't gouge -- if the client could spend an hour learning a new procedure that requires only two minutes per week rather than paying you $100 a month to do the same thing, they'll feel like you've been taking advantage of them -- if they find out about it. Don't assume they'll never know. This leads to a more general consulting maxim:

Never base your business model on your clients' ignorance.

Sure, part of why clients pay you the big bucks is for the degree to which your knowledge and experience exceed theirs. They expect, however, that you will impart some of that wisdom to them, not keep them in the dark. Your job as a consultant includes at least as much education as execution. That may render part of your job obsolete, but it usually leads to bigger and better things.

Do you see where I'm going with this? When you "nickel and dime" your client, you're effectively saying that you don't trust that your relationship will go any further than today's transaction. If, on the other hand, you eschew the small potatoes in order to build trust in an ongoing relationship, you'll probably end up making much more money in the long run. Your client will be happier about it, because you'll be providing an ongoing value to them.