Top Line Vs. Bottom Line: Is The Channel Perplexed
In a highly flooded IT channel business, partners are struggling hard to meet with the pace of the changing business dynamics. While, on one hand, the traditional box pushing business is shrinking by the day, On the other, the system integration business is gaining a lot of prominence in the channel industry.
In a market scenario, where declining demand for hardware and stiff competition from e-commerce players make the offline business critical, it is inevitable for channel partners to open up to explore new growth areas. A right business practice is largely responsible for the growth and expansion of partners’ business. While a handful of the channel partners are making it big in the top line play, majority of channel partners are perplexed to choose between top line and bottom line.
Top Line v/s Bottom Line
Top line brings economies of scale, hence, the partners aim to expand their business largely opt for the top line. B. Ananda Rao, CEO of Par Data Systems says that for the long term sustainability and growth, channel business needs to have a vision for the top line business model. Rao believes, while the bottom line is highly saturated and contested, top line brings partners recognition in the industry.
“Both top line and bottom line have their pros and cons. The success of any of the business model is largely depends on the marketplaces. The today majority of channel partners is focused only on their bottom line business. However, if the partners want to scale up their business, they will need to shift their focus from bottom line to top line”, Rao says.
Expressing similar thoughts Vipul Datta, CEO of Future soft Solutions says that partners can either continue with the same business by adding the top line or get into a completely new line of business having top line.
“Till the year 2014, we were very much focused on the bottom line business. As the business dynamics started changing, we soon realized that if we want to sustain and grow in the industry, we will have to adopt the top line business model. We expanded our product portfolio, strengthened our distribution and focused on creating our niche in the industry”, Datta says.
However, many channel players dealing in the mid market, are not convinced with the idea of opting for the idea of the top line. Considering the risk factors associated with the large volume trade and sluggish market demand, partners prefer to remain in bottom line business. Rishabh Shah, CEO of Graham Information Systems believes that bottom line gives strong margins in the business.
“While top line gives economies of scale, overhead expenditures and risk of bad debt are always high in such kind of business models. Margins are the crucial aspect of business, which top line sometimes may not bring to the partners table. In my opinion, partners who are not hungry for growth and cautious about their margins will always prefer to go with the bottom line”, Shah says.
OVMs Reluctant On Bottom Line?
The success of both the business model is largely depends on the vendors. However, it has been observed that vendors are targeting only for top line and are least focused on the bottom line. Vinod Kulkarni, Director of Kadkomp Systems says that vendors put pressure on channels to do the business even at a very low margin to achieve the targets.
“Nowadays there is no healthy channel business environment and everyone is working under huge pressure. Because of the channel structure they achieve their bottom line and put pressure on channels to do the business even at a very low margin and sometimes at no margin. Thus, all channel Partners are focusing on sustainability in the business rather than trying to get the top line. Some partners are also opting for a multi – brand strategy instead of concentrating on one single product”, Kulkarni says.
On Their Own Way
While the majority of partners is baffling to choose between the top line and bottom line, there are certain SI partners who have created their niche in terms of product offerings and service support rather than running behind the numbers. Kshitij Kotak, Executive Director and CPI of Grecells says that in a flooded channel business, it is more critical to create one’s niche rather than only looking at the volumes and profit.
“We always operated in niche areas and never compromised on profit margins.
We focused on low cost investment and high value return business model, therefore, irrespective of market dynamics, we are able to intact our profits”, says Kotak.
Similarly, Datta says that the company is ambitious to grow in the industry, but the desperation to grow is not at the cost of bad debt. “ It is not a right practice to focus only on the top line and bottom line. Services also play key role in the business growth. We are very particular about the service engagement with the customers. While we focus on volumes, we also try to get repeat business opportunity”, says Datta.
A Safer Play
While the majority of the partners look at top line as a growth booster, a few of them claim that the top line business will forfeit the bottom line in the near future. However, considering the fact that a large chunk of the channel business is still driven by the small and medium channel organizations, partners are exploring both the business models cautiously. It is not easy for every channel partner to make a sudden shift to the top line as working capital is very crucial part of top line business.
Hence, we can say that a combination of both top line and bottom line is a sustainable way to grow in the business. In a market with stiff competition, where customers are willing to pay money for quality IT infrastructure services and automation, it will be interesting to see how partners find their way to sustainable business.