The start of a new decade is always a good time to reflect on where you’re at, and where you’re headed. This is doubly true for business software VARs these days. The last decade saw a lot of change in the business; the next will surely see even more.

Fundamentally, what seems clear is that the future will favor those who manage to dominate the markets they serve, whatever or wherever they may be. Bigger will indeed be better, so long as it doesn’t come at the expense of efficiency and profitability. Consolidation seems all but inevitable.

So how is the average VAR positioned today, with respect to these market forces?

All too often, sadly, the news is not great.

Across the VAR community with whom we work, for example, the average EBITDA is still in single digits (8.8%). Owners earn a good living, but have not really built a saleable (or scalable) business. Come retirement time, they all too often find themselves at a dead-end, unable to monetize the asset they’ve spent an entire career building.

Service margins remain the biggest problem for many, and in fact more than any other factor, drive that low EBITDA performance. An average gross service margin of 39.7% may not seem overly problematic, but in practice it simply is not enough to drive the kind of profitability that is required either to grow or sell the business, after taking into account sales costs, marketing costs, and general administration and overheads. When you’re only billing an average of 1,142 hours per year across your entire service delivery team, it’s hardly a recipe for long term success. Successful VAR’s achieve 1,600 billable hours per resource across the entire team, or more.

New customer revenue, the lifeblood of any business in the long term, is also dangerously low. On average, 29.2% of total revenue comes from new customers, and for all but a few, that number is actually falling. It is the equivalent of a slow-death scenario.

The message in the numbers, to us, is clear – focus on service delivery efficiency first, to drive superior profitability. Invest those earnings in adding new customers. Dominate the market you serve. And end up with a growing, saleable business.