VS1 Cloud Blog
Technology services provider Probrand has released a study highlighting the size of the margins IT buyers pay resellers, with retail revealed to be paying nearly five times the recommended mark-up
Probrand’s analysis, conducted on £4.7 million of tech spend across 14 sectors before the Covid-19 lockdowns, found that the average margin paid by retail was 14.28% – when industry best practice, as specified by the Society of IT Managers, states that organisations should be paying no more than a 3% margin to suppliers.
The study also found one retailer paying margins as high as 1126.1% on their purchases – that’s three hundred and seventy times higher than the recommended mark-up.
These figures do not take into account the impact of the Covid-19 pandemic, however, and further spend analysis covered in the Probrand study reveals that mark-ups did spike dramatically during the first national lockdown. Following a collapse in global supply chains and a huge increase in demand for work from home equipment, it was revealed that margins on technology products rose to more than 50% on average for all tech buyers.
Ian Nethercot, MCIPS supply chain director at Probrand, said: “When we conduct spending reviews it’s not unusual to find some organisations paying way more than 3% over the trade price of the product – especially if they don’t have price monitoring tools in place. In recent years though, we’ve seen companies getting more savvy when it comes to restricting the margins paid to suppliers.
“Covid-19 completely changed the landscape, however. We witnessed both a huge spike in demand and a significant contraction in supply – due to factories closing in Asia and planes being grounded. There is no doubt that this extreme supply and demand characteristic resulted in panic buying, with people prepared to buy whatever they could get their hands on at whatever price in order to equip staff working from home.”
Nethercot adds: “Undoubtedly some suppliers took advantage of this panic and inflated their margins. It’s true that whenever demand outstrips supply you’re always going to see prices rise. But, what some suppliers were asking of their customers during lockdown far exceeded any increases we were seeing in the channel, and by some distance. The trade prices didn’t increase 50% on average, so there was definitely a hint of profiteering here!
“I suspect there will be a number of procurement teams retrospectively reviewing the prices paid during this difficult period and questioning the relationships they have with their suppliers.”