Plan To Succeed - Global Sales Boost Your Bottom Line

Global Sales Boost Your Bottom Line

For software companies, going international not only increases their revenues, but it improves their net profit margin as well.

the time is right.

Software companies that venture outside America for more than 30% of their sales show pre-tax earnings nearly three times that of purely domestic operations. This remarkable fact is perhaps the single most compelling reason for companies to expand internationally.

But how can this be? Everyone knows that the U.S. is the world's largest software market, a market that can be reached using a single language, a market where economies of scale should drive down the cost of doing business and improve profits. On the other hand, selling into a fragmented international market complicated by different languages, cultures and buying patterns can be an expensive and frustrating experience.

Nonetheless, an annual survey conducted by Software Success, a Massachusetts-based organization that polls several thousand software companies with sales of under $25 million, confirms this paradox. Companies with more than 30% of their revenues from international markets have an average pre-tax margin of 20.9% compared with an average pre-tax margin of 7.4% for companies that are purely domestic.

There are several reasons for this. First, for most smaller software companies the majority of their international revenues are generated through a network of resellers and distributors. Since these business partners are responsible for providing technical support, as well as absorbing sales and marketing expenses, the revenue stream from overseas sales is highly profitable. We have seen many cases where one or two employees support an international channel that is producing millions of dollars in revenues. Most of those revenues drop to the bottom line.

Second, the homogeneity of the U.S. market is the very reason it is less profitable. Reaching potential clients is expensive, very expensive. In order to cut through the clutter of competitors marketing to the same prospects a company has to be prepared to spend a huge amount on marketing. Additionally, the presence of so many domestic competitors puts pressure on pricing, further reducing the margins from each successful sale.

Third, developing and supporting a successful international channel requires procedures and systems that improve the overall operations of the company. For example, it is usually necessary to develop marketing support packages that make it easier for a third party to sell the product without involvement from the vendor. The process of developing this package frequently improves the domestic marketing effort as well. The same is true for technical support. In order to effectively respond to the needs of international partners and end users, it is often essential to automate the tech support function with a searchable database of FAQs, web-based access to trouble tickets, etc. This makes it possible for resellers and distributors to access tech support 24/7 without having people standing by to answer calls. By extension, the same facilities are used to provide enhanced support to domestic clients.

Finally, generating international revenues can lead to a virtuous cycle. The profits from overseas provide a company with additional resources that can be reinvested in accelerating its product development, or beefing up its domestic marketing budget. They become a stronger competitor at home, which makes them a more attractive vendor to partners and end users abroad, which in turn propels the international activity to new heights.

The conclusion is clear and compelling. The benefits of going global make it essential for growing software companies to expand internationally sooner rather than later. They will be more profitable, more effective and more competitive.

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