- Sales Increase by 14.1% in 2022
- Gross margins hit 21.7%
CDW is one of the largest B2B technology resellers in North America. They sell
hardware, software, and services to small business, enterprise, government and educational markets across North America. Public companies like CDW offer a great snapshot of the emerging trends in our industry. When they report growth in gross margins, net income, and annual revenue, you should dive in. In the last quarter of 2022, CDW reported increases in their operating income by 31.6% and net income by over 33% (Business Wire, 2023). Beyond this, there are plenty of clues as to what this could mean for your business.
1. Market Segments
CDW saw double digit increases in enterprise sales, but weakness in education and small business. We are still seeing some effects from covid, including supply shortages, backorders being fulfilled, and some segments increasing their technology spending while migrating customers to home offices. The fact that large businesses are increasing hardware spending is a good sign.
Key takeaways for your business:
- Do you monitor sales across all segments? You should.
- An overreliance on one segment (like education) will be tough to mitigate if it decreases.
- Small businesses are still suffering due to covid. Selling solutions to them (like managed IT) will be tough for a while.
2. Revenue Growth and Significant Gross Profit in IT Hardware
In 2020 alone, hardware made up 80.4% of CDW’s sales (Statista, 2021). They sell services and software for sure, but the bulk of their revenue has come from hardware. While their last quarter was “softer” in terms of overall sales, gross margin rose 21.1%. At first, 21.1% may not seem great, but think again. Most of CDW’s revenue has traditionally come from education and enterprise, which likely represents lower margins for you too!
Key takeaways for your business:
- Businesses still buy “stuff.” IT hardware matters; especially if you can wrap it into subscriptions.
- If you’re selling managed IT services to small businesses, services alone may not generate enough revenue to make these accounts worthwhile. Adding IT hardware could change that.
3. 250,000 Customers? I Thought They were Bigger!
There are 32.2 million small businesses across the U.S.A. Of those, 6 million businesses employ 46.7% of the total workforce, with 61.7 million people in their employment (Forbes, 2022). CDW cites that their penetration rate is 5% of the market segment. Based on our numbers, we estimate this might be less than 4%.
The SMB segment may be slow in 2023, but it’s still a massive market. Now is a great time to strategize and grab some of that market share.
Key takeaways for your business:
- There’s currently no market leader in the SMB segment for IT products and services.
- It’s likely that most customers for B2B print and IT resellers exist in the SMB space.
4. IT Products Sell Themselves
Every time a new employee starts, they need hardware and software. Every time a laptop or monitor breaks, employees need a replacement. Company-wide technology refreshes represent greater sales opportunities. Things like A3 copiers/printers, managed IT services, and security services require a sales process based on ROI. That’s a much harder sale than IT hardware. Can office employees function in 2023 without a computer? Definitely not. Do they need a new printer, or a managed IT partner? Yes, they should have one, but they don’t need one.
Every business needs IT hardware.
5. Margins
The other important part of IT is the upsell opportunity. Sure there are cheap laptops, but nothing says “I value you” more to an employee than a nice high-end piece of equipment. Don’t believe me? Give a new employee a Chromebook or a hand-me-down desktop and watch their facial expression turn sour. Increasing gross margins for IT hardware works similarly to other products—buyers contribute to price increases by moving to higher value offerings and off of base products.
CDW’s earning report offers insight into the market for IT hardware. It’s a robust category with rapid revenue growth. CDW has shown a 19% increase in gross margins from 2021 to 2022, with a 21.7% gross margin and a sales increase of 14.1% (Business Wire, 2023). +20-25% margins. The technology market is wide open for competition, with the leading provider having only a 5% customer penetration rate. You need a strategy to succeed in this market. This includes using the right tools like e-commerce, digital database marketing tools (like HubSpot), and the right people to promote and manage your initiatives. When planning for your future, there’s not a more attractive option than IT hardware.
If your business has a reliance on office printing for revenue and profit, IT hardware is the closest, adjacent market you can move into. All businesses rely on IT hardware, and with no obvious entrenched competitors, it may be time to stake your claim on this growing and profitable market segment.
Discover how you can diversify your offerings by adding IT products to your store.
