IT suppliers managed to seize on chaotic price inflation following the Brexit vote to maximise their profits, according to the annual KnowledgeBus IT Margins Benchmarking Study.
Now in its fifth year, the study reveals the average margins charged by suppliers across the 29 different sectors. In the previous four years, the report has shown buyers becoming shrewder about IT purchases – with a gradual reduction in the average mark-up being paid to suppliers each year.
Industry best practice, as specified by the Society of IT Managers, states that organisations should not pay more than a 3% margin to suppliers. However, this year’s study revealed that those margins had risen for the first time ever – up to 18% from 17.6% the previous year.
The recruitment sector seemed to have gradually bucked this trend however. The average margin paid in 2016 was 19%, down from 30% in 2014.
Al Nagar, head of benchmarking at KnowledgeBus, explains that many suppliers were able to increase their mark-ups due to the confusion caused by Brexit. He said: “The result of the vote certainly caused a shock to IT prices seldom seen before, and it appears to have disrupted buyers’ attempts to keep supplier margins under control.”
In the most extreme examples, several organisations were found to have paid more than ten times the trade price for products. The research revealed that one supplier successfully charged one buyer in the recruitment sector a margin of 279% – almost three times the trade price.
Al adds: “Although there was a period of rapid inflation in the tech market not all prices increased. Some product prices stayed the same and some went down. But what we witnessed was unscrupulous suppliers taking advantage of the perception that price increases were going up across the board. Many organisations – without the tools to check what was really happening in the market – were caught out by these actions.”
Analysis of the margins paid showed that even the most vigilant were caught out by rapidly fluctuating prices in 2016. This year’s best performing sector, the police, paid out an average of just 11% for its IT purchases. Yet one buyer in this sector still paid a supplier a 970% margin for an order of flash drives.
Buyers will have found it harder to monitor fair price levels last year due to a sharp fall in the value of the pound. A study by KnowledgeBus towards the end of 2016, found this caused prices to increase by an average 12.7% in the months following the Brexit vote – with some vendors putting up prices by as much as 45%.
