Mon 5 May 2008
The IT Reseller Channel: How to Navigate the Complexity, Cost and Frustration
Posted by Jake Carey-Rand under Channel, IV General Posts, Managed Services, Outsourcing, Vendor Relationships
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While maintaining our original business model for telecommunications contract and negotiation management (where our clients receive free management and consulting services from IV), Innovative Visions, LLC is considering adopting a new stance for the IT hardware and software reseller market. We are hoping to get some active feedback on this proposed model, before launching. This service is in the fashion that the customer always comes first. Here are the details of this strategy and how it can impact your business. Please let us know your thoughts and feelings about this subject and if you would like to retain IV’s services in this area, then contact us by any means convenient to you.
Problem:
The IT hardware and software market is a commodity market where increased competition creates a need for added value, hence the term Value-Added Reseller (VAR), to differentiate from the next VAR calling on the phone. The problem is that most VAR’s aren’t offering anything new or innovative and they are still paid by the manufacturers and distributors and not by the customers they serve. Although their interest may be to serve the client, ultimately they serve whoever pays them. Forms of revenue for VARs include markup on the front-end (this is the ONLY part paid for by the customer), rebates on the back-end, associated (or unassociated) marketing dollars and spiffs ranging from $5 per unit to trips to Cancun for sales reps, management, buyers, marketing and anyone else who can influence the sale. This misdirected loyalty creates an environment where the customers’ needs, although taken into account, are often foregone because the manufacturer will pay for the rep to gamble with the family at a casino all weekend, if the deal goes their way.
History:
As you know, most manufacturers of hardware and software depend on Value-Added Resellers (VARs) to distribute and sell their product. In some cases these VAR’s purchase the products directly from the manufacturers, however the majority of products go through a two-tier distribution channel before getting to your door. This is done to allow each party to concentrate on it’s core competency whether that be designing and manufacturing, distribution or sales, service and invoicing. For these various services, each party retains a fee based as a percentage of cost in the form of a markup. The distributor generally retains between 2-4% on each product they sell to the VAR. VARs, on average, make between 9-55% on products (obviously depending on the product category). Although most companies will get a fair price from their resellers, this is generally only obtained after hard negotiation, increased sales volume and constant price checking with the competition. This work can be time consuming, costly and exhausting, diverting your attention away from more critical tasks associated with your business. However, even after all of that work, you the customer may still get an inferior product for your needs solely because a competing manufacturer pushed incentives into the deal to influence the decision.
Experience:
This situation creates the potential to save time and money, while ensuring that a trusted, independent party will look after your needs first and foremost. This is where Innovative Visions can help. Jake Carey-Rand, President and Founder of Innovative Visions, LLC, has been active in the IT hardware and software reseller channel since early 2002. Trained by industry veterans who created the channel, his primary focus has always been on the customer. Although at times frustrated by the misaligned loyalties, his work has always remained consistently focused on the customer. Jake started working for a Fortune 1000 VAR selling in excess of $2 million per year and pushing as many boxes as possible out the door and moved to managing complex relationships with smaller, regional VARs with more mobility and flexibility. Throughout this process he has developed a deep understanding of the IT channel, its players and the technical and financial structure on which this channel operates. His focus is entirely on his clients and their needs.
Opportunity:
Since 2002, Mr. Carey-Rand and Innovative Visions have primarily helped clients by providing free technical and sales consultation. Historically this process starts by finding the right technological solution to a business problem, then moves to finding part numbers, pricing, proposal, managing the sale and the very important follow-up. Of course for any “value-added” service there is an inherent fee built into the associated cost, as previously discussed. This fee is the markup the VAR charges to the client. Anywhere from 9-55%, depending on the product, plus the distribution % on the back-end (and don’t forget those incentives). But in this system of doing business, the customers interests are only as important as the added money the VAR is able to obtain. The system is inherently backwards and not created to serve the clients’ interest at all.
Proposal:
IV proposes managing your purchasing process for you in order to save time, money and reduce complexity. The level of service, attention to detail and technical and industry knowledge only stand to get more client-focused by following this new model of serving customers. Wouldn’t it be nice not to have to worry about whether or not the cost of that server is fair because you know your broker is independent, knowledgeable and tough? What about not dealing with the complexity of finding part numbers, associated peripherals (such as memory, hard drives, cases, etc.) and instead concentrating on your core competency of running your department and company? Innovative Visions will work with you to ensure your purchasing decisions are correct, the technology is the right solution to solve your problems and you are getting the absolute best price possible. These services will cost you no more than you would have otherwise spent, because the fee is based on expected annual savings to your company by maintaining IV’s independence.
Please let us know your questions and comments either in the form of a comment or email.
