Value Added Reseller - Explained
What is a Value-Added Reseller?
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Table of ContentsWhat is a Value-Added Reseller?What does a Value-Added Reseller Do? Value-added Reseller AgreementOriginal Equipment Manufacturer (OEM) Vs. Value-Added Reseller (VAR)Managed Service Provider (MSP) Vs. Value-Added Reseller (VAR)Benefits of Working with Value Added Resellers (VARs)The Challenges of Being a VARAcademic Research on Value Added Reseller (VAR)
What is a Value-Added Reseller?
A VAR, or value-added reseller, is a business entity that adds features or services to an existing third-party product and then resells the same as an integrated customized product to the end-user or consumer. The term VAR is most synonymous in the computer or Information Technology (IT) industries. For instance, a VAR might purchase Personal computer hardware -like Dell -from a distributor or directly from the manufacturer, then, install an operating system and other features -like windows and office suites- to make the Personal computer complete and then resell the same integrated product (Hardware and Software).In short, VAR are like middlemen who play an important role in both the IT acquisition and implementation process. The role of a VAR can take any form as a professional service provider including integrating, installation services, customizing, consulting, and training. Additionally, it can be through development by providing additional hardware or by creating an application for a particular hardware platform and then selling the combination as a complete turnkey solution. A turnkey project refers to a product constructed by a VAR according to end-user specifications. Value-added resellers often design and implement solutions for Personal computers, Cloud storage, Cyber -security, Datacenters, Network infrastructure, Mobile workspaces, and Point of sale among others. VARs usually purchase products from vendors at wholesale prices adding only a small percentage as profit margin as a result of the value added products and services incorporated.
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What does a Value-Added Reseller Do?
Generally, VARs partner with IT product vendors and may purchase or lease certain rights from the vendor including: to reconfigure a computer or Operating System (OS); add memory, software features or peripherals for product enhancement; rights to target specialized market segments, such as users requiring computer-aided design (CAD), video or photo editing. However, for a vendor to authorize a VAR to resell their product, certain condition may be imposed. For instance, a vendor may require the VAR staff to achieve certain technical and sales certifications through training programs with the vendor. Additionally, the vendor may require the VAR to meet set annual revenue targets. A good example is the Cisco reseller programs implemented all over the world; the company is renowned for training and certification in computer networks. A reseller institution must be authorized by Cisco to resell their programs and must periodically submit to auditing by Cisco to determine worthiness of an institution in terms of qualified personnel as well as infrastructure requirement. In addition, the company provides support as well as training to their VAR partner institutions specializing in a number of areas including Internet of Things (IoT), Enterprise networks, Data centers, and Cybersecurity, among others. Further, depending on an institution level of service delivery, the company provides designated certification as either "select, premier" or "gold" as an accreditation.
Value-added Reseller Agreement
A VAR agreement is a reseller contract that stipulates the rights the reseller has and specifies the conditions that must be adhered to during the performance of the contract. It is important that a reseller conducts due diligence to ensure that the contract signed is in line with the business goal and the terms thereof can realistically be attained. The details of the VAR agreement contract may include:
- The specific products the vendor will make available to the VAR entity.
- The terms of how the value added product will be marketed, use of the manufacturer's logo and advertising materials.
- The territory in which the VAR entity is authorized to sell the product.
- The period in which the contract is expected to last.
- Whether the rights to a particular product are exclusive to the Subject VAR entity or non-exclusive.
- The sales target the VAR is required to achieve annually in order to get certain exclusive benefits from the VAR if any are available.
- Warranties and Conditions under which a VAR may return a product to the Vendor.
- Conditions that may lead to termination of the VAR agreement by either party.
Value-added reseller firms may work in a distribution model that in one-tier and the VAR directly purchases the product from the vendor .However, small VAR in particular may find that some vendors will only sell to them through a two-tier distribution model that involves them purchasing the product from a distributor. Also, some Vendors may have given exclusive rights to distributors and therefore all VARs regardless of their size must purchase products via the two-tier model. VAR contract like other agreements are legally binding to participating parties. Consequently, failure to meet the terms of the contract can result in not only premature termination of the agreement, but also legal action as well as related fines. Some of the reasons that might lead to a vendor deciding summarily to sever relationship with a VAR entity may include:
- If the VAR is not living up to the agreed sales quotas as earlier agreed upon. As a precaution, it is advisable to stay clear with contract with sales quotas that are too high for a VAR to avoid scenarios of possible termination.
- Some VAR may record competing product, for instant in cloud computing. A VAR may be recommending Office Suite from Microsoft and G Suite from Google which are competing cloud-based solution. Such vendors may require one to commit to just one vendor in a specific product category, in order to build trust.
- Information Technology is a dynamic field and most IT Vendors usually require their partners to continuously train and stay up to date with the latest trends. Failing to keep up with training requirements in technologies or products that are important to target clients may lead to termination.
- If a small vendor is purchased by a much larger IT corporation that has a very different channel program philosophy the restructuring may lead to termination of the reseller agreement with a VAR entity. Therefore, it is important that the Agreement should recognize the VAR investment by buyout provisions that protect the VAR in such scenarios.
Original Equipment Manufacturer (OEM) Vs. Value-Added Reseller (VAR)
An original equipment manufacturer may often be confused with a value-added reseller. This is understandable because the term in the computer industry is used in a manner that gives it a lot of fluidity and consequently it sometimes creates ambiguity. Also, VAR and OEM have some overlap that makes it hard to distinguish an OEM from a VAR. Traditionally, an OEM is defined as a company that manufactures parts and equipment which are then sold to other companies for rebranding and reselling. A good example of An OEM is Taiwanese owned electronics contract manufacturing company, Foxconn Technology Group which manufactures notable products for renowned companies including BlackBerry, Apple Inc., Huawei, Google, Nintendo, and dell among others. These companies have left all their manufacturing needs to Foxconn. However, in an increasing complex information technology supply chain, OEM may refer to several relationships between companies including value added relationship. Some OEMs serve as VARs since they take third party hardware and bundle integrate the same with a software component including their own intellectual property into one package. Whereas, on the other hand, may resemble OEMs by white labeling hardware products sourced from IT vendors. Nevertheless, the most distinguishing feature between OEM and VAR is that most OEMs sell their products business to business (B2B), whereas, VARs most commonly sell to consumers or end users. Also, VARs often purchase products from distributors and OEMs, add features or bundle them together to build a new system as per customer requirements. OEMs cant purchase from a VAR.
Managed Service Provider (MSP) Vs. Value-Added Reseller (VAR)
A managed service provider (MSP) can be defined as an information technology (IT) services provider that has been contracted to remotely manages a customer's IT infrastructure or computer systems. With the rapidly evolving IT market, VARs have adapted to be a MSPs with a shift from just value addition to end user but by also being a solution provider to those end users. So while a traditional VAR would simply be working to fulfill a customers product or service according to specification, MSPs, on the other hand, assumes direct responsibility for and ownership of a customers IT environment. MSPs specialize in remotely managing everything from web hosting to email to phone services, acquired through trusted wholesale providers. Most MSPs have installed a remote monitoring and management (RMM) software on their clients IT infrastructure to keep tabs. RMM software enables the MSP to remotely troubleshoot and fix any arising issues with the clients servers and endpoint devices. RMM enables MSPs to manage numerous customers' IT systems simultaneously.Also, MSPs may also code an automated scripts to handle routine systems administration maintenance and functions, example, checking hard disks for errors without human intervention. Therefore, a VAR can include an MSP as part of their service delivery to reduce dependency on product revenue. In fact, as product margins decline and competition intensifies most VAR have had to incorporate a mixture of product and services sales by including MSP services as an additional source of recurring revenue and improved profitability to the business. Generally, an MSP comes up with a service-level agreement (SLA) which is the contract between the service provider and the customer. The SLA identifies what services the provider will furnish and how successful delivery of services will be measured as well as the pricing model.
Benefits of Working with Value Added Resellers (VARs)
Some of the advantages of purchasing from a VAR may include:
- Guidance in product selection A VAR understands the needs of a small business and will guide the client into selecting a product that is a perfect fit for the end user which the company can leverage on to gain competitive edge.
- Get Multiple Services at One Place Most VAR don't just sell a product or customize the same and end there, they will provide after sales services such as maintenance, repairs, and spare part management. Also, the VAR may offer technical support in order to keep pace with ever-evolving technologies.
- Wide Range of Options Most VAR are connected to a large number of vendors and therefore can offer a wide range of technological solutions that an end user can select from to choose one that best fits your business and customized to serve ones business goals.
- Save Time instead of taking much time researching on a product and having to contact various manufacturers and then check their product catalog to compare prices and features can be a time consuming task. VAR have knowledge about various products including the latest information and contacting them directly instead will eliminate time wastage.
- Get Complete Solution - VARS are also referred to as solution providers as they offer services beyond the initial implementation .They focus on individual client needs and accordingly customize or configure product to match any unique business processes.
- Empower and Educate Customer about Products VARs staff are usually trained as part of the reseller program by the vendor, therefore, they are well versed with the product and will educate a customer on all aspects of the product. Some may even go further and provide a demo or a video conference with a client to ensure a customer fully sees the value in the product.
- Receive More Attention - it is better to buy a product such as a software installation from a reseller who has the attention of the vendor so that incase of any inconvenience in turns of software malfunction the VAR can easily get a replacement from the vendor.
The Challenges of Being a VAR
Some of the challenges faced by resellers may include:
- Low margins due to competition and vendors restricting resell value with recommended retail prices has left many VAR grappling with low profitability and requiring high sales volume to make any meaningful profit. The profit for a VAR business is typically at sourcing.
- Dealing with a large Product catalog Some IT distributors have enormous product catalog that run into millions and may be a bit of a challenge to some VAR to master and differentiate each product and category. For instance, Ingram Micro, a leading IT distributor in the United States alone has a catalog of close to two million from over r six hundred and fifty brands.
- Frequent technology and price changes the computing industry is a dynamic field with continuous update and frequent price changes. This may affect the profit margin in a resellers shop as well as the overwhelming task of updating a catalog with over a million products with the risk of incorrect quotation being a possibility.
- Constant learning VARs and their staff need to continuously be alert for the latest update as well as learn and train on how to implement it in order to ensure customers have the latest services as required by the vendor. Keeping up may be exhausting and demands much dedication.
- Keeping stock is not advisable and its expensive due to rapid changes product stocks face redundancy if not disposed within one year and also having a large stock is expensive as many computing product require frequent checks which translates to high inventory costs.
- Competition there are many VAR, estimated at over twenty thousand in the United States alone and they have to compete to be visible to customers yet most provide the same product and some may lower the price in the absence of a tool that aggregates all catalogs therefore leading to unfair trade practices.
- Piracy some VAR are selling pirated product especially software at a discounted price and much cheaper. These pirated products are prone to cyber-attacks and viruses and may damage the reputation of other VAR within a certain geographical area.