by Jeff Muscarella

5 tips to keep your value-added reseller spend in check

Aug 31, 2015
CIOIT GovernanceTechnology Industry

Your reseller isnu2019t your BFF. How to stop overpaying your VAR and keep them honest.

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IT resellers know how to earn trust. Stationed somewhere between OEM and advocate, they’re a welcome buffer between your business and the hardware/software provider. Often they deliver more value-add, more attention and more knowledge about your specific business needs than the mega-vendors they represent.

But that doesn’t make them your best friend – and that’s something too many companies forget as they buy and negotiate. “My reseller is my advocate” is a dangerous sentiment, and it’s why the majority of companies overpay value-added resellers (VARs) on a regular basis. Companies need to approach the purchases they make from their VARs with the same level of scrutiny and caution used when sourcing directly with hardware/software vendors.

Here are five ways to keep your VAR spend in check:

1. Benchmark VAR pricing and discounts. Just because you’re a loyal customer doesn’t mean your reseller is giving you the best pricing and discounts. In fact, it’s not uncommon for customers to see their discounts decrease over time despite consistent purchasing volumes. Benchmark pricing, terms and discounts to establish targets that are in line with fair market value – then negotiate.

2. Don’t single source. Bring other resellers and/or OEMs to the table. It’s the best way to apply pressure on your incumbent VAR to provide better pricing, stronger discounts and more favorable terms.

3. Stop the registered deal nonsense. The first reseller contacted by a customer is often required to register the deal with the vendor. In turn, the vendor will provide the reseller with exclusive pricing/discounts. But what happens if you’re inviting other resellers to the table? Or decide you don’t want to do business with the first reseller you approached? The reseller with the registered deal has a distinct advantage over the competition, which puts you back into sole-sourcing territory.

There are a few measures you can take. First and foremost, approach resellers cautiously. Ask them not to register the deal. Or, if that’s not possible, and you’re unhappy with the reseller that registers the deal, you can request to have the deal unregistered in order for another reseller to get the preferred pricing. You can also ask the vendor to give the same level of pricing to multiple resellers. Warning: asking vendors to unregister a deal or give competitive pricing to multiple resellers isn’t for the faint of heart. Have a strong business case in hand.

4. Demand transparency on incentives being passed from OEM to reseller. As discussed earlier, vendors often provide resellers with special pricing, discounts and credits. But the full impact of those incentives doesn’t always make its way to the customer. A reseller approved to offer a 30 percent discount may ultimately only offer you 20 percent. That delta of 10 percent equates to higher margin for the reseller. An OEM may also give the VAR various back-end credits for things like training and marketing, which helps the reseller make more profit on a deal. Customers need to demand transparency on these incentives to better understand (and justify) margins.

5. Evaluate third-party options for support and refurbished gear. Remember – your alternatives aren’t limited to vendor-direct and reseller. There are a host of qualified and authorized third parties that provide refurbished hardware and hardware/software support services. These providers deliver the same quality of product/service (sometimes better) at a fraction of the cost.

One final note – there are many advantages to working with a VAR, and the advice shared here does not detract from that. Resellers often have vertical knowledge and service capabilities that are above and beyond what a vendor could provide directly to a customer. For that reason, customers should want their reseller to do well and be profitable through margins that are fair and justified. It’s when they operate outside of those principles that you have cause for concern. More often than not, it’s the customer’s complacency that allows this to happen!