How the VAR Business Model Works (And Staying Ahead of Future Changes)

Peter Sidney
Peter Sidney

A successful value-added reseller (VAR) business model has the potential to bring many benefits to both you, the parent company, and the entity that resells your products or services. Expanding business offerings can bring in new customers, build stronger customer relationships, and increase overall sales. It can also provide a substantial competitive advantage by differentiating a brand in the marketplace.

While a VAR business model can be incredibly beneficial to your bottom line, there are a few challenges you’ll want to learn to navigate. Add to that, predicted shifts in VAR business trends will need to be handled carefully. Today, we’ll look at ways to work through those challenges and maximize your value-added reseller channel partnerships.

What is a Value-Added Reseller (VAR)?

A value-added reseller (VAR) is a business or entity that acts as a middleman between a manufacturer and end customers. The VAR buys products from the manufacturer and then resells them to its customers, adding value by offering additional services, support, and customization.

For example, a software company provides a customer relationship management (CRM) software program for travel agencies. To sell more licenses, it teams up with a consultancy that specializes in helping start-up travel agencies. The consultant partner sells the a special CRM software package, which includes the consultant’s standard services, a membership to the CRM software, and training on that software. The partnership is a win-win for both the software manufacturer and the consultancy. In this instance, the consultancy is a value-added reseller, providing added value on top of the initial product offering to its clients, and bringing in new software subscriptions for the parent company.

VARs vs. Managed Service Providers (MSPs)

Managed service providers (MSPs) augment or replace a company’s in-house information technology department, focusing on ongoing management and support services for a customer’s infrastructure, such as computer networks, servers, and other technology. MSPs typically work within the IT industry, offering remote monitoring and management, regular software updates, and help desk support. They may also provide additional services such as data backup and disaster recovery, cybersecurity, and cloud computing.

VAR partners, meanwhile, can resell specific IT products like software, networking equipment, and hardware products, in addition to products from any other industry. Parent companies establish VAR agreements with their partners that add value to those products as a middleman. This happens through customization, integration, training, and support. VARs usually focus on one-time purchases and not ongoing service.

An example of an MSP is the Salesforce Developer Network. Salesforce is a customer relationship management (CRM) tool that provides a robust base framework. Users depend on a vast network of MSP developers who create third-party apps to meet their CRM needs.

VARs vs. Original Equipment Manufacturers (OEMs)

Original Equipment Manufacturers (OEMs) are responsible for designing, developing, and producing technology products, such as software and hardware products. OEMs sell specific products directly to customers or through a distribution network. Some OEM manufacturers include Cisco, Dell, Intel, etc.

On the other hand, value-added resellers are businesses that purchase products from OEMs, add value through customization, integration, training and support services, and then resell them to their customers.

Core Elements in the Value-Added Reseller Business Model

While the nuances of each company’s own VAR strategy will vary, there are a few core elements that will be seen across all VAR partnerships. Here’s a breakdown of those things you can expect your value-added resellers to handle; where you should provide detailed instruction and product training; and your responsibilities for being a good partner.

VARs Resell Your Product/Service

Value-added resellers purchase products or services from manufacturers or distributors and resell them to their customers. A traditional reseller makes money on these resales by ensuring a good margin when purchasing from a wholesaler or directly from the manufacturer and by increasing the sales price to whatever the marketplace allows. In the VAR business model, the revenue generated from resales is combined with other integrated products and higher-margin value-added services.

VARs Add Value to Your Product/Service

Value-added resellers add value to the products or professional services they resell through various means, such as customization, integration, software installation services, training, or support.

Manufacturers rely on these resellers to assist end users with add-on services they don’t provide. For the VAR’s clients, the value is created by providing essential services that the parent company’s in-house staff cannot provide themselves, due either to lack of knowledge, ability, or time.

A VAR can also combine components sourced from different vendors to build a new system or end-product as per customer requirements. This frequently happens when companies bundle components and use the margin on one item to discount them all. For example, when Best Buy combines a desktop computer, monitor, printer, and antivirus software package and then sells it at a discount, the value a customer receives is more than what they’ve paid.

VARs Maintain Their Own Profitability

Value-added resellers must balance the cost of acquiring products and services with the price they charge customers and find ways to increase revenue and profits through value addition and other means. To maintain their profit margins, the reseller may focus on selling high-price/low-cost products & services and building recurring revenue streams such as support, maintenance, warranties, and upgrade packages. VARs must also manage profitability by managing costs effectively by optimizing the supply chain and reducing waste.

In addition, VAR sales reps must ensure they stay efficient, leverage partners for success, and focus more on building their partners up than on their own quotas. In the VAR business model, the focus is on long-term gains.

VARs Provide Customer Service & Support

Frequently, value-added resellers are responsible for providing ongoing support and customer service to their customers. This helps them build their own customer loyalty and drive repeat business through excellent customer experiences.

Service and support provided can vary, but often covers aspects such as troubleshooting and technical support, training and education programs, maintenance and repair services, product installation and customization services. By providing great customer service, VARs reduce the number of returns and cancellations, building long-term customer relationships for both themselves AND the manufacturer.

This doesn’t mean that you, as the parent company, are off the hook completely. Frequently, a manufacturer’s channel partner manager will host webinars and trainings for resellers to ensure they are fluent in the methodology, language, and tools needed to effectively provide service on the manufacturer’s product. For VARs, these training events are invaluable as they build knowledge and a relationship with the manufacturer’s representative.

VARs Should Stay Informed on Their Partner and Overall Industry Trends

In order to stay ahead of the competition, remain relevant, and maintain profitability, value-added resellers must stay informed about industry trends and new products & services to understand what is driving market changes. They should review industry publications, attend trade shows, and participate in industry groups. They also should partner with industry leaders and invest in training time, especially training offered through a partner’s online resource center.

All Parties Must Maintain Open Communication

Maintaining close partnerships with your value-added resellers goes a long way in enabling their success—and your own. Partnership details that should be established up front will include wholesale or discounted rates for buying in bulk, and any guidelines VARs should be aware of when pairing your product/service with other items—i.e., being sure not to group your products alongside direct competitors, for instance.

If you’re using a partner relationship management (PRM) system, this is the time to provide partners login credentials to access materials such as training webinars, marketing strategies, sales materials, partner success managers, and more. Many reseller partner programs have tiers that provide added incentives for high-performing partners.

Pros & Cons of the VAR Business Model

As with any business model, there will be assorted ups and downs associated with implementing a value-added reseller program into your overall channel strategy. Here we will examine both and look at ways to maximize the pros and manage the risks associated with the cons.

Benefits of Working With Value-Added Resellers

  • Value-added resellers can help your product stand out by providing customization services that aren’t typically offered by you, the parent company.
  • Value-added resellers can increase your overall revenue by sharing your product with their customers.
  • Value-added resellers can boost your brand image by pairing your product into packages with other well-known and reputable brands.
  • Value-added resellers can provide excellent customer service by creating custom products that meet the specific needs of their customers.
  • Value-added resellers can build strong customer relationships by providing thorough and personalized customer support.

Challenges of Working With Value-Added Resellers

  • Value-added resellers must be provided guidance on what bundles your product may be included in. For instance, The Walt Disney Company would most certainly not allow a VAR bundle to include weapons or alcohol.
  • Changes in your product line will affect value-added resellers’ product offerings, and should ideally be communicated well in advance to ensure your partners aren’t negatively impacted.
  • Attending product training isn’t profitable for value-added resellers, as it just takes time they may otherwise spend on promoting their value-added product bundles.

How to Manage VARs as Technology Keeps Changing

In an age where e-commerce is outpacing traditional sales channels, and almost any product can be purchased on Amazon, the value a VAR must add becomes increasingly reliant on human interaction. Be it stellar customer service, training, customization, product expertise, or anticipation of end-user needs, VARs can stand out.

Of course, your value-added reseller partners can only do as good of a job as you enable them to. Without key product information, trainings and guidelines from you, they don’t have the resources to do their jobs well.

Businesses that utilize a VAR business strategy must set partners up for success through a strong partner enablement program. They must also listen to their VAR’s wants and needs. Asking partners what roadblocks they are encountering in the sales process and what training or marketing collateral would be helpful to overcome them should happen on a regular basis.

Relevize allows channel partner managers to do just that. Our cloud-based software allows increases communication with partners, provides visibility into your partner-generated reseller program pipeline, and allows you to scale that growth and maximize your channel sales revenue. Sign up for a free personalized tour of Relevize’s abilities to take your entire channel partner program to the next level.

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