As a procurement department gets ready to purchase new software or hardware products, they’ll likely run into offers from value-added resellers (VAR). This is particularly the case for SaaS, e-commerce, and IT products.
The VAR business model allows a third party to sell a vendor item while promoting additional services, goods, or benefits to the end user. They offer services presented as a custom solution.
VARs set revenue targets and make money through the upgrade and upsell of these vendor products. Consumers purchase through a VAR when they lack the resources to take on complex implementations, or they need more guidance to install a new product.
In this article, we’ll look at the definition of a VAR and the business model, why it’s important, key examples, and the advantages/disadvantages of a value-added reseller.
What is a Value-Added Reseller (VAR)?
A value-added reseller (also referred to as a VAR) is an organization or entity that adds features or services to an existing third-party product. It then resells the integrated, customized solution to an end-user or consumer.
The goal is to provide enhanced value beyond the original order fulfillment, which can take a number of forms, from installation services to troubleshooting, and additional hardware. This added value also helps a VAR strengthen customer relationships and leads to a higher rate of retention.
The term “value-added reseller” is typically synonymous across IT industries. A VAR is usually part of a larger sales channel for an original equipment manufacturer (OEM). OEMs and other IT companies will make their goods available to VARs at a discount. This helps the reseller facilitate sales on behalf of the OEM by adding presale value. The VAR then adds a markup to the final sales price, in order to make a profit.
VARs are an important distribution channel for manufacturers, especially those in the IT sector. Some are exclusive to one brand, but most value-added resellers work with several clients in order to offer more choices to customers.
Value-Added Reseller Agreements
Just like any other business contract, a VAR agreement lays out reseller rights and specifies the requirements and conditions for performing the job. It’s important that the VAR ensures the contract is in line with business goals that can be attained realistically.
The contract includes descriptions of specific products, directions on how they should be marketed (including use of the logo and branding), and the territory in which the VAR is authorized to sell. Additional details are:
- Contract time frame
- Whether rights are exclusive to the VAR or not
- Sales goals (including those required for exclusive benefits)
- Warranties under which a VAR may return a product
The value-added reseller agreement should also contain conditions that lead to the termination of the contract. VAR agreements are legally binding to all participating parties. Any premature termination may result in fines and even legal action.
Value-Added Reseller Business Models
Larger VAR firms may work in a one-tier distribution model in which the VAR purchases the product directly from the vendor. Smaller VARs, however, work in a two-tier business model in which they must purchase the product from a distributor. Additionally, some vendors have exclusive rights with distributors and in this case, a VAR of any size must work in the two-tier model.
Sometimes organizations need help in choosing and implementing which programs work best. Hardware and software value-added resellers are common in the tech world for this very reason. This is also what makes them different from a distributor. They are creating a custom experience that often includes:
- System assessments
- Implementation services
- Tech support
- System solutions
While a traditional reseller is a third party that simply resells a vendor’s product “as is,” the VAR business model creates value. For example, Microsoft 365. While Microsoft is the vendor, organizations can buy 365 from VARs that can help to upload and train them on the system.
The Value-Added Reseller Process Work?
The following is a quick overview of how the VAR process works:
- VAR orders product from OEM. The process begins with the relationship between the two entities.
- OEM manufactures product. This is the specific number ordered by the VAR.
- OEM sells product to VAR. Once the order is completed, it delivers the product to the VAR.
- VAR adds value to the product. The VAR will assemble the item and add branding.
- VAR resells product. This can include implementation, training, and other additional services.
Value-Added Reseller Examples
A VAR is a channel partner that often plays the middleman in IT acquisition and implementation. Tech companies offer a range of value-added services and products like service contracts, extended warranties, supplemental hardware, installation services, apps, setup, and more. They then resell the integrated product as a whole package.
The VAR business model also includes verticals like furniture companies and auto dealerships. Furniture companies can add extra services that meet customer requirements like interior decorating, workspaces, and professional design. Auto dealerships meet revenue targets by offering value-added services like extended warranties, custom-made accessories, e-commerce sales, and car rentals.
One of the prime examples of value-added resellers is the IT original equipment manufacturer (OEM) Cisco. They cultivate a reseller program that oversees certification, authorization, training, and auditing of members to ensure quality control.
In order to be a VAR for Cisco, you must be authorized and demonstrate that you have the infrastructure and personnel to support the sales of a product. Then you may receive a "select," "premier," or "gold" certification from Cisco.
Cisco also provides training for VARs to specialize in a number of areas such as:
- Internet of Things (IoT)
- Enterprise networks
- Data centers
Periodically, VARs must submit audits to Cisco to prove their ongoing worthiness for membership in the network.
Values Added Reseller (VAR) vs. Managed Service Provider (MSP)
Oftentimes, VARs are confused with a managed service provider, but there is a large difference between the two and it starts with the end user. When it comes to an MSP vs VAR, VARs operate on a transactional basis or a short-term contract. MSPs, on the other hand, operate with long-term contracts. The tenure of their relationship is open and they act as SaaS for clients.
While VARs revolve around specific events, an MSP provides services at a steadier rate. However, the lines have begun to blur considerably between the two roles with the advent of cloud technology.
Pros and Cons of Using a Value-Added Reseller
In order to better understand the true importance of a value-added reseller, it’s best to weigh the pros and cons of such a program.
Advantages of Using a Value-Added Reseller
VAR partners bring a lot to the table. See below for some of the pros of using a VAR:
Single Point of Customer Service Contact
A top value-added reseller understands the needs of your business and will work to guide you into selecting a product that is the perfect fit. They will act as a single point of contact when you want to troubleshoot a brand’s valuable products. The customer service line of a VAR will provide support to customers for a specialty product whereas an OEM might not be as used to dealing with customers.
Personalized VAR Program
VARs are typically connected to a variety of vendors and can offer a wide range of tech solutions for customers. The end user can select the right fit and further customize the VAR program to meet specific needs. A VAR is there to help you best configure the product.
Save Time and Resources
Save time from researching products and contacting manufacturers; comparing prices, supply chains, and features. A VAR has knowledge about a variety of products including the latest information and contact data. Dealing with them directly eliminates waste (through automation) and helps to conserve resources.
VARs can be recognizable brand names that carry value. In this case, they help make OEM products more appealing to customers. Adding more value to a product makes it easier to convince someone to purchase it.
For example, if you had to spend $600 on a new laptop, $250 on an operating system, plus the cost of tax, upgrades, and the warranty, it’s not as appealing of a purchase.
VARs are very well-positioned to help customers with product-related issues. They tend to offer turnkey solutions with such a high level of technical support, you’d think they were in-house. They have intricate knowledge of integrated software and hardware products that constitute an entire IT package.
VARs are usually trained as part of a reseller program by the vendor. They have in-depth expertise that can educate the buyer and in some cases, even provide a demo or video conference to close the sale.
Disadvantages of Using a Value-Added Reseller
When it comes to purchasing the right product and professional services for your business, it’s important to also consider the cons. Here are a few disadvantages to using a value-added reseller:
Long-Term Costs + Pricing
VARs lack very little control over finished products or pricing. Although most reseller partnerships have a healthy margin for profit, continuous changes and updates to the product can affect core profits over time; which makes the business model unsustainable unless changes are being made. This, inevitably, drives up long-term costs.
It also makes it harder for solution providers to reflect accurate pricing. Especially if their catalogs are filled with a million SKUs.
The more resellers you deal with, the more likely they are to overlap. There is going to be conflict somewhere along the sales chain.
One example of this is the retail industry. You can go on Amazon to purchase a Dell computer or shop at Best Buy. You can purchase a Dell with Windows or an HP with a complete setup. All of this creates less profit for resellers because the market is virtually flooded with value-added resources.
There are over 20,000 value-added resellers in the United States alone, and they are all competing for the same customer space. While many provide equivalent products, some may lower prices in the absence of a catalog aggregate tool, which can lead to unfair trade practices.
Control Over Quality
Resellers rely on the manufacturer for control over product quality. They have very limited control over the final product, particularly when it comes to software produced by an OEM.
Since VAR products and services are add-ons to a product that already exists, there are few metrics to determine who is purchasing what, and why. With limited feedback, it can be challenging to develop an accurate forecast.
Thankfully, tools like Relevize solve the issue of VAR quality control. Relevize is one of the only partner execution platforms built for sellers and partners to maximize their channel sales revenue. They guarantee quality to buyers, no matter what market fluctuations take place.
VARs are an important element in channel partnership and the information technology industry. The value-added reseller creates expertise around a product, while maintaining a single point of contact for customers. They campaign for brand recognition, save time, and cast a wider net across niche audiences and workspaces.
A business not only benefits from the added IT expertise and integrations, but VARs also drive a more personalized approach, strengthening customer relationships, building data centers, offering technical support, and sealing brand loyalty.
Relevize is a dynamic option for channel marketing teams to track their sales efforts across multiple partners. Their professional services enable partners to become more productive and efficient through software capabilities that include automation, scheduled messaging, pre-built content creation, and sales tracking activities that give you credit for any deals that close.
The Relevize team are solution providers that show you how to leverage your modern tech stack to become a top B2B reseller in the IT industry. They help partners, resellers, distributors, managed service providers, and more demonstrate a return on investment, year over year.
Want to see the Relevize software in action? Contact our team and we can set up a free demo today!