The value-added reseller market is always changing and getting bigger–and there’s no indication that it will stop anytime soon.
If you resell IT products, are a value-added reseller (VAR), or have a channel that advises clients on aspects of the front office such as marketing, sales, or customer success, it is important to stay up-to-date with these changes.
The SaaS development industry is rapidly growing, software is becoming more affordable and easier to use, and CEOs are more focused on growth than on individual solutions.
Plenty of new trends are coming with these shifts. As we examine the four most important trends, value-added resellers (VARs) and channel partners should be aware of how these changes will affect their businesses.
What Is a Value-Added Reseller?
A value-added reseller is a localized business that takes existing products and services and improves them by adding their own integrations, products, and features. The companies mentioned sell products that have been improved upon or added to in order to make them more appealing to customers. These new, full-service solutions are then sold as a package.
Value-added resellers who sell products related to software development or hardware generally offer either full-service solutions or additional services such as training or hands-on software installation and implementation.
VARs either develop new products or services to improve existing ones, or they find ways to get more out of existing products and services. Let’s take a more in depth look at the value-added reseller business model.
The Value-Added Reseller Business Model
A value-added reseller is a business that resells products or services with value added. The value added can be in the form of improved functionality, additional features, or customization. The seller buys a product from the supplier and makes improvements to it so that it is worth more. That seller buys a “new” product and then resells it at a higher price.
An automobile dealership is a great way to think of the principle behind the concept. In this example, you can imagine a car dealership that buys used vehicles, enhances them with custom parts or accessories, or extends the warranties, and then resells the cars for more than it paid for them.
The value-added reseller business model entails selling augmented and enhanced products for more than what they were originally bought for.
As we have said before, the model is now most commonly seen in the development of SaaS and hardware. In those industries, resellers that add value create integrations, products, and features to package with existing products or services. The packages are then sold to include full-service solutions or value-added services.
How to Become a Value-Added Reseller
To become a value-added reseller, it is more important to focus on providing value to customers than on making a profit. This means that any extra features or integrations you add to products or services you improve must actually improve them, not just make them more expensive.
Resold products need to be clean and ready to use right away. Understanding what customers need generally requires a trained staff.
You’ll need to talk to solution architects to figure out what challenges the companies you work with are facing and to help you understand what changes need to be made to get the most out of the product you’re trying to sell. If the process of adding value to your product is labor-intensive, you will need to employ a dedicated staff to do that.
As a value-added reseller, you need to be constantly adapting to the changing market in order to be successful. You will have to stay up to date with the latest trends in your field and update your product catalog regularly.
Prices are an important factor in becoming a value-added reseller. If you want to be a VAR, you will need to keep track of deals from the distributors you purchase from, as they typically have low margins. You need to find a balance between selling at a price that will interest consumers and keeping your company financially stable.
If you’re interested in becoming a successful value-added reseller, you need to reach a broad base of potential customers. One way to do this is by maintaining an ecommerce presence.
You need a forum that is readily accessible to consumers if you want to be visible to them and keep pace with larger competitors.
Trends Value-Added Resellers and Channel Partners Should Watch
Front-office SaaS development and spending is exploding
The number of sales technologies available has increased significantly over the last few years, growing from 715 in 2017 to 950 in 2019. This trend is likely to continue as new sales technologies are developed and released. And it’s not just happening across sales and marketing. During the time period between 2017 and 2018, the amount of money that businesses spent on SaaS grew by 78%. This information comes from the 2019 Annual SMB SaaS Trends Report by Blissfully.
Software is getting cheaper
The “freemium” model where businesses give away free products or services to promote the sale of other products or services has been around for a long time, but has only recently been adopted by the tech industry. The debate about whether to give away a product for free or not has been going on for years, with some companies like Dropbox, Slack, and MailChimp being successful with the free model, while more complex products have not fared as well.
While free trials might not be the right strategy for every software business, several have seen results by adopting it. The world has shifted to a “try-before-you-buy” mindset. A study found that 71% of people would use a certain kind of payment method if it was offered.
The combination of free products and sales equals a lower cost of acquisition for customers, making it more appealing to businesses each year.
Software is getting more intuitive and requires less technical expertise
Software is getting immensely simpler to use. If you go back in time, you will see that software has become a more efficient, effective, and user-friendly tool for people who are not technically skilled.
Users’ needs and expectations have grown as well. Today’s mobile apps and free technology make it easy for users to engage with once-complex platforms and tools. You cannot release a UI in 2020 that is not responsive on mobile and expect it to be successful. As UX/UI improves, users expect more and are less tolerant of poor UX/UI.
Continued talent wars
Technical talent is hard to come by these days. Because every company now needs some form of technology, and most jobs require familiarity with technology, people who are good with computers have more job opportunities than they can manage. All businesses now need technology architects, engineers and technicians to help set up and secure their remote work configurations.
The IT industry association CompTIA puts out an annual workforce trends report based on a survey that asks about 400 U.S. human resources and workforce learning professionals in the IT sector about their organizations’ plans for learning and development, among other activities. 40% of companies hired IT staff during the pandemic and 66% have plans to add more in 2021, according to CompTIA’s 2021 Workforce and Learning Trends report.
IT professionals are in high demand and can command higher salaries than a few years ago, making them unaffordable for many small to midsize businesses. In the Channel Futures 2020 MSP 501 List, most VARs and MSPs make less than $10 million annually, with 75% of them falling into that category.
Most likely, these shops are having trouble finding the money to pay salaries that will attract and keep talented tech workers.
Companies are offering more than just an annual salary to attract partners. Based on a recent survey of 50 IT channel professionals, 26% say they recruit new talent based on total compensation packages, not just paychecks. Some benefits that are commonly associated with good jobs are flexible work environments, unlimited time off, commitment to diversity, education reimbursement, healthcare benefits, and retirement plans.
Many organizations are now looking to train their current employees instead of hiring new talent, as it is often cheaper. According to the CompTIA study, 42% of companies plan to start upskilling or reskilling programs for their current employees. This strategy can be particularly helpful for channel firms that employ help desk professionals, engineers, and other IT technicians. These technicians typically already must train, certify and re-certify on technical skills such as security or cloud computing.
Cutting out the middleman
The pandemic has resulted in changes to the supply chain and digitalization which are affecting the way the IT channel operates. The go-to-market processes for vendors, distributors, and the partners have changed as resellers, MSPs, and end users try to get new hardware from a supply chain that has been turned upside down.
Other factors besides supply chain issues are making partners look for software and hardware from different sources; for example, the way buyers go about making purchase decisions has changed. Some companies are choosing to source their hardware and solutions themselves instead of going through a partner. This is becoming more common because it is now easier to do.
Some changes have happened in the way sales and services are done because of this.
13% of partner respondents say that customers are going around them to source products or services, including using marketplaces or buying directly from a wholesaler. This number has increased from 8% in 2018. Some partners report that their customers are buying software and services from third parties without informing the partner, expecting the partner to manage it. Other partners report that their customers are buying software, services, and hardware without informing the partner, and only finding out about it if something goes wrong. In some cases, customers find software and hardware discounted online and buy it for a lower price than what a partner can offer.
Yet not only customers are going to marketplaces. Third-party cloud marketplaces are becoming more popular with partners, as they provide a way to avoid distribution and get products to market more quickly. One third of all businesses in the United States now use e-commerce, according to Forrester. 63% of that e-commerce is done through online marketplaces such as those hosted by tech vendors and cloud providers. Two-tier distribution, where companies purchase goods from manufacturers and then sell them to retailers, is also starting to sell products through cloud marketplaces.
This means that over $2 trillion that was previously spent in traditional retail channels is now being spent in marketplaces.
Although some changes may be seen as negative by partners, they may only require some slight changes in processes. The way service providers procure and deliver services is being disrupted by marketplaces. This means that VARs and MSPs need to change their thinking. It is important to remember that your customers will always be further along in the buyer’s journey than you might want them to be. The answer isn’t to keep things the same. instead of fixating on a single marketplace, its better to keep an eye on the many developing marketplaces – as they could be your go-to source of solutions in the future – especially when it comes to the cloud.
The rising importance of customer experience
In other words, companies that provide services are increasingly focused on generating revenue by providing their customers with a good experience. This means that retaining customers, selling them additional products, and selling them products that complement the product they have purchased are all more important under a subscription model. CX is still a priority for business leaders this year as they try to minimize customer churn and keep brand loyalty.
There is an emphasis on CX, which means that the lines between sales, marketing, customer support, and finance are not clear, as every department is trying to keep subscription customers satisfied.
The JS Group’s survey found that 43% of respondents have taken steps to improve their customer experience in the past 20 months, and that this trend is likely to continue. It is positive news for those who offer professional services automation (PSA) and remote monitoring and management (RMM) tools, as well as for MSPs that delegate their help desk responsibilities – something that is happening more often as resellers, agents, systems integrators, and XaaS providers transfer their Tier 1 support to MSPs with excellent help desk operations.
entrusting those tasks to a partner that is already experienced in handling them can be a very sensible solution.
As the barriers between departments break down, we see teams pay more attention to expanding relationships with existing customers. Out of the JS Group survey respondents, 59% say they have increased their customer marketing in order to have more opportunities for upsells/cross-sells. Recent studies show that partners who are moving from small businesses to midsize businesses are more concerned with monitoring and responding to customer feedback. This is likely due to the fact that they are hoping to achieve more growth in their business.
Many VARs and MSPs are improving their customer support by adopting a revenue operations (DevOps) approach. This involves creating dedicated teams to monitor customer satisfaction scores and address any issues that have caused a negative score.
The secret to providing great customer experience is to identify, examine, and act upon the right customer data and business metrics. MSPs especially should make sure they’re pros at this. Not only their businesses will benefit from it, but their customers are asking for help with it. If service providers want to keep customers coming back every month, they need to segment their customers and provide them with personalized services.
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