A significant number of the deals we inspect every day are channel deals. At ClearEdge, we see a 17% gap to competitive pricing on deals that are purchased via VARs or Resellers. The good news: clients can negotiate better pricing 75% of the time. This discussion will outline how these discrepancies happen and provide seven best practices to ensure optimal deal outcomes with your channel partners.
“Resellers” is a broad category that includes five primary types of players:
Distributors: Ships product from OEM to reseller or end user.
Resellers: Buys products from OEMs and resells it to you for a mark-up.
Value-Added Reseller (VARs): Reseller that provides “value-added” services.
Licensed Service Providers (LSPs): Facilitates contracts for large software vendors (often used in Microsoft license purchases).
Managed Service Providers (MSPs): Services entire process/function including reselling products.
Some resellers focus on a few core businesses, while others provide a host of services. It is important to note that while these companies may operate in multiple categories like reseller and LSP and VAR, their core businesses are usually in one or two of these areas. It’s vital to understand their specialty or bread-and-butter business to successfully negotiate with them.
To that end, we’ve compiled the following list of seven best practices when dealing with resellers:
1. Whenever possible, go direct.
This advice may seem ironic in a list of best practices with resellers, but when the product goes through the channel, a lot of things happen in the background. The channel players are going to mark-up the product and charge fees for additional services. We strongly urge clients to negotiate directly with the OEM in order to get a deeper level of discounting that only OEMs can provide (and resellers can’t).
2. Put the value back in VAR.
Most resellers pitch themselves as “value-added” whether they’re providing value or not. It’s in your hands to determine what additional services they’re providing, and if you need them. Is it guidance, support, something you can’t get otherwise? Or maybe it’s something that’s redundant in the OEM configuration? In other words, your team must evaluate whether the reseller is adding true value to your solution, or just eating away margin.
3. Understand deal registration.
This is sort of a taboo subject, but deal registration is the process where the reseller secures their cost to buy from an OEM and assures that another reseller doesn't get that same low cost from that OEM. For example, you go to your reseller and tell them you're going to buy 1,000 laptops. They go to Dell and say, “I want to register this deal now”. When they register the deal, they're not just making a deal with the OEM, but they're making a deal with you. By registering the deal, they're locking in your business. This essentially removes any uncertainty surrounding the deal and limits their discount to you – why should they let you negotiate a better price when they know you’re not going to compete the deal?
4. Use the competition. Avoid deal registration -- or get the OEM to unregister the deal -- and bring in multiple VARs to compete for your business. The competitive threat will push them to give you better pricing, terms and conditions. For example, one client ran an extremely successful RFP between seven different VARs to support a $30 million hardware environment. Not only did they get a great cost-plus model on their hardware, but they were able to secure rebates and free shipping by bringing in competition. This practice is often overlooked but is very much worth the effort.
5. Learn the reseller’s compensation plan. Find out what’s important to your channel partner: are they being incentivized by an OEM or software provider to sell certain things that are going to impact your deal? Maybe they’re earning bonus on getting rid of older inventory that’s taking up space in a warehouse. The better you understand their motivations, the better you can use those motivations to your advantage. This tactic is particularly important in long-term relationships with channel partners who are no longer incented to get you the best deals.
6. Reward transparency with loyalty. This is probably the most labor intensive of the seven best practices and its steps are summarized in the following chart.
The process will determine if you’re capturing and monitoring historical data as it relates to your channel volume and spends. It forces you to consider your reseller relationships, their competition, margins, motivations and their value, as well as your own expectations and future needs. It will also reveal whether you’re actively managing the resellers to the best of your ability, and if those resellers deserve your business.
7. Use leverage.
In any deal, you must ask yourself, am I starting early enough? Am I creating accurate forecasts and timelines to make sure I’m not buying something one month then need more the next? Am I creating uncertainty around the deal or am I sharing too much information? Am I harnessing the competition? We’ve seen the effect of leverage across thousands of deals and know with certainty that it is the number one way to achieve superior outcomes.
For more information, view our VAR/Channel Best Practices webinar, visit our website for upcoming opportunities to learn about our Leverage Management Maturity Model, or contact a ClearEdge representative.
Andrew Ozlowski is a Managing Director and Danilo Milevsky is an Analyst at ClearEdge Partners.