Written By: Dian Gunderman, SVP of Procurement Services, PAAS
In April of this year at the ATP-Summit (Pittsburgh) event, PAAS discussed the amount of technology spend that is directed through the channel, also known as Value Added Resellers (VARs). The conversation was based on the 200+ clients that PAAS has partnered with across the globe. Depending on whether your business is classified as SMB, Mid-Market, or Enterprise or Strategic account, the amount of spend directed through the VAR has increased significantly over the last 3-5 years.
OEMs have gravitated to the VAR model for a variety of reasons, including lower cost of sale, faster receipt of cash, focus on higher margins, and expansion of services and markets that were previously inaccessible. Because of this growth, there are now thousands of VARs and distributors from which to select, all across the globe. Some of the most common names include SHI, INSIGHT, CDW, DIMENSION DATA, INGRAM MICRO, SOFTCHOICE, TD SYNNEX, etc. While these are the established firms in the VAR market, our data shows the smaller VARs also can provide significant improvements in value & price, as well as providing sustainable long-term relationships.
Selecting the right VAR partnership is just as important as selecting the right OEM. Most of our clients within the Enterprise/Strategic account category deal with an average of 10-15 VARs to support their IT requirements. If not negotiated correctly, you may find yourself paying high markup rates for your technology purchases. Most clients are content with their VAR relationships until they realize their true collection of margins over the years. In many cases, VARs will receive a transfer cost from the OEM, so they mark up their margin to compensate. If the VAR has deal registration or is the incumbent, they are in an even more favorable position against any competitive VAR with respect to pricing.
To combat this, the PAAS platform has two unique data sets – OEM Pricing/Terms and VAR Pricing/Terms. OEM providers provide different classifications of VARs based on certifications, geography, volume, etc. Rarely is the Tier 1 provider extending the client the best potential price, most often they are not.
Using this data, we recently completed a VAR thesis for a Fortune 100 retail client and the results were staggering:
Their estimated annual VAR IT spend was $188m.
Their estimated total IT spend was $245m.
76% of their spend was through VAR – up 30% in last 2 years.
They had 14 VARs (4 Tier 1 & 10 Tier 2-3).
The average estimated margin of the Tier 1 VARs was 11-13%.
The average estimated margin on the Tier 2-3 VARs was 6-8%.
$128M of the total spend was addressed by the Tier 1 VARs.
As is evident in this case, it’s important to ensure that a VAR is acting as a client advocate rather than working against the client. Finding a trusted VAR to consolidate 75-80% of your IT purchases will provide substantial savings, value, time, and visibility to forecasted spend. The client referenced above has the potential to save $5-7M annually by reevaluating their VARs.
Would you like this thesis created for your business? Would you like a blueprint that allows you to negotiate and select the RIGHT VAR? Click below to schedule a consultation.
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