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March 31, 2015
By Mike Flanagan
Today, many VARs are being forced to transition their businesses from product sales to offering more comprehensive solutions. This is due to declining product margins, higher competition and lower-cost alternatives to proprietary products. While the transition from VAR to solutions provider is no easy feat, below are three tips that will help with the process.
1. Develop a Growth Strategy
For most VARs, transitioning to a solutions provider model requires becoming a larger business. There are several reasons for this, including gaining increased market credibility, getting better pricing from OEMs on product sales and achieving more efficiencies for sales managers, engineers and administrative personnel.
To achieve growth, VARs need to develop a strategy around either adding new products/services or targeting new customers, which can take them into new geographies or industries. VARs may consider doing both at the same time, however, this approach is usually more difficult and most often, it’s facilitated through the acquisition of another solutions provider.
Additionally, VARs should always be thinking about new ways to develop a richer set of services that will add more value to their existing customer relationships. This could include implementation and integration services, ongoing training opportunities or complementary product sales. Not only is selling additional services to an existing customer easier than acquiring a new customer, but it also opens the door for a more long-lasting customer relationship.
2. Develop a Recurring Revenue Model
Today, most VARs are built around individual deals, leaving customer relationships inactive until the client is ready for an upgrade, needs support or wants to buy new products or services. It’s time to move away from this transactional approach. That means the next step in transitioning from VAR to solution provider is developing a recurring revenue model. This form of billing automates much of the invoicing process, so invoices are no longer sent out manually, and companies can control the invoicing schedule (once a month, once every quarter). The most common forms of recurring billing include subscriptions, membership dues and payments that are made under an installment plan. Typically, this means shifting from hardware sales and software licenses to subscriptions, a move that usually requires selling cloud-based services, and from one-off projects to long-term services contracts.
In addition to freeing up an immense amount of time and resources for the solution provider, a recurring revenue model also frees up time for the customer because they no longer need to manually enter billing information each month. This makes it a win-win for both parties involved and helps the solutions provider develop a better relationship with its customers.
3. Transition to Managed Services
Next, solutions providers need to think about how they can move beyond just sales of solutions to managed services or business process outsourcing. In doing this, a provider takes responsibility for the customer’s process, doing more than simply selling products and services to the customer; it actually operates solutions on behalf of the customer.
Making this transition is the ultimate indicator of a solutions provider, and more and more companies are finding success with managed services because it provides one of the strongest areas of revenue growth. In fact, research shows that the managed services market will be worth $193 billion by 2019, further demonstrating that this approach will give solutions providers a lot of potential in terms of continued expansion.
In summary, moving from a transactional mindset to developing long-term customer relationships, becoming more invested in customer success and transitioning from cash up front to realizing revenue over the life of a contract are all key changes that VARs must keep top of mind when making the transition to solutions provider.
Due to the heightened pressures that VARs face today, realizing financial success as a reseller is bound to become more difficult if they don’t make this shift. So, start implementing these changes now and you’ll have the best chance at setting your company up for success.
Mike Flanagan is the general manager of supply chain management (SCM) applications at FinancialForce.com. Prior, he was the CEO and co-founder at Less Software, which was acquired by FinancialForce.com in 2014. There, he led the vision for the SCM product suite for design, creation and implementation.
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