Understanding the VAR Business and its Challenges

Reading Time: 7 minutes
Reading Time: 7 minutes

Who is a VAR?

“A VAR or a ‘value-added reseller’ is a business that resells products after adding value to them”.

Value-added reselling is a business model that adds value to a product or service before selling it. This model is common in the IT and consumer electronics sector. The value addition can be in the form of software bundled with hardware to give users an integrated product or a complete solution, or value-added services such as setup, installation of software programs, and training service.

The VAR business model explained

Value-added reselling is a business model that adds value. As the name suggests, a value-added reseller (VAR) offers services that go beyond the selling of products. VARs typically buy products from suppliers, add ‘value’ to them in the form of features and services, and then resell to end-users.

VARs often purchase products from distributors and original equipment manufacturers (OEMs), add features or bundle them together to create a new product as a complete package.

A VAR can also combine components sourced from different vendors to build a new system as per customer requirements. Bundling third-party hardware and software to create an integrated product for reselling is a common practice followed by VARs.

The aim of VAR companies is to provide turnkey solutions that are ready for use and customized to the client’s needs.

VARs have good knowledge about the software and hardware products they offer.  The end-user does not have to run from pillar to post to find suitable technology. VARs ensure that the solution you buy from them best fits your business.

The Advantages of Being a Reseller

The VAR business is a cost-effective business model. A VAR maintains strategic partnerships with renowned suppliers to offer customers a wide range of products.

A VAR does not invest resources on developing a product. They identify solutions that are compatible with the services and products provided by a supplier.

Suppliers usually provide the sales and marketing resources for VARs. A VAR need not allocate funds for advertising as the supplier may offer sales and marketing support to them at no extra cost.

The Challenges of Being a Reseller

  • Low margins

VAR companies often operate on low margins. The selling price of products cannot exceed the MSRP, leaving little scope for VARs to get higher profit margins. Even if a VAR buys the products at wholesale prices, they can add only a certain percentage of margin when selling the products.

The profit for a VAR business is typically at sourcing. Distributors run promotions and deals, that help the VARs make their money.

For example, a distributor may offer one laptop free on the purchase of 10, free shipping or bulk deals.

  • Millions of products

IT distributors have product portfolios that run in the millions. Ingram Micro, a leading IT distributor in the United States alone has a catalog of 1.6 Million+ SKU’s from 650+ brands across 25+ categories and 500+ subcategories.

That is ONE distributor. VARs usually partner with multiple distributors so one can imagine the enormity of the catalog at play.

Read our article Product Catalog – The Biggest Pain Point in an Ecommerce Business.

  • Frequent technology and price changes

The IT industry is dynamic. The pace at which technology changes affects every sector that requires IT, which is almost EVERY possible sector in the world!

Technology gets outdated, sometimes within weeks. The product catalog needs to be updated regularly to avoid redundancy. Doing this for over a million products is exhausting and overwhelming.

Frequent technology changes lead to frequent price changes. Obsolete products get marked down heavily, deals and discounts from suppliers affect margins and keeping track of everything manually is next to impossible.

  • Constant learning

Due to the dynamic nature of the industry, IT resellers need to regularly stay updated about the latest technology and the newest products in the market. Even slight negligence can be detrimental to business.

Keeping abreast of a million products is exhausting, updating product information regularly even more so, and unless these processes are not integrated with the supplier’s product data feed, it can lead to massive losses due to incorrect quotations.

  • Requires trained staff

The VAR industry is demanding, the product range vast and processes are complex. Highly skilled and trained staff is required to handle the admin side of the business as well as sales and customer retention.

Sales reps are required to be highly competent and updated about the products they offer. The processes, if done manually are time-consuming and need manpower which adds to business costs.

  • Keeping stock is not advisable

Because of constant technology upgrades, and the resulting product redundancy keeping stock feels like holding onto a ticking bomb.

Not keeping inventory increases the VARs dependency on their suppliers. A VAR is completely reliant on the supplier to fulfil orders.

In a scenario like this having access to real-time inventory information is the differentiator between a struggling business and a successful one.

  • High inventory investment

If despite all the reasons not to, a VAR decides to keep stock, the investment required is extremely high, especially to stock high ticket items like servers. A reseller can decide to stock fast moving items and adopt a hybrid dropship model.

A hybrid model is where a reseller stocks some fast moving products at their warehouse while also offering their customers a dropship catalog. For example, while stocking 100,000 products is impossible, a VAR can easily stock 20 of their popular products.

What this enables a VAR to do is at times ship their popular products to customers faster than the distributor. Keeping inventory requires a larger amount of cash than dropshipping and poses a certain amount of risk. But if the VAR knows his business well, a hybrid dropshipping model is worth a try.

  • Price variation between distributors

A VAR partners with multiple distributors and the competition amongst distributors is fierce! The same product is available from multiple distributors at different pricing. In the absence of a tool that aggregates all the catalogs and offers a one window view of price and inventory from various distributors, it can be difficult to compare and choose the best price to quote customers.

  • Visibility of different promotions from various distributors

Due to this fierce competition, distributors always offer many deals and promotions. As the VAR business runs on low margins, it is these deals where the VARs typically make their money. But a VAR needs visibility to these deals to decide which distributor to buy from.

A quotation and ecommerce platform like VARStreet solves this problem for the resellers. VARStreet has aggregated the catalogs of 40+ IT, consumer electronics and office supplies’ distributors in the United States and Canada. This catalog is updated in real-time and gives VARs a single-window view of products, prices and deals from multiple distributors.

  • Competition from e-tailers

E-tailers are traditional retail businesses that sell products online as well. For example, Best Buy, CDW etc.

VARs are facing competition from not just marketplaces like Amazon and Newegg but also from e-tailers, all vying for the same customer base.

Not many VARs offer ecommerce, which honestly is the need of the hour. This puts their business at the risk of dying out to competition from e-tailers and marketplaces unless they adapt.

Read our article 10 Reasons why a Value-Added IT Reseller should have an E-commerce Store

  • Ecommerce no longer a luxury

Ecommerce has revolutionised buying behaviours, and every business needs to be online or die down eventually. Going online with their businesses is not easy for VARs due to the very nature of the business and complex catalog requirements.

The vast size of the product catalog makes setting up an ecommerce store extremely difficult. Most popular ecommerce platforms fail to support the complex business and catalog needs of resellers, especially of IT resellers. The product catalog for an IT VAR runs in millions and finding an affordable ecommerce platform that allows users to upload such an immense catalog is next to none.

  • No single tool to manage all aspects of business

Finding a single solution to manage all major business processes is challenging. The business management solution needs to seamlessly integrate with all the systems the business uses as well as the ecommerce solution.

Implementation is time-consuming and depending on the solution, can require developers, adding to business costs further.

VARStreet – Built specifically for VARS

VARStreet is built with the business needs of value-added resellers in mind. It is a powerful quoting tool with the added advantage of an aggregated product catalog and a modern ecommerce platform that supports millions of SKUs.

What is the VARStreet Aggregated Product Catalog?

VARStreet has integrations with 40 + distributors in the United States and Canada. We have aggregated the product catalogs of these distributors in one dynamic catalog. We say dynamic because it is updated in real time, which gives resellers the advantage of real-time price, inventory and promotions, all in one single window view.

This knowledge gives VARs the edge to not just always create a winning quote but also source right once the quote is approved, maybe sometimes even weeks after. With VARStreet’s real-time distributor feeds you are always confident of acquiring products at the best possible price, and of everything being in stock and ready to go.

Having used and worked with multiple existing Customer Relationship Management systems, we at VARStreet have uncovered the best features and most important components of a great CRM to create an optimized CRM Module that helps improve business processes for your sales team, creating a user-friendly Customer Relationship Management system for VARs of all kinds.

E-commerce for VARs made easy!

Ecommerce is the biggest challenge for value-added resellers. The reason we say biggest is because ecommerce is now a global phenomenon and EVERY business has to adapt to this on top of all their current challenges and processes. A VAR business has needs quite different from a retailer going online.

VARStreet is THE solution for VARs when it comes to quoting and CRM, so how could we leave ecommerce out of the mix?

VARStreet’s ecommerce solution for VARs will take your VAR business a notch higher. VARStreet’s ecommerce solution is one of the few ecommerce platforms that supports millions of SKU’s. Your product feed is available on the ecommerce store, and you can set rules and pricing based on your aggregated catalog in the back end.

You can set up personalised stores for your customers with individual pricing, products and payment terms.

We also offer catalog export to marketplaces like Amazon, eBay and Google Merchant, Facebook Store and Instagram Store etc., integrations with marketing tools like MailChimp and more so you can give your customers an omnichannel experience.

More on the topic:

Is Amazon the Right Market for a Value-Added Reseller?

Marketplaces – The Untapped Market for a Value-Added Reseller

Learn more about our ecommerce tool here.

If you need more information on how VARStreet can simplify processes for you, talk to our VAR expert today.

Alternatively, you can also watch a product demo.

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