On Rad�s Radar

The VAR Business Model Gets Cloudy

By Peter Radizeski, RAD-INFO Inc.  |  June 10, 2013

The telecom channels are searching for the keys to the fastest sales vehicle. Right now, it is about recruiting as many feet on the street to hawk product as possible. Many people in the industry will tell you that cloud communications sells either on price or relationship. However, it is difficult to scale that kind of sales force. It requires channel managers, sales engineers, and other support to handle hundreds of partners.

Something that many miss is that it isn’t simply about numbers. It is about the right partner. Very few channel programs have strict criteria or have an application process.

Another thing that gets missed is that the business model of the average VAR may not sync with cloud services. Cloud services are about monthly recurring revenue. Most VAR business models are based on upfront cash via hardware purchases. A VAR with $2 million in revenue probably pays much of that to its distributor for hardware and software. The transition of a cash flow model to a recurring revenue model is a challenge. It is a challenge due to payroll and other expenses that have to be met without the upfront cash.

One thing to consider is if the services are adjacent to the main line of business of the VAR. Without too much marketing or selling, can the services be sold to the VAR’s existing customers and will that be enough business for the vendor. Typically, a new service will get 15 percent penetration in a year, so a VAR with 200 customers will result in about 30 sales. Is that enough?

Scaling up your channel with as many VARs as possible will produce channel managers who are quoting machine and sales assistants. There are realities about how much sales volume will result. This isn’t something that channel executives want to hear. Yet the thinking that channel partners are just a simple and less expensive answer to sales isn’t quite right either.

Edited by Stefania Viscusi