Are You Getting What You Pay For?
If you think distributors are simply necessary intermediaries through which to obtain products, you may be missing out on services that improve your profitability.
Most imaging VARs make a living by helping their customers increase efficiency and cut costs. The knowledge of how an industry works and how to make it work better and smarter is the heart of a value-added business. Similarly, choosing the right VAD (value-added distributor) and taking advantage of the services it offers help VARs save time, effort, and money.
Obviously, a distributor is a necessary supplier of certain products, but you also need to view that partnership as a financial one as well. Not only does a distributor extend credit and financing services to a VAR, it should also educate the reseller about the financial aspects of running a business. "When distributors help resellers make better credit decisions on their side, it makes them stronger, better customers," says Mike Zava, U.S. VP of credit services for VAD Tech Data Corp. (Clearwater, FL). "Many small VARs have strong sales and technical skills, but they usually have an accountant or bookkeeper who hasn't been trained in credit verification and billing techniques." VADs know how to run credit checks (They run them on you, don't they?), and can offer education as a value add. This can include teaching a VAR how to pull and understand financial data off the Web for public companies or obtain discounts on credit reports. "That helps VARs run their businesses better and issue credit wisely," adds Zava.
Being financial partners means being able to trust your distributor with information about your business. "In order to maintain cash flow, a reseller doesn't want to order hardware until as close as possible to when they need it," notes Scott Slack, VP of marketing for Cranel Imaging (Columbus, OH). "That means it's important to work with a distributor that offers just-in-time inventory. In order for that to work effectively, a VAR has to be able to view the distributor as a partner. For example, they have to share pipeline data to make sure the distributor has the right products on hand."
Sharing information about pending deals may allow a VAR to proactively prevent credit issues. "When you have a relationship with a VAD, it's possible to arrange creative financing," says Joel Port, VP of sales for NewWave Technologies, Inc. (Gaithersburg, MD) "For example, based on who the VAR's customer is, we may be able to take that customer's credit into account for larger deals so it doesn't affect the reseller's credit line. If the VAD knows up front what's going on, both sides can get started early to plan the finances. Nobody wants to land a big deal and then not have the credit to get the hardware up front."
This is one argument that distributors use when encouraging VARs to use a single VAD instead of spreading credit around a number of partners. If it's an ongoing relationship and you've established a positive payment record, it's more likely that the distributor will come forward with a creative solution. The added advantage of that strategy is that it reduces the amount of time spent managing multiple accounts.
When A Traditional Credit Line Isn't Enough
If, for some reason, a VAD can't provide the appropriate credit line, they should be able to provide you with alternatives. "If an up-and-coming reseller lands a million-dollar or $2 million deal, it probably requires a higher credit line than a distributor can issue," notes Zava. "We encourage our customers to go after those deals anyway and introduce them to third party financiers who specialize in our industry." For a fee, floor planning services and other outside financing companies can often extend the credit terms beyond the standard net-30 to 120 days.
"All distributors offer credit terms," says Slack. "Sometime the answer for a VAR is a financing alternative such as leasing. With leasing, a transaction is ultimately between the end user and the leasing company. The VAR gets the margin up front because the leasing company pays him. Since the distributor gets paid at the same time, leasing doesn't affect a VAR's credit."
Zava adds that leasing has become increasingly attractive as a selling tool for VARs. "For years leasing was not well accepted," he admits. "The current economy makes it much more likely that a customer will lease rather than write the check for the whole expenditure. Many end users are looking for ways to reduce cash outlay."
Let Distributors Sweat The (Relatively) Petty Stuff
As the saying goes, the devil's in the details for many VARs. With sales to land, businesses to run, and technical certifications to maintain, it's easy to lose track of the little things that can quickly add up. "A distributor should be aware of ways a VAR can maximize its money, such as which scanner line will give best margin potential," asserts Port. "With a knowledge of the hardware market and a VAR's individual needs, a distributor can make sure that resellers are introduced to relevant vendor programs."
"A distributor has to invest time with the vendor to make sure VARs are aware of product updates and other changes, in addition to promotions," adds Arsenio Batoy, president of Optical Laser, Inc. (Huntington Beach, CA). If a scanner manufacturer adds a new connectivity option or firmware enhancement, that change can affect future product choices as well as possibly existing solutions if a field upgrade is available. Unfortunately, in the day-to-day activity of running a business, it's impossible for a VAR to follow all of the news about every vendor in the industry.
After a purchase is made, a good VAD should still be invested in the deal. Whether it's service contract renewals or rebates, distributors should be aware of where a VAR can collect additional revenue and make sure resellers get every dollar that's coming to them. Many VADs are making this information available online for the VAR to monitor more conveniently. Others are proactively alerting VARs to expiring contracts or unclaimed rebates.
The Tools To Pursue New Market Opportunities
"Financial services and logistics are a given in distribution," states Batoy. "More strategically, VADs need to offer the products and market expertise to help VARs investigate new applications and grow their businesses." To remain competitive and sell back into an established customer base, VARs always have to be evaluating new technologies. Sometimes these technologies fall outside of the range of what they have traditionally offered. VADs with varied expertise can provide VARs with the tools they need to take on these new challenges.
To create these new opportunities for VARs, VADs have to provide technical expertise and vertical market knowledge, not just products, says Batoy. For instance, an imaging VAR that wants to extend its mass storage offerings may require training as well as the support of a VAD's presales engineer who can help spec-in a product. Many VARs are also evaluating how to take advantage of the trend toward integrating with line-of-business applications such as ERP (enterprise resource planning). VADs with staff trained on those systems can provide the same kind of consultative value that a VAR strives to provide its customers.
Some VARs may view the points collected by a distributor as part of the cost of doing business. However, when dealing with a true VAD, that percentage is an investment in growing your business and a small price to pay for the advice and services of a trustworthy business partner.