State of The VAR Market

I just had an interesting email exchange with another partner regarding the market for new deals (sales of ERP software) versus sales to existing customers.

This has been a hotly debated area for quite some time with those offering primarily services to existing customers (such as myself) being branded “Lifestyle Consultants”.

I’m not quite sure that Lifestyle Consultant is a compliment. Rather I believe  it’s used to demean someone who makes revenue off  their existing customer base (often more revenue than those selling new implementations).

Here’s a copy of my unedited email – which I thought read quite a bit like “State of the VAR Market 2012” as seen through the eyes of a Lifestyle Consultant.

State Of The VAR Market – 2012: Lifestyle Consultant Edition

This has been my model for a while – especially since it is the primary model that makes sense for small firms. So I’m not a good bellwether on the new deal side of things.

My observation though — via the few new deals inquiries that I’ve seen (1 to 2 per month) match with yours.

– SaaS user (Netsuite) wanting to move to MAS 90 but was obviously oversold on Netsuite and wants a quick and problem free move to MAS90 without any advance analysis — or if there is advanced analysis it will all be free (they walked immediately at the paid analysis proposal). Several obvious tricky issues of tracking consignment medical inventory. Prospect didn’t want to hear that there were tough areas to automate…

– Owner of a company that sold one entity and started another selling hand sanitizer. No idea of distribution (web, wholesale, retail) just needs something priced today. Uh, no thanks.

– Odd one-off type inquiries (usually manufacturers) where their requirements are clearly outside of anything they’ve been able to locate “off the shelf”. These requirements seem very risky to fulfill because the prospects are conditioned to solve the problem on a free demo and lowball new software quote.

While Sage and other software publishers have been dysfunctional in a lot of ways – they usually are not that bad when it comes to determining long term pricing policies.

Although I dislike monthly pricing for support – I’m going to offer it (at a higher annualized rate) simply because if a customer is pricing their other services/software that way I must be prepared with a proposal that mirrors the way they will buy.

A price of $ 700/mo for support that includes on-site work and upgrades (for a relatively non-complex site) sounds a lot better than $ 7,000 per year paid in advance…

The requirement of a customer being on OUR OWN SUPPORT/ACCESS/KNOWLEDGE agreement is critical. If we cannot build our own recurring revenue then we should be out of the business.

We are to the point where it’s such an unpleasant experience dealing with Sage that we’ve stopped re-billing maintenance for any customer that is not on our support plan. The old belief that “we’ll make up our expenses on the commission from Sage/software publisher” just is not going to be true long term. I expect a 5-10% decline year over year in what we get from publishers (that decline could also come in the form of higher costs).

I’m not entirely sold on how we make money on SaaS (as a VAR).

I do believe that if I were a customer I’d want to have all my software hosted externally. The problem as a VAR is there’s not a clear way for you to make money unless you do the hosting yourself.

Any other business model where you are sitting by collecting a commission ( as it is today with margin on maintenance) is less favorable because as we’ve seen the publishers just change the rules to take away the margin…

I still think that a lot of the VARS who are joining Netsuite and Intacct do not yet have a clear idea of how they will make any money — despite the fact that the cost to join is higher than Sage and the requirements for ongoing sales are not any lower or less forgiving.

In a nutshell – this business is about recurring revenue that you control. Period. Absent that you have a mediocre job from which you can easily be laid off (margin cuts / drastically higher cost to remain a partner).