Takeaway From Sage Tier Announcements of April 2014

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Sage yesterday announced a revamping of their partner tier computations. On the surface not much seems to have changed – well at least to the naked eye. Partners seem  ambivalent about the changes likely because margin percentage wasn’t drastically impacted.

Well, no impact  so long as you keep selling new  licenses. Whether these changes are good or bad largely depends on the VAR’s specific situations Good for larger partners heavily invested in Sage. Bad for small independent partners largely making money from commission on maintenance renewals and installed base license sales.

However there are two messages that were clearly broadcast which I believe apply to every partner.

Sage_Tier_Announce

What The Sage Tier Announcement Means To You

1. Effective April 17, 2014 Sage’s merger and acquisition policies  require any acquiring partner to pick up the same tier calculation on maintenance revenues as the acquired for a period of two years.  In plain terms this means if you’re a small partner who has/had lost all margin on maintenance renewals then another partner who acquires your customers would not receive any margin for two years.

Now the question becomes – why would a larger partner acquire your customers unless they want to sell them some type of add-ons, an upgrade to another Sage product or professional services. Best case situation you are going to receive a  percentage of cash collected (when and if that customer ever buys ).

Certainly there are  questions such as what happens if all the customers were to submit a Reseller of Record vs a formal request to transfer them via a merger?

Takeaway: Unless they are primarily making money off recurring consulting services , smaller partners who are still independent and do not sell enough new licenses to retain margin on renewals should either come to terms with receiving no margin on maintenance renewals or immediately partner up with one of the larger partners.

2. The top priority for every VAR should be to implement their own support program for which all customers receiving support from the VAR are required to join. This is the only program that offers immunity to periodic tier adjustments. If you are reselling a vendor support program and relying on the margin to remain consistent then you also should be looking for a new career.

The most certain thing in this industry is that all software publishers  face a maturing marketplace eventually.  At that point they increase revenues by a combination of price increases and margin cuts to the channel.

While margin may not appear to change ,  publishers will modify the qualifying elements required  to continue receiving the same margin. In effect the bar continues to be lifted to the point where you suddenly find you no longer can get over it. Unless you’ve created your own source of reliable recurring revenue which does not depend upon commission then your business may not ultimately be worth as much as you think.

 

About Wayne Schulz

Wayne Schulz is a consultant who writes about the ERP industry and technology related news.