VAR, or value-added reselling, is a business model that adds value. Putting it simply, a VAR offers services that go beyond the selling of products. VARs typically buy products from suppliers, add ‘value’ to them by adding new features or/and services, and then resell the products to end-users.

Quite often, VARs buy products from distributors and original equipment manufacturers (OEMs) and add more features or bundle the products together with the idea to create a new product as a complete package.

A VAR can also combine components that were sourced from different vendors and build a new system customized to meet a particular customer’s requirements. Bundling third-party hardware and software to create an integrated product for reselling is a common practice for many VARs.

This is the place where VARs face the most challenging part of their business, because here they need to find experts in a very specific field of knowledge: the engineers who can make the hardware plus software integration possible.

Well, as all VAR companies aim to provide turnkey solutions that are ready for use and customized to the client’s needs, they need to have good knowledge about the software and hardware products they offer. In fact, it is their job to make sure that the end-user does not have to run from pillar to post looking for suitable technology. Thus, VARs business is to ensure that the solution you buy from them best fits your business.

The main advantage of being the reseller is its cost-effectiveness. With cost-effective business model, VARs maintain strategic partnerships with renowned suppliers to offer their customers a wide range of products.

Secondly, VARs do not invest resources on developing a product. They identify solutions that are compatible with the services and products provided by a supplier, and suppliers provide the sales and marketing resources for VARs who do not have to allocate funds for advertising because the supplier may offer sales and marketing support to them at no extra cost.

At the same time, there is no business without complications. Let me list the ones that make VARs most vulnerable in the market

VAR companies often operate on low margins. The selling price of products cannot exceed certain market-regulated limits, so 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 item free on the purchase of 10, plus free shipping or bulk deals; this would help a VAR make their benefit on the deal.

Millions of products: Distributors of IT products have large product portfolios. VARs usually partner with multiple distributors so the product catalogs they have to deal with may have millions and millions of items.

The technology and prices change incessantly. The IT industry is the most dynamic of all; technology changes at unimaginable speed, and VARs have to deal and adapt to the ever-changing market conditions.

Constant learning: the changes in the market make VARs learn all the time. Keeping abreast of a million products is exhausting, updating product information regularly is also time and money-consuming. If these processes are not well integrated with the supplier’s product data feed, it can lead to massive losses due to incorrect quotations.

This business requires trained staff. Logically, this leads to the necessity to train the staff all the time. Sales reps are required to be highly competent and updated about the products they offer. There is no way to manage such processes manually, so VARs have to take care of upgrading their business operations with the most innovative software all the time.

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. As the VAR business runs on low margins,  a VAR needs visibility to the deals they make to be able to decide which distributor to buy from.

Competition from e-tailers (traditional retail businesses that sell products online as well, like Best Buy, CDW etc.) has to be taken into account by VARs, too.

Ecommerce has changed buying styles, 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 is almost impossible, so VARs have to invest in building their own systems to run their business.

Finally, there is no single tool to manage all aspects of business. So finding a single solution to manage all major business processes is quite challenging. The business management solution needs to seamlessly integrate with all the systems the business uses as well as the ecommerce solution, and its implementation is time-consuming and depending on the solution, can require developers, adding to business costs further.

If you are planning to set up a digital transformation process for your business and have questions about the project, you are welcome to contact me for more information.