Subscribe to Inc. magazine
STRATEGY

What is a VAR?

Value-added resellers are selling less hardware and software but providing more ongoing IT service and support to small businesses.
Advertisement

The term "value added reseller" is something of an anachronism these days.

That's because VARs, as they're more commonly known, are getting less involved in the reselling of hardware and software and more involved in providing ongoing IT services and consulting. "There's a trend away from the solution provider providing hardware," says Russell Morgan, president of the Information Technology Solution Providers Alliance, a professional association for VARs in Portland, Ore. "In many instances they'll say if you need a piece of hardware, call so and so."

The reason is simple economics. The margin on services is much higher than the margin on hardware, which shrinks every day as prices drop.

What a VAR does

But if a VAR doesn't sell anything, what does such a business do? Steve Hilton, an analyst with The Yankee Group, in Boston, defines a VAR as a "trusted tech advisor for a small business who can provide support, training, tech guidance and consulting to help a small business make a tech decision to drive business forward."

In other words, having a VAR is like outsourcing your IT department. Even if you have an IT department, though, chances are you'll need a VAR somewhere down the line. "IT guys are generalists and may not have specific knowledge," says Hilton, who also notes that customer relationship management (CRM), Enterprise Resource Planning (ERP) or human resources software might be beyond the range of the average techie and fair game for a VAR.

VARs can help small businesses

According to The Yankee Group, 19 percent of small businesses use VARs. One of them is Secure Care Product, a 60-person Concord, N.H., firm that makes security devices for hospitals and nursing homes. "It's very simple," says Mike Rucker, the company's information services manager. "I'm the IT manager and I'm a department of one. I do everything under the sun and there are certain things that I feel do not need to be trained to do or figure out. I just want to know how to administer it when they're done."

Rucker deals with a variety of VARs for various projects. He says the payment is usually worked out before the job is performed. Morgan says VARs usually charge an hourly rate between $50 and $150.

Justin Smith, president and chief operating officer of Brite Computers, a Victor, N.Y. VAR, says he charges hourly rates, but is trying to move clients to an ongoing service and payment system that is similar to a small business's arrangement with a utility. He says visits from VARs should be a regular occurrnce and entail not just putting out fires, but maintaining equipment and software. "We're moving towards a managed service and going out and building a monthly return by being both proactive and reactive," Smith says.

When a VAR does actually sell, it usually gets hardware and software at a wholesale price from a vendor and then makes a percentage on the final sale. Of course, there's potential for abuse in such a system. Morgan's group was founded so that small businesses could get a referral for a reputable VAR. Small businesses could also rely on references from other businesses with similar IT needs. One rule of thumb, Morgan says, is that a VAR should recommend more than one hardware or software product for each job, so it's clear they're not pushing one vendor.

Why not just deal directly with a hardware or software vendor? There are just too many small businesses in need of IT services for hardware or software vendors to provide your business with the type of customized service you want. "IT is all local," Hilton says. "You should be able to locally support everyone and it's not feasible and not practical."

Last updated: Dec 1, 2006




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: