Channel business: Determining tech vendor onboarding costs

Find out about the hard and soft costs involved in adding a new tech vendor to your product portfolio.

As a value-added reseller, onboarding new vendor partners and products is a business requirement. Customers expect you to carry the latest and greatest technologies and have the expertise to deploy and manage them. Doing so, however, is a costly endeavor -- one that successful VARs don't take lightly.

"If you are in the technology channel, by definition you must stay current and stay relevant; focus on things customers want to pay for. If you're not staying current, the market will leave you behind," said Ryan Morris, principal consultant at Boulder, Colo.-based Morris Management Partners.

Todd Knapp, founder and CEO of Envision Technology Advisors, a technology consultancy based in Pawtucket, R.I., agreed. "It's different for every IT company but, in general, if our customers are telling us to look at a solution that we haven't already looked at, we feel like we failed. Our objective is to be there before our customers are, because that's what they pay us to do," he said.

Vendor onboarding is a significant undertaking that involves both hard and soft costs, Morris said. Calculating hard onboarding costs is pretty straightforward. They include the fees required to join a program, training and certification fees, the cost of a demo unit, and travel associated with attending training.

The final dollar figure of adding a new vendor to a solutions portfolio largely depends on whether you intend it to be a core practice or an add-on offering.

Hard costs alone can be pretty hefty and make a VAR think twice about bringing on a new vendor. "[Some] manufacturers make it challenging. In order to sell their products, you have to spend a certain amount of money so that you yourself use and operate on it, or have it up in your lab. You're buying products whether you need them or not. … You get to a point [of], How much can you honestly utilize in your environment?" said Neal Morgan, sales manager at SOS, a Sacramento, Calif.-based network and voice solutions provider.

Soft onboarding costs are more difficult to calculate and can be just as significant as hard costs. Consultant Morris puts soft costs into three buckets. The first he labels distraction, and it refers to the time spent away from selling and implementing legacy vendors to acquire training for a new partner. During this time, neither product is selling. "Distraction can have a direct negative impact on the pipeline, which is never a good thing. It's a significant soft cost," he said.

Because of this, Envision's Knapp emphasized the importance of pre-assessing a vendor to make sure it is worth your time and efforts. "We want our team focused on the best technology possible if they are going to focus on something [new]. … In general, at an engineering level, we're talking about $10,000 to $20,000 worth of time every time. We refer to it as opportunity costs because if the engineers are not in the lab, then they are out in the world and we're billing their time," he said.

The second soft cost associated with vendor onboarding is around brand alignment, or the story you tell customers, Morris explained. If, for example, a reseller only carries Cisco products and markets them as the best networking solutions in the world, then later decides to add a new vendor, "the message comes across that you didn't know what you were talking about, or you're carrying something that's not the best in the world. … The reseller's brand equity and credibility take a hit," Morris said.

The third soft cost Morris describes is associated with the operating complexity inside the channel company's business. The addition of each new vendor can add further complexity to the sales cycle, the delivery cycle and billing, as well as to the administrative costs of belonging to a program, he said.

"If you're a data company and you decide to go into voice, understanding the customer and operational impact of that can be a big problem," said Steven Reese, CTO of Ontario, Calif.-based Sigmanet Inc., a VAR and IT consultancy offering a variety of solutions and managed services. "What does it really mean to your business? Can salespeople sell [voice-centric products] the way they sell [data-centric products] today? Operationally speaking, does the implementation strategy work the same way? You have to look at how far of a distraction it is from what you're doing today if it's something that's net new."

When all is said and done, the final dollar figure of adding a new vendor to a solutions portfolio largely depends on whether you intend it to be a core practice or an add-on offering. According to Morris, the minimum cost of adding a core vendor is two times the salary of whatever full-time-equivalent resources the VAR invests in the go-to-market process.

To gauge the impact of this cost, consider this: Morris' company tracks the percentage of total revenue that comes from products that were not in a channel company's portfolio 18 months ago (allowing for a healthy time to ramp up). "The average across the industry is less than 15%, and that's in an environment where every vendor in the industry has come out with new product offerings. Everybody is churning, and yet [channel companies] tend to churn and ramp and onboard very slowly, because there's a lot of false starting."

So, what's his advice for VARs? "If you're going to [onboard a new vendor], do it well and do it deliberately. Have a plan. Have an actual process that you follow," Morris said. Once you've vetted through all the offerings and make a decision, write a business plan that includes how many resources will be invested in it; what the sales pipeline will look like within 90 days, 180 days; how much revenue it will generate; when it will become profitable and pay back that investment.

"If you don't start with that kind of deliberate ramping process, why bother adding the new business? It's not free to add the new business, and if you don't intend to scale it to be a big contributor, why bother? That's the ultimate takeaway," Morris said.

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