| Many of the leading HR software and business | | | | going to succeed as a HR software reseller, you are |
| software companies sell their systems through what is | | | | going to have to become an expert in marketing in |
| called a channel, partners, or VAR's, which is short for | | | | order to generate your own leads. All of this takes |
| value added reseller. Basically, these are separate | | | | time. As a new VAR, you may very well not see a |
| independent businesses that sell, support, and offer | | | | check for six months at the earliest. |
| implementation and training services on the HR | | | | Consider this time line. As a new VAR, you will market |
| software vendor's systems. I created this article to | | | | the HR system for at least three to four months |
| offer some advice for anyone who is considering | | | | before you start to generate any real leads. Once you |
| entering this type of business. | | | | have some valid leads it will take three to four months |
| Under the channel business model, the prospective | | | | at a minimum to close any of them; then you still have |
| VAR will pay some type of upfront fee to the HR | | | | to finish the consulting before you get paid in full. As a |
| software vendor for training on the system, the right to | | | | new VAR, expect to cover all operating costs and |
| sell the system and the ability to earn commissions. | | | | marketing costs for at least nine months before |
| The vendor might offer leads but most don't. You will | | | | expecting to see any revenue. I am not talking about a |
| be expected to cover most, if not all, of your | | | | profit either, only revenue. Making a profit may come |
| marketing and overhead costs. The reward is as you | | | | much later. As I re-read this paragraph it sounds a little |
| sell these HR systems, you can receive very high | | | | scary. It is supposed to be. These challenges have not |
| margins because you are taking all the risk. If you | | | | only created hazards for new VARs, they have |
| never sell anything, the vendor has still collected your | | | | caused existing VARs, to leave the business. |
| start up fee. | | | | What type of firm will likely succeed as a HR |
| The Payout | | | | Software VAR? |
| HR Software margins can range from 20 to 60 | | | | Now that I have pointed out the negatives, allow me |
| percent of software and 10 to 20 percent of annual | | | | the opportunity to paint a picture of the firm that can |
| support revenue. If you, or your staff, perform all the | | | | succeed as a VAR almost out of the gate. For a new |
| implementation and consulting services to get a new | | | | reseller just starting a business it's a hard road to climb. |
| system up and running, you will receive 100% of the | | | | I would say in today's market it's almost impossible. For |
| consulting fees. Consulting fees for training and | | | | a firm that already has income, clients, and a pipe line |
| implementation can run as high as 50% of the total | | | | that may not be the case. If your existing firm is |
| cost of the software and annual support. Add in the | | | | already selling other software products, such as |
| margins and do the math and you will quickly see that | | | | accounting or time keeping systems and you are |
| it does not take too many deals to earn a decent | | | | merely looking to add HRIS or HRMS products to your |
| income. On a $95,000 net deal for a 1,200 employee | | | | offerings, you won't face nearly the hazards of |
| system, my firm netted over $45,000 upon completion | | | | someone just entering the business. You may see |
| of the engagement. If we had kept the client, we | | | | fairly quick income from the new product offering by |
| would have made additional future income from that | | | | selling to your existing clients or adding the capability to |
| client, as well. Sounds easy right? | | | | all outstanding proposals. If you work in the HR |
| Why it's Not Easy | | | | consulting world, you may have a big leg up as well for |
| Ten years ago, HR software sales was a much | | | | the same reasons, you have current income and a |
| easier industry than it is today. When asked what type | | | | pipeline. |
| of system they were using, the frequent answer back | | | | The paragraph above should also assist vendors who |
| then, for even 500 or larger employee sized | | | | are looking to grow or start a channel. You want to |
| companies, was they did not have a system. They | | | | sign up VARs who will survive. |
| were doing everything manually or on spreadsheets. It | | | | It takes time |
| was a pretty easy sell to take someone from the | | | | I have painted a pretty grim picture and I meant to; but |
| organizational dark ages to the 20th century. This is | | | | as a new VAR if you make it past your first several |
| not the case today. A far higher percentage of | | | | years, things will get much easier. You will start to add |
| companies now own a system than did fifteen or | | | | consistency to your income from existing clients, |
| even ten years ago. | | | | referrals, and long close cycle leads. Eventually, you will |
| There has been a recent movement where vendors | | | | not see the zero income months. To get to that point, |
| are bringing sales internal. This means as a reseller, you | | | | you will have to cover a lot of operating costs and not |
| are also competing with the HR software vendor and | | | | see much income for perhaps several years before |
| you can expect not to receive as many leads, if any. | | | | things improve. I hope this advice assists those already |
| During my last year as a VAR we saw tremendous | | | | in the business or considering getting into it. Comment |
| reductions in vendor provided leads. The leads go to | | | | on the post if you have any questions on entering a |
| the internal sales force not the resellers. If you are | | | | VAR business. |