Negotiating with a VAR

After a holiday and some travel I am back on schedule at least for this week. Next week I will be traveling again and I will not be able to write my normal Monday post.

Last time, I talked about getting value from a VAR and today I wanted to talk about negotiating with a VAR. You might be asking, well isn’t negotiating with a VAR just like negotiating with any other supplier? In some ways it is and in some ways it’s not. Negotiating with a VAR is a unique situation in that they do not control most of the pricing, that is done by either the hardware manufacturer or the software publisher. What VAR’s do control is the percentage of mark up that they put on the hardware or software. Because of this, you need to have a three-pronged negotiating approach.

Prong 1: Negotiate a purchasing contract with the VAR. This contract will discuss how you will do business with the VAR. What their return policy is, how to handle defective product, when you take ownership of the product, payment terms and more. Some things that I like to ensure is that the VAR will take anything back within 30 or 60 days no matter what and that I don’t take title of the product until I have it in my possession (just in case anything happens in transit). This is usually the easiest thing to get done but often the most overlooked.

Prong 2: Negotiate a cost-plus amendment and a volume incentive amendment into the contract. This is also an easy thing to get the VAR to agree to as the large VAR’s do it all the time. But many times this is not something that folks think about. Last week, I was speaking on a panel at the ProcureCon IT Sourcing Conference in Denver, CO. The topic was about getting value and negotiating with VAR’s. I asked the audience how many people had these terms in their contracts and only about half the room raised their hands. Having these types of amendments in your contract helps you and the VAR. It takes away the pricing discussion (which no one likes having) and the VAR knows that if they try and overcharge you, they will lose your business. The volume incentive rebate is also key as this help ensure that you and the VAR are working together as partners. The more money you spend, the more money you will get back at the end of the year. I always elect to get a check as that generally makes my finance team happy.

Prong 3: Negotiate with the manufacturer or publisher. Like I said earlier, the only price that their VAR can control is the mark up they charge you. And since you now have that locked in, the only way to get a lower price on something is to negotiate with the manufacturer directly. If you are in a competitive situation, you also need to understand a term called registration. The intent behind registration is that a manufacturer would give the price advantage to the VAR that was actually adding value so that the upfront investment of time would be protected. What happens in reality is that you have a conversation that goes like this:

  • You: “I am thinking about a new storage array sometime in the next 12 months”
  • VAR: “That’s great! Any particular brand or solution?”
  • You: “Brand X”
  • VAR: “Great, we are hear to help when you need us! Have a great day!”
  • You: “Thanks, you too!”
  • VAR (new call): “Hello, Brand X, my client is looking at your solution over the next 12 months. I have been talking with them about this and need to register this deal.”
  • Brand X: “Ok done”

What has happened here is that you have locked into one VAR whether or not you actually wanted to use that VAR. Instead, what you need to do is when you have competitive situation, call the manufacturer first and let them know what you are looking for and that you are going to use a VAR but you are not sure which one yet. Tell them that you will not allow registration on the deal until a VAR is chosen and you will let them know when that happens. This will ensure that you use the VAR that want and you will still be able to get the best price. If you are not in a competitive situation, you can still negotiate with the manufacturer on your standards and other large purchases. If you are standardizing on Cisco, then you need to work with Cisco to ensure that you have the best discount possible (60% or more off of list). Just because you are working with a VAR does not mean that you lose contact with the manufacturer. You need to work with them and the VAR.

By putting these three prongs into practice, it will ensure that you always get the best price and that you are using VAR’s that actually create value for you and your company!