Are you thinking of becoming a HR Software Reseller?

Many of the leading HR software and business software companies sell their systems through what is called a channel, partners, or VAR's, which is short for value added reseller. Basically, these are separate independent businesses that sell, support, and offer implementation and training services on the HR software vendor's systems. I created this article to offer some advice for anyone who is considering entering this type of business.

Under the channel business model, the prospective VAR will pay some type of upfront fee to the HR software vendor for training on the system, the right to sell the system and the ability to earn commissions. The vendor might offer leads but most don't. You will be expected to cover most, if not all, of your marketing and overhead costs. The reward is as you sell these HR systems, you can receive very high margins because you are taking all the risk. If you never sell anything, the vendor has still collected your start up fee.

The Payout

HR Software margins can range from 20 to 60 percent of software and 10 to 20 percent of annual support revenue. If you, or your staff, perform all the implementation and consulting services to get a new system up and running, you will receive 100% of the consulting fees. Consulting fees for training and implementation can run as high as 50% of the total cost of the software and annual support. Add in the margins and do the math and you will quickly see that it does not take too many deals to earn a decent income. On a $95,000 net deal for a 1,200 employee system, my firm netted over $45,000 upon completion of the engagement. If we had kept the client, we would have made additional future income from that client, as well. Sounds easy right?

Why it's Not Easy

Ten years ago, HR software sales was a much easier industry than it is today. When asked what type of system they were using, the frequent answer back then, for even 500 or larger employee sized companies, was they did not have a system. They were doing everything manually or on spreadsheets. It was a pretty easy sell to take someone from the organizational dark ages to the 20th century. This is not the case today. A far higher percentage of companies now own a system than did fifteen or even ten years ago.

There has been a recent movement where vendors are bringing sales internal. This means as a reseller, you are also competing with the HR software vendor and you can expect not to receive as many leads, if any. During my last year as a VAR we saw tremendous reductions in vendor provided leads. The leads go to the internal sales force not the resellers. If you are going to succeed as a HR software reseller, you are going to have to become an expert in marketing in order to generate your own leads. All of this takes time. As a new VAR, you may very well not see a check for six months at the earliest.

Consider this time line. As a new VAR, you will market the HR system for at least three to four months before you start to generate any real leads. Once you have some valid leads it will take three to four months at a minimum to close any of them; then you still have to finish the consulting before you get paid in full. As a new VAR, expect to cover all operating costs and marketing costs for at least nine months before expecting to see any revenue. I am not talking about a profit either, only revenue. Making a profit may come much later. As I re-read this paragraph it sounds a little scary. It is supposed to be. These challenges have not only created hazards for new VARs, they have caused existing VARs, to leave the business.

What type of firm will likely succeed as a HR Software VAR?

Now that I have pointed out the negatives, allow me the opportunity to paint a picture of the firm that can succeed as a VAR almost out of the gate. For a new reseller just starting a business it's a hard road to climb. I would say in today's market it's almost impossible. For a firm that already has income, clients, and a pipe line that may not be the case. If your existing firm is already selling other software products, such as accounting or time keeping systems and you are merely looking to add HRIS or HRMS products to your offerings, you won't face nearly the hazards of someone just entering the business. You may see fairly quick income from the new product offering by selling to your existing clients or adding the capability to all outstanding proposals. If you work in the HR consulting world, you may have a big leg up as well for the same reasons, you have current income and a pipeline.

The paragraph above should also assist vendors who are looking to grow or start a channel. You want to sign up VARs who will survive.

It takes time

I have painted a pretty grim picture and I meant to; but as a new VAR if you make it past your first several years, things will get much easier. You will start to add consistency to your income from existing clients, referrals, and long close cycle leads. Eventually, you will not see the zero income months. To get to that point, you will have to cover a lot of operating costs and not see much income for perhaps several years before things improve. I hope this advice assists those already in the business or considering getting into it. Comment on the post if you have any questions on entering a VAR business.