Advice on Growing a Human Resource Software Business Channel

Aug 24


Clay C. Scroggin

Clay C. Scroggin

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The Advice contained in this article is based on fifteen years of human resource software industry experience including ten as a HR software business partner for several HR software vendors.


A value added business partner, Advice on Growing a Human Resource Software Business Channel Articles a.k.a.VAR or business partner, is an independent business that sells, implements and supports other vendors’ software applications including HRIS and HRMS applications. The software vendor directly pays the VAR, BP or Business Partner a percentage of each deal they sell. The benefit to the software vendor of having VAR’s or having a channel, as it is sometimes referred to, is the software vendors add numerous organizations that will sell and support their application and they pay the VAR nothing unless they close business. Actually, the VARs often pay the software vendors to participate in the service. An additional benefit to the vendor is if they have a large enough channel they gain a localized support base nationally, or internationally, for their application.  Given the benefits, I am certain just about every HR software company wants to do a better job creating a channel.

A number of HR software vendors have asked me questions about setting up a partnership channel so I thought I would take this opportunity to offer my two cents on the subject. Allow me to be very frank, I have never setup an HRIS channel. I am only offering advice based on what I have seen while working for others, what I have noticed in the industry over the past fifteen years, and what I believe it would take to entice current value added resellers to offer your products.

Let me provide a warning. I have seen many HR software, HRIS, and HRMS vendors attempt to set up a channel and I have seen almost all fail. Most love the idea of setting up a channel and see the advantages of doing so, but don’t put in the effort and money to make the concept work. The strategies I lay out in this article may be far more aggressive than what you are willing to take to setup a channel but I feel many of my suggestions, if followed, would greatly increase the potential for setting up a successful channel. With these suggestions, I looked at what it would have taken to interest my firm into selling a new system. I can tell you for certain that if a vendor had contacted my firm and offered some or all of the suggestions I have offered here, they would have gotten my attention.

I worked for a manager many years ago that told me the secrets to channel management are to show value and gain mind share. If you can show that the BP will either make more sales or earn more on each one by offering your product, you will be successful with a channel management program. Mind share, as I use the term, means getting to the forefront of systems the partners are selling. Let’s say, for example, I am selling X HRIS product and making X amount of dollars per sale. If you can offer the BP a plan or product that will increase their income per sale and their overall number of sales, you will have an easy time showing value and gaining the VAR’s mind share. This, whenever possible, should be the main objective.

Why is now a great time to grow an HR software, HRIS, or HRMS BP channel?

1. With a slowing economy, many resellers are, or will be, looking for additional products or product groups to offer prospects and their clients to supplement their declining revenues. If you have a solution that does not require a tremendous up front investment and offers additional income, you will have no problem finding BP’s to offer your system. Now more than ever, it will be important to show how investing in your system can increase their revenue.
2. There are a hand-full of HRIS BP’s who have established a model where they offer a number of systems within the same market. This concept makes sense because no single system is going to meet the needs of all prospects. Offering a handful of products allows a BP firm to act as a consultant and present the product that offers the closest match to the prospect’s needs. There is no reason for a partner to lose a deal to a hosted solution or one with an integrated payroll option when they can easily create a partnership with another HRIS application to address that need. I have heard a lot of buzz about this model in the industry. There are a few HRIS partners who are having great success with this model. Many others are looking at and talking about it, as well.
3. I am not going to mention any names, but one of the largest HRIS software companies with perhaps the largest channel is actively reducing their outside channel and bringing sales internal. Instead of handing leads to their channel, they are now working most internal. This, in short, means a large reduction in income for one of the largest HR software BP networks in the HRIS and HRMS industry. Trust me when I tell you these partners are actively looking to make up for lost income or looking for new opportunities. A number of these vendors have sold their businesses, closed up shop, or started taking up new business. I have seen three partners disappear in Florida in just the past year. The time to setup a channel is absolutely now.

Why companies fail when setting up a HRIS or HRMS channel

• No up Front Plan – If you are going to approach an independent business and ask them to invest time and resources into selling your application, you need to show that your firm has established a plan for adding a channel. Within that plan, you need to demonstrate how your firm can increase the BP’s revenue. You need to show why selling your product will be more profitable than selling another.  From a BP’s point of view, let me say that before I would invest into a company, I would want to see that they have a solid plan laid out to assist me with achieving success with their system.  If they can’t show this, there is no reason to proceed.

• They pay too little – If the channel is bringing you sales that you would not have had otherwise, all the money made from those sales is profit. Don’t be stingy with the BP pay. Paying what the other guys are paying is not enough. Look at it from a BP’s side. If I have product X, which I have sold for ten years and that I know inside and out and that I likely have highly qualified experienced implementation experts to install, why should I sell your product Y for the same, or less, profit? You may feel you have the better product so, of course, they will sell your system over the other. Nope; they are likely going to sell the product that is within their comfort zone. You might have a system that addresses certain needs that the other does not. Perhaps your system is hosted and the BP’s other products aren’t. In these cases, they will sell your product, but only when that specific need arises.

If this is your first attempt at creating a channel and you want to succeed at it, you will have to pay more than the other guys. I have more tips on this later.

• They don’t know which VAR market to sell their service to – For your HRIS solution, you have a target market. This may be based on industry, need, or size of organization. Have you determined what your VAR target market is? I outline this in detail below but the goal should be to sign on firms that already have marketing efforts in place or existing clients to sell your system to. You are looking for firms who will prospect and close deals for your system. You are not looking for order takers with leads you hand off. Quality is going to be more important than quantity when it comes to adding a channel.

• Not considering their product as it relates to what the partner is currently selling – If you have a HRIS BP selling a system that offers more and provides them greater revenue than your product offers, you will struggle to win mind share with these partners. The BP will sell the system they earn the greatest income from selling. If your product does not provide higher revenue than what they are currently selling, you won’t win mind share.

• Not able to gain mind share – Once you have created a plan and signed on BP’s you need to motivate them to break outside of their comfort zone and sell your system. As I state above, offering them a product for a specific customer need is not your objective. You want them selling your product first and foremost, not only when a certain need arises.

This truth you must accept to develop a successful HRIS Channel

 VAR’s or BP’s will focus on selling the applications that
provide them with the greatest profit.

Important Questions about your future HRIS Channel

As I have said before, creating a channel is not an easy process. Within the HR software industry, I have actually seen only one company succeed with this model. To achieve success, you will have to show existing BP firms how working with your product will add more value than working with another. Before you start selling the channel, you need to work out a ton of details. If you are going to approach a firm asking them to invest in selling your solution, you need to show that some effort has been put in to the process. The plan you lay out up front will determine your success or failure with the endeavor.

• Determining your ideal HRIS VAR Market
o The section following this one will cover how much you will pay but as you will see, this section is more important. This may, in fact, define the entire way you setup a channel. If you have been unsuccessful in setting up a channel in the past, this may explain a large part of the reason. If your product does not meet a specific unmet need for a partner and/or pays significantly less than what they are currently offering, you are likely targeting the wrong VAR market and will be doomed from the start.

In my first example, let’s say you have a purchase only application with a very similar feature, price and product offering as what the HRIS VAR currently sells. If you can pay this vendor greater income on deals they close, you will easily gain their mind share by increasing their bottom line. If you are lucky enough to be in this situation, you need to realize that your product offers a greater value to these partners than the system they currently sell. Your job will be easy. This is a great VAR market for you to target.

It’s a little trickier if you have a product that offers less in functionality and sells for less. In this example, let’s assume the partner is offering an HR & Payroll application and that you offer a purchase HR only application which costs 20% less than what their current product sells for. In this example, you might actually pay a greater margin but it is likely, due to the price point, the VAR will still make less money on each deal. The other issue is that this partner, even if they sign up with your service, will have situations where the prospect, from perhaps a lead you created, has to have payroll. Your system does not meet this need so the partner will likely sell the system that does from a lead you generated. Trust me; I have been in this exact situation many times before. If your system offers less functionality than what a partner currently sells and they make less off each deal, is it worth your time pursuing these partners?

If you offer a hosted solution and wish to sign up purchase only BP’s, you have a real challenge with showing greater value. The VAR may sell your system when the prospect demands a hosted solution, but they won’t be pushing the concept. Actually, in this case, they will likely sell against the hosted concept. If a sales person makes five times greater income by selling a purchase only system rather than a hosted system and the prospect wants a hosted solution, trust me, the VAR will do everything possible, within reason, to sell the prospect on the application that will pay them the greatest income. It’s hard to compete for a BP on the basis of value when the BP will be paid upfront upon sale of a purchase system as opposed to the recurring model of waiting perhaps two or more years to earn the same amount of income. Sure, the recurring revenue is a nice addition and it creates more stability of income; but in the end partners will sell the system that pays them the most money today. This is not to say that you should not approach these particular VAR’s. If they don’t offer a hosted solution, at least you are presenting them with a package that allows them to close a deal they might lose otherwise. It’s just important to understand that these sales will be the exception, not the norm, for these partners.

If you wish to be successful with a channel program, you need to find those VAR’s where your product either offers a new add-on for them to sell or greater value over the systems they currently sell. Your system simply may not work for a purchase only vendor.  But at the same time, it may be a great fit for a service bureau, time clock, or GL vendor that does not currently offer an HRIS application. In this case, you have no competition and you are simply providing the BP a new revenue source for their current client base. You may have an application that fits into a larger market than what the vendor is currently selling into or you may have one that fits into a smaller market. It is better that the BP sees some revenue, than lose the deal because they did not offer the right product. You can earn income from VAR’s without gaining market share, but the goal still needs to be finding your target VAR market.

• How much will you pay your HRIS, HRMS or HR software channel?
o A few years back, I was trying to sell my home in Brandon, Florida. I had a contract to pay the listing agent 1.5% and to pay the buyers agent 3.0%. Five months into the whole process the house had not yet sold and I had missed out on two contingency offers to purchase another home. I realized that if I increased the amount I was paying the buyers agent from 3% to 4%, they would stop showing my home and would start selling it because of the increased commission. It worked. My home sold within a month at my asking price.

Yes, this little story has a point. The same thing can be said for HR software. If I have a reseller who sells two or three systems and they basically make the same money off all the systems, they are likely showing all of the products and not selling any one of them. They may, in fact, be selling the system they have sold for the longest period of time since that represents their comfort zone. If they already have effective lead generation marketing in place, it would be nice to see them sell your system as opposed to another for those leads. It’s all a question of revenue. If I make more by selling this house than that one….

If you are just starting out with a channel, don’t think that you can simply pay the going rate and overnight you will establish a winning channel model. In order to gain market share, you will have to offer more for less.

Typically, HRIS vendors I have come in contact with pay anywhere from
30 to 55%; this is the case if the BP makes the sale and, in some cases, performs the implementation. Most of the companies pay around 10 to 15% on annual support contracts. Note; if you are going to pay on support, pay not only up front but each year the customer renews. In addition, many vendors offer a referral agreement where they may pay as much as 15 to 20%.

Many of the HRIS vendors offered tiered margin structures. If the partner sells over a certain amount, they receive a higher margin. There are problems with this structure. What I might make down the road if I sell this much of your product is not motivating. What I make today is what is motivating.

Special note regarding hosted HRIS companies

If your company offers a hosted solution, determining a pay structure for a BP may present some additional challenges. Because the cost of your product or service is spread over the duration of the contract, you are not going to match the up front profit a VAR selling a purchased system would see. The potential benefits of recurring revenue may entice the BP to sell your product, but it all depends on how much they are to be paid. If I can sell product X and make 10K up front, versus selling hosted product Y and make 2k over a year, which product will I be selling the customer on? In this case, it is likely there is not enough profit under the hosted model to truly gain mind share of potential VARs. As I pointed out earlier, the VAR may actually talk prospects out of the hosted solution and guide them toward the more profitable purchase sale. They may sell the system when the hosted model is required but that will be it. For companies only offering a hosted model and wanting to setup a channel, they may find greater success selling to service bureaus or other types of VARs than HRIS business partners. There simply is not enough up front profit to compete with the profit made from purchase systems. Your best hope is that the VARs are having greater numbers of prospects demand hosted solutions and based on that, you will provide the partner the ability to meet this need.

Tip #1

Here is a concept I have recommended to several HRIS software companies that none, as of yet, has taken action on. You don’t want your BP’s just being order takers on leads you create and hand to them. You want them out creating and prospecting for new business. So, pay them a larger percentage on deals they bring to the table as opposed to leads you provide. With this option, your company is gaining revenue that otherwise did not exist and of course, you retain the majority of the support income for the first year and future years. At the same time, you have encouraged your partner channel to actively market your application, which is the entire point of a channel. As an example, perhaps you pay 40% on leads you provide and 60% on leads they generate on their own and close.

Tip #2

Why not on the first deal they bring to the table offer the BP 100% of the software profit? If you want to gain mind share and see them actively advertising your system out of the gate, this would certainly do the trick. This might only apply to a purchase based system. I understand that this option may not be possible with a hosted solution. But the dollar amount could still be significantly increased for the first deal.

Tip #3

As a qualifying question when signing on BPs, ask “What margin are you currently being paid by other vendors?” and then pay 10 to 15% over that amount, if possible.

• What will you charge to participate in your HRIS partner program?

Frankly, I don’t understand the policy of a BP paying to sell someone else’s system when the BP is a 100% commission sales rep. If you are going to charge a fee, I have seen them range from several thousands of dollars up to tens of thousands for a small to mid-market HRIS application. The advantage I can see with charging a fee is that a partner who does so may end up being more committed to selling a system for which they have made a larger up front investment. 

Tip #1

Charge a fee up front or yearly, but put all fees into marketing in the BP’s market area to quickly create a pipeline with your system. In this case, let’s imagine how many leads and, thus sales might be generated from three or five thousand dollars in marketing in the new BP’s market area. The partner is making the investment and that investment is directly placed into marketing the program. Everyone wins. Remember, it is all about gaining mind share.

Tip #2

Don’t make the mistake of seeing your channel as a revenue source. I have seen one company in particular kill their channel by overcharging with creative fees. With one vendor, we were charged an annual training certification fee to be able to state that our implementers were certified. No additional testing or courses were required for this designation, only money. This is not the way to encourage your channel to keep selling your product and not seek out alternatives.

• What will you offer to help the HRIS, HRMS or HR Software partner succeed?
o HR Software Leads?
? If you can provide leads to at least new partners, this will provide you a huge leg up on the competition. Getting a few sales into the hands of a new partner can certainly motivate them to sell your system. As I mention above, you don’t want order takers here.  So it is not unreasonable to pay out less for leads you hand off than for deals the partner closes themselves. In your lead distribution plan, it is very important not to create partners who are dependent on lead flow for survival.
o HR Software Marketing assistance?
? Some companies will offer their partners marketing assistance dollars based on percent of sales. This is a great idea and one that I think should be associated with any business partner plan. You might, for example, set it up where the partner receives 3% of each deal to use toward pre-approved marketing efforts.
? You need to be able to answer these questions: What is the best way to market your application? Who are your typical customers? Who are your largest competitors? The point is you don’t want to just certify the prospective partner and send them out selling; you need to provide guidance on what is most effective with selling your system. It truly concerns me when a vendor can’t answer these questions.

What type of company is best equipped to sell your HRIS?

There are a number of ways and types of companies you can approach about a BP model. The best model may be to approach several options to see what works best for your organization.

Service Bureaus

I have not worked under this model and am not very familiar with it; but in short with this option, HRIS companies re-license their application to either payroll service bureaus or benefit providers to provide as a value add to their clients and prospects. While I have no experience with this model, I can will tell you that a number of HRIS vendors are very successful following only this model.

HR Consultants & HRIS

I have actually never heard of anyone building a successful channel using HR consultants. I have seen a few try, but I am not sure any have succeeded. They may be a good starting point for a referral network but I am not sure they are the best source to set up a channel. HR consulting and HRIS sales and implementation are two completely different animals. The skill set in one does not necessarily transfer to the other.

Other HRIS Business Partners

I think this more than any other is a great place to start as I outlined above. The benefit is that these potential partners already know how to sell HRIS applications, they likely have successful HRIS marketing plans in place, and they have people on staff with HRIS implementation experience. Getting them to sell your product comes down to how much you are paying and if your product fits a market need that their current system does not. If you offer a hosted solution and they don’t, they have likely lost sales as a result. They may want a less expensive system to use as a fall out sale or they may want to move into a larger market. The point is to find out enough about the current resellers you are contacting and use your sales pitch to show how your system will grow their business.

There are two types of HRIS partners. The first is usually the one or two man shops who survive off revenue from their existing client base, leads from the vendors, referral leads, and perhaps with certain niche markets. The second are the larger firms who have an active lead marketing program already in place. Obviously, the latter offers greater potential benefit for your firm. They are already creating the leads. It’s just a question of getting them to sell your product over their current one to those leads. This is easily accomplished by paying them a greater amount to do so as I have lain out above. The first group is going to be a greater challenge and you might want to bypass this group altogether. The tip offered on turning their start up fee into seed for their marketing efforts, in this market, might be a good way to increase their lead activity. With a few qualifying questions during your sales presentation, you will easily see which group you are working with. The important thing is to ask how they are generating leads.

Your big issue with working with HRIS business partners will be gaining mind share. These partners may have sold the same system for years. It won’t be an easy task getting them to step outside of their comfort zone to sell your system instead. This is why you hand off leads, assist with marketing, and pay more than the other guy.

Make sure to read my special note under the “How much will you pay?” section regarding hosted solutions.

I am frequently asked “How can we find out who these partners are?” Is there a list somewhere? Yes; it’s on Google or Yahoo. Simply search on the product name and look through the results. From there start cold calling. As scary as that term is, I don’t think it has to be. As I have said before, it is my belief that many of these vendors are actively looking for other systems to offer. If you can show these vendors how they can make money selling your system and, perhaps, more money than selling their existing products you won’t have any problems finding BP’s to offer your system.

Attracting GL or Time Clock providers with HRIS

Ten years ago I worked directly for a large HRIS provider and this was how they successfully grew their channel. They actively created interfaces and setup relationships between their HR and payroll apps to leading GL applications.  The same thing outlined here for GL apps could just as easily be applied to time and attendance vendors. Once the interface was created, they approached GL BP’s about selling their systems as either an add-on or as an option to sell to their existing client base.

More and more often companies are looking for single integrated applications, combining HR, payroll, GL, and time collection. If you find a provider who is missing the HR portion, offering your product may assist them with winning GL or time collection sales they are currently losing because they don’t offer the HR capability. The additional advantage is they already have an installed base to contact and potentially sell your system into. The challenge will be that unlike the HRIS vendors, these vendors don’t have direct experience or expertise with selling and implementing HRIS applications. More training may be required for this group to bring them up to speed on selling and implementing HRIS applications than with the prior group.

Once you have created the interface, how do you find these partners? As I outline above: use Google and Yahoo.

Tips for having a direct HRIS sales channel and a partner channel

I have yet to come across an HRIS software company that does a good job with both. Either there are companies wanting to setup a 100% partner channel or there are those that have the channel and have seen the benefits of bringing sales back in-house; mainly, saving the expense of paying partners 40% or greater margins. As someone who has been in both a direct HRIS sales capacity and a HRIS BP relationship, I want to lay out how you can have both.