Posted by: peterhact | January 28, 2011

How to REALLY choose a Distributor

Why do I say Really Choose a Distributor?

Well, I have a bit of experience in Distributors. I have been working in the Canberra local ICT industry for the past 18+ years, and I spent 3 of those years at a Distributor. I watched small resellers join the ranks of my client base, but not by them coming to me, I went to them.

I used the same principles I had used in a reseller to allow me to recognise the experience that i had craved as the experience every reseller deserved.

You must remember that there are a couple of key questions to ask yourself before searching for a Distributor.

  1. Work out what you are going to offer your end users – if you are going to focus on key core products, make sure that there are products both recognised and supported in Australia, not products that have no local representation – down that path madness lies.
  2. Work out whether you want to be a “box dropper” or a solution provider – I have worked for box droppers, and the aim of the game is to sell your products with a minimum of fuss, and a maximum profit. Unfortunately, as the products that you have access to become more and more commoditised, the chances that you will make a decent sustainable profit are diminished.
  3. If you choose to become a solution provider, the core products need to be a good fit for the services you provide. The core products could include servers, desktops and network equipment, so you need to look at distributors that can provide these products to you.

Ok. so you have your core products, you know what you are going to do for your end users and now you have to find a distributor.

There are several things that many resellers don’t know.

Distributors don’t like to say no to a credit account – they would love for you to have credit with them, it binds you to them and they get a steady stream of revenue from you.

The decision regarding your credit account isn’t purely up to them, they employ insurers to ascertain whether the risk of offering you a credit account is within certain parameters, if it isn’t, then you get declined. The risk parameters may have something to do with your company’s age, your P&L sheets, or any instances where you have been unable to make payments on time.

They will be treating the bigger market players differently, but this is due to scales of volume. If a large player buys only $10,000 worth of products from a distributor, with no forecasted increases, that large company will get a low credit rating, and no specific discounts. If, however, they are purchasing in the $1,000,000 bracket, the rules change, the distributor needs to make it a worthwhile exercise to deal with them, and they discount to keep the large company on the books. The other factor at play is the Technical Qualification of the company. If they invest time in training and getting staff certified, they will be at an advantage to you, as they will be looked upon by the vendor favorably, and have access to partner discounts that you may not have.

This isn’t a slight on you or your business, if you were buying stock in the millions of dollars, and had all your techs qualified, the same discount would be yours. Many resellers find that the Distributors are more of a business partner than a supplier, they spend time finding out about the reseller’s business and tailoring training and vendor engagement opportunities for them.

Instead of dwelling on the negatives, have a look at the positives that the distributor will bring to you.

There are a couple of questions it is worthwhile asking:

Are there any training certifications that I can do to gain better access to special pricing for my deals? – Vendors love trained resellers. They love them so much, that sometimes they will seek you out to praise you on completion of a certification.

Why? well, resellers can gain access to a vendor’s product via a distributor. If they don’t know enough about the product, for some products that is fine. other products have mandatory requirements, and if you don’t have the training, you can’t sell them. Puts the reseller in a difficult position if the product is perfect for their solution, and the  vendor won’t let them sell it.

Can the distributor assist me with the training? Distributors run training series, over the course of a year. some are of benefit, some aren’t, but it never hurts to be trained. It never hurts to ask, either.

At what point does the distributor allocate me my very own account manager? this is a proving ground for a lot of resellers, some need to earn the right of an account manager, and are farmed off to an account “team”, others may always deal with an account manager – particularly those resellers who were approached by the Account Manager, to join the ranks of the distributor’s clients.

What is your freight policy? Ah. freight. the big overhead where distributors make all their money. Ask any reseller, they will tell you, the freight is where Distributors make their money. Do you know who makes money on freight? it is a bit of a surprise, but freight companies make money on freight charges. Distributors make nothing, some offer free freight, others pass the cost through to the reseller, but no margin goes on freight.

Once you have your core products and services sorted, you are then able to shop for a distributor. There are some key things to look out for, which most people don’t recognise as important.

Does the distributor have the ability to interact with your in-house software? regardless of the software you use, time wasted putting parts into the system for quoting means that you lose the competitive edge when it comes to turning around a quote to a client.

Most resellers don’t care who is cheapest, they gravitate to the distributor who is responsive, and who can provide very fast information for quotes. If there is a feed mechanism that can be integrated into your system, all the better.

Most Distributors think that resellers use feed integration to shop for prices, but I have seen instances where a distributor wasn’t the cheapest, but still got the deal as their feed info was in the system for quoting faster that the other Distributor returned the call.

The Distributors are evil money grubbing companies out to make a profit!  – This I have heard a fair amount of the time, both when working at a Distributor, and whilst working at resellers. No, they aren’t evil, they are necessary. Imagine dealing with a manufacturer, sorry, trying to deal with a manufacturer whilst everyone else in the country tried to do the same. How much support would you get, and what happens when the manufacturer ups the price to cover the admin costs? Yes, Distributors make money, but we all do in the ICT industry. Perhaps, many years ago, margins were in the double digits, but they certainly aren’t now.

The only way to make money these days is to form partnerships that are based on trust, ethics and loyalty. Some resellers have war stories of how a Distributor let slip about a product in their client account to a rival. The rival magically appeared at the client site asking if they needed help with the specific product. This kind of thing shouldn’t happen any more. The only way distributors can effectively  support their clients, the vendors, is by being transparent, honest and ethical.

So, to choose a distributor, make sure that they are someone who you can work with, someone you can grow to trust and someone who has your best interests at heart when dealing with you.

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