A value-added reseller (VAR) is a company that enhances an existing third-party product with additional features or services before reselling it as a complete, "turnkey" solution. This model is most common in the IT and electronics industries, where resellers bundle hardware with proprietary software or professional services. For businesses, working with a VAR provides a single point of contact for complex technical needs rather than managing multiple individual vendors.
What is a Value-Added Reseller (VAR)?
A VAR acts as an intermediary between an Original Equipment Manufacturer (OEM) and the end-user. Unlike a standard reseller that simply moves inventory, a VAR increases the product's value through customization, consulting, and technical implementation.
In the computer industry, a VAR might purchase individual components to build a system specialized for a specific task, such as non-linear video editing. They solve the problem for customers who lack the time or expertise to assemble and configure complex systems themselves.
Why Value-Added Reseller (VAR) matters
Working with a VAR offers several strategic advantages for procurement and operations:
- Access to Restricted Products: Many OEMs, such as Dell or Microsoft, do not sell directly to every customer and rely on VARs as their primary distribution channel.
- Deep Subject Expertise: The best VARs maintain certified expertise in specific manufacturer products, helping users navigate complex software and hardware updates.
- Consolidated Support: A VAR often serves as a single point of contact for troubleshooting, which simplifies customer service.
- Customized Integration: They develop specific applications or configurations tailored to a customer's unique business environment.
- Lower Operational Overhead: Small and medium-sized businesses can procure technology quickly without hiring in-house experts to manage every vendor relationship.
How Value-Added Reseller (VAR) works
The VAR model functions through a specific relationship between manufacturers, resellers, and customers:
- Partnership and Certification: Manufacturers like Cisco require VARs to undergo training and auditing to ensure quality control. [Resellers may earn "select," "premier," or "gold" status based on their service level] (Investopedia).
- Product Procurement: The VAR purchases core hardware or software at a discount from the manufacturer or a distributor.
- The "Value Add": The VAR adds professional services, such as installation, training, IT consulting, or additional software layers.
- Resale: The integrated package is sold to the end-user. Most of a VAR’s profit margin comes from these added services rather than the hardware markup.
- Ongoing Maintenance: Many VARs provide service contracts, extended warranties, and technical support to ensure long-term functionality.
Best practices
To maximize the value of a VAR partnership, follow these guidelines:
- Veter the Certification: Confirm the VAR holds the necessary manufacturer authorizations for the specific products you need. This ensures they have the personnel and infrastructure to support the sale.
- Compare Multiple VARs: Since VARs often partner with specific OEMs, use a few different resellers to see a wider range of products and competitive pricing.
- Define the Scope of Service: Clearly outline what "value" is being added. Specify if the contract includes installation, training, or ongoing maintenance to avoid hidden costs.
- Audit for Fair Pricing: [GSA analysis indicates significant variance in VAR markups compared to OEM prices] (Federal News Network). Always ask for a breakdown of service costs versus product costs.
- Separate Logistics if Necessary: If you have complex international shipping needs, consider a dedicated logistics partner rather than relying on the VAR's shipping services.
Common mistakes
Mistake: Assuming the VAR is an unbiased consultant.
Fix: Recognize that VARs are incentivized to sell products from the specific manufacturers they partner with. If you have highly complex needs, consider an agnostic IT consultant.
Mistake: Relying on VARs for international shipping and customs.
Fix: VARs often lack global logistics expertise and may use hub-and-spoke models that delay items at customs. Use a specialist for international delivery to maintain a [99.98% customs clearance success rate] (FGX).
Mistake: Overlooking long-term support.
Fix: Ensure the contract specifies who handles quality issues or feature updates, as the VAR has limited control over the manufacturer's product roadmap.
Mistake: Managing multiple VAR shipments independently.
Fix: Consolidate orders through a single point of contact to avoid tracking different shipments arriving from multiple locations at different times.
Examples
- Enterprise Networking: A company needs a secure office network. They hire a VAR that buys Cisco routers (hardware), installs and configures them, adds custom cybersecurity software, and provides ongoing 24/7 technical support.
- Video Production: A studio requires a high-end workstation. A VAR assembles a custom PC with specific graphics cards and pre-loaded, optimized video editing software, then trains the studio's staff on the new system.
- Government Procurement: [IT VARs account for hundreds of billions of dollars in annual sales worldwide] (Federal News Network), often acting as a shared services model that saves government agencies time and manpower.
Value-Added Reseller (VAR) vs. Managed Service Provider (MSP)
| Feature | Value-Added Reseller (VAR) | Managed Service Provider (MSP) |
|---|---|---|
| Primary Goal | Selling a customized product/solution. | Managing IT infrastructure remotely. |
| Engagement | Usually project-based or transactional. | Ongoing, subscription-based relationship. |
| Value Added | Installation, integration, and bundling. | Proactive monitoring and daily management. |
| Revenue Source | Product markup and professional services. | Monthly recurring service fees. |
Note: Many companies function as both, using the VAR model to sell equipment and the MSP model to manage it long-term.
FAQ
How do VARs make money?
VARs earn revenue by purchasing products at a discount from manufacturers and reselling them at a markup. However, the largest portion of their margin typically comes from the labor-intensive services they add, such as consulting, installation, and custom software development.
What is the difference between a reseller and a VAR?
A standard reseller focuses strictly on the distribution and volume of product sales. A VAR adds tangible improvements—like software customization or professional training—to the product so the customer receives a ready-to-use solution.
Can a VAR sell products from multiple manufacturers?
Yes. While some VARs are exclusive to one brand, many carry several competing brands to offer more choices and better meet the specific needs of their clients.
Why shouldn't I buy directly from the manufacturer?
Many manufacturers (OEMs) do not have the sales staff or support infrastructure to handle every end-user. They prefer to sell in bulk to VARs, who then provide the localized, high-touch service that individual customers require.
Are there VARs outside of the IT industry?
Yes. Car dealerships are a common example; they buy vehicles from manufacturers and add value through service contracts, custom parts, and extended warranties.
