Point of sale software companies often reach a point where they must weigh the outcomes of outsourcing their deployment efforts versus creating an in-house team. A major determining factor relates to the extent that an independent software vendor (ISV) relies on certain sales channels. More specifically, what percentage of accounts sold are direct to the end user or through a value added reseller (VAR). While some developers rely on one or the other, many have found that striking a balance between the two can be the difference between deployment being a loss leader or a profit center.
Outsourcing & Value Added Resellers
Over time, most VARs will become proficient in setting up accounts and supporting the end users. While you often have to share revenue, the right partners will save you that and more in traditional deployment and support costs that have now been avoided. Saving more on costs than you are losing in rev sharing and avoiding all of the logistical headaches that accompany deployment, what is the catch? The downside is that, with a little time, a good VAR will eventually figure out how to cut you out of the process when it comes to hardware. Either they create relationships directly with the same suppliers you are using or they take advantage of any and every fire sale on Amazon. This is not necessarily the kiss of death for the partnership, it does however, mean that the company continues to sell your software but cuts you out of the hardware revenue when it is convenient for them.
How do you avoid losing this piece of the pie? One way around this issue is to introduce exclusive white label products like printers and screens. By bulk purchasing them and making the price point so enticing, the VAR has no choice but to buy through your business. For software companies that do not possess the purchasing power necessary to go this route, there is a second option. The other, more common method, is implementing policies that the hardware must be purchased through a channel to be eligible for pre configuration, warranty and support during setup. This keeps cash flow in check while adding value to your hardware channel. The margins have to be tight to be competitive for the VAR and the communication on configuration, shipping, and deployment time frames needs to be automated. Most software companies should be working on their core product, improving functionality and user experience, not worrying about deployment logistics.
Here is some basic math on costs for a deployment department for a company doing about 50 stations a month while using a VAR channel.
Storage & Work area Costs:
Assume rent is $14 sq/ft and each POS station requires a printer, cash drawer and receipt printer. This takes up four square feet each, but can be stacked four boxes high. Meaning if you are storing one month's worth of equipment, you will need 50 sq/ft packed tight and high, resulting in a cost of $700 a year for storage. Adding work benches, a shipping area and a pick up/loading area is another 10ft by10ft space (100 sq ft). All in, simply storing your hardware is costing $2,100 a year, assuming it is located outside of a major city.
Employee Costs:
To match customer expectations, two people are required to take orders, configure hardware and deploy. You always need two for redundancy in this role as your clients expect certain levels of service and timelines. Depending on your location, this will be a $15-$20 an hour employee. With tax and overhead you are looking at an average of $50 an hour to staff the department.Multiply this by a forty hour week, then by 52 weeks of the year and staffing costs equate to $104,000 annually.
Management Employee Costs:
In addition to the above full time team members, your senior management will also have to spend time making decisions regarding deployment. This might include reviewing which products to use, handling a warranty issue, addressing VAR concerns about performance, to name a few. This time spend can be loosely broken down as follows: Product person (10% time spend) , Support Manager (20%), Sales/Relationship Manager(20%) CEO, CFO, COO (10% all in). Assuming these are all six figure employees you are looking at another $60,000 in management time being occupied with deployment related issues.
This puts you at $166,000 in total annual cost. To break even on an in-house department, you will need to make $276 per station. With most stations going for between $500-$800 ( that is with free shipping), you would need at least a 35% margin to break even. If you are selling to VARs, the margins can not get higher than 15% before they will start looking elsewhere for better priced suppliers, even if they like your software. It is better to outsource to a supplier that can meet your distribution specifications and give you a small 3-5% override or so you create a loss leading department. Don’t choose a partner based on the revenue share, focus on their ability to support your VAR channel and stay competitive with your service standards.
Outsourcing and Direct to Merchant
For direct to merchant deployments, the set up needs to be clean and easy. Less options and more consistency is the name of the game. Product professionals have a hard time with this because they like new and sexy add ons. An outsourced partner can be great for mass deployment with consistent set up and product configuration, but this more concise and less customized model can make the above deployment model make sense and make inhouse possible. The inhouse team may still outsource the actual storage and shipping of the equipment but these simple set ups lend to easy inside sales and quick and simple deployment/set up. The end user is often less demanding and at no point does one merchant get the attention of senior management. Small imperfections in the process are less costly and less time consuming thus the profit margins can be increased and the time spend decreased. Overall, lending to a most efficient experience, even if still partially outsourced.
Hopefully this article has given you some insight into the different paths your business may follow. If outsourcing deployment seems right for your organization, email sales@theposcloud.com or call 888-773-1222 to learn more.