Distributors Can Make Money Out of the Cloud

How Can Distributors Create New Revenue Streams from a Cloud-Based Channel?

Before cloud computing, distributors in traditional IT sales channels managed logistics, credit and the supply chain through VARs to end customers. These “pick, pack and ship” services were relevant benefits for vendors as they looked to channel partners to help them manage the workflow for physical products.

Distributors with a more value-add mindset often expanded their offerings to include training and other support services down the channel to resellers and end customers, allowing the distributors to increase margin revenues.

As cloud environments are hitting the mainstream and total cloud-based IT spending is expected to reach $44.2 billion in 2017 according to IDC, the role of today’s distributors is in a state of flux. There is no longer a box to ship, and customer support and deployment is typically provided by the reseller.

In the early days of the cloud, some channel members questioned whether cloud models would erase the role of distributors, as resellers could easily work directly with vendors and bypass distributors entirely. But many distributors are proving this assumption wrong as they reimagine their role in the IT sales channel to offer new value to vendors, and find opportunities to benefit from this fast-growth opportunity.

What are the Opportunities for Distributors in a Cloud World?

The successful distributors of tomorrow will be able to transition their value-added services to deliver meaningful value to the IT channel. There are two primary strategies for distributors to take advantage of the cloud – both of which relate to pricing and billing processes.

1. Use Workflow Automation to Aggregate Billing for Resellers

Resellers often struggle with the burden of managing monthly billing, as they rarely have the systems in place to support the sudden increase in billing frequency (from annual to monthly usage-based payments). This presents an opportunity for distributors to offer billing management as a service for resellers.

Savvy distributors can put in place a workflow automation system to collect and collate customers’ usage information from resellers, and deliver an automated billing service directly to the end customers. This value-added service will enable distributors to create a new revenue stream that is relevant for cloud-based products.

2. Negotiate Better Vendor Discounts for Resellers via Master Services Agreements

Distributors by their nature have more negotiating power than resellers. Putting this power to good use in a cloud environment, distributors can consolidate the usage from all resellers into a single agreement with the vendor, providing resellers with significant “aggregation” discounts. These discounts can be better than what a reseller could negotiate directly with the vendor. This allows resellers to extract a bigger margin and pass some on to the end customer, while distributors establish a value-added service than can grow their cloud-based revenues.

Today’s distributors do not need to be locked out of the cloud opportunity. Now is the time to shift the focus from physical goods to service provision. By identifying the pain points for resellers that are facing their own challenges getting up to speed and managing cloud-based products, distributors have a distinct opportunity to use their scale and unique position in the channel to offer new value-add services.

Get more strategies for using workflow automation to drive profitable growth in your distribution organization by downloading our white paper, “Deploying a Renewals Program in Distribution.”