A little bit about the business of selling software
Write this post I was prompted by the existing confusion with the terms associated with the business of selling software licenses. Very often, the conversation about the business of selling software sooner or later comes down to a dispute or simply a lack of understanding around a particular term or concept.
It is especially difficult to talk with pure "techies" who professionally write programs, create websites, administer hardware and software, but confuse distributors with resellers.
Therefore, I will try to describe how they earn money from selling licenses, what business roles exist in this process. I will also touch on the issue of margin, its approximate distribution and some other things. I will try to describe the most common cases that are not tied to a specific company.
Selling software licenses
The usual license delivery scheme looks like this:
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Vendor -> Distributor -> Reseller
A vendor is a software maker, more precisely, one who owns the rights to the software (examples of vendors are Adobe, Microsoft, Autodesk). The vendor enters into a contract with the distributor that regulates the transfer of license rights and permits distribution (ie, resale of licenses to resellers for the purpose of resale to end users).
The reseller concludes a sublicense agreement with the distributor that allows selling the license only to the end user (usually this is so, rarely does a vendor allow subdistribution, this is fraught with loss of control over the channel and the appearance of dumping companies). If we consider the final cost, then the approximate monetary shares look like 70% -20% -10% (vendor - distributor-reseller).
Naturally, this is “on average in the hospital”, since the distribution of %% depends on many factors - if the product is sold “like hot cakes”, then% of the distributor and reseller is less, and if serious efforts are needed, or if the product or vendor is new and they need to interest distributors and resellers, then 50%, and even more can go to the reseller. Again, if the reseller is “big” (i.e., sells a lot and does not have many offices), or if there are very few resellers (they sell a unique product), then the distribution share is redistributed. Sometimes, in the case of exclusive items, the reseller is a distributor and receives a large percentage.
Why do you need a distributor?
For most people, the question immediately arises as to why a distributor is needed (most often this question arises among resellers, transforming into “how to become a distributor?”). In Russian conditions, distributors solve issues of payments abroad and customs clearance of licenses, as well as everything related to the logistics of the product (if the product is delivered in boxes, it is almost impossible to import the product, I do not have specially trained people who know how to do it).
Russian manufacturers are also actively working with distributors, as each distributor, in fact, is the key to several thousand local resellers who are accustomed to its logistics, reporting forms, payment rhythms, etc ...
Distributors, by definition, cannot be too much - concluding a distribution agreement is a serious effort both from a legal and organizational point of view - both the distributor and the vendor must identify the responsible people who will organize the workflow, place orders, resolve difficult situations.
In the same way, a distributor cannot support (let's say - equally well support) many vendors, both large and small. All somehow rests on specific people who must at least understand the price list of the manufacturer. These people have to pay salaries and bear other expenses.
Why do you need a reseller?
If distributors themselves are so great, why don't they sell licenses themselves directly to end users? Would you take yourself all the margin? In fact, this is a difficult question, the short answer to which is that the distribution business is a business on the back. Nobody gets rich by selling licenses for NNNN thousand dollars - the task of the distributor is to constantly maintain the sales channel at a certain level. Of course, if the size of the transaction significantly exceeds the average in the channel, the distributor will be pleased, but not for long.
If the distributor wants to sell licenses directly (there are such cases), then he faces the problem of cannibalization of the channel. On the one hand, it looks like a clever trick to give a discount at the expense of its large margin and get a client, but there are no fools among resellers - nobody will continue to work with such a distributor, and any supplier company usually keeps at least 3 distributors (there is even a common rude thing: “1 - will become impudent, 2 - will distort, and 3 will just keep the balance”), then the reseller always has a choice where to go. And he will not be silent about his retirement, which will affect the overall profitability of the channel.
In addition, resellers usually know their customer. It’s only in dreams that it’s enough to put a product on the site, pay in Yandex.Direct and Google AdSense and wait for orders to fall down. In fact, customers need to constantly communicate. There are 2 key points in working with clients - the cost and time to attract a client. For different products, these values ​​are different, but quite significant. And the larger the transaction size, the more the reseller "rubbed into trust", holds meetings and "works with the liver."
Very often, in order to get a client, many resellers make a transaction with zero profitability or even at a loss, in order to later make a profit by selling to this client.
If the system integrator, who needs licenses for a specific project, acts as a reseller, then it is very foolish to try to “drive around” it, you just lose the deal. But about system integrators, the conversation is separate and beyond the scope of this discussion.
Further, resellers can be, say, supermarket chains. Although they do not have any knowledge of software, they can reach an audience that you cannot reach at all in any other way (and for this they “squeeze” manufacturers up to 60-80%).
Purchase of licenses from the point of view of the buyer
Now that we’ve touched on distributors and resellers a little bit, we’ll need to look at how licenses look like from the end customer’s point of view. Here are 2 main points:
It is said that the acquired licenses fall into capital costs (Capital Expenses = CAPEX).
Selling licenses in terms of reseller
For a reseller, selling licenses looks like a discrete process consisting of individual transactions. For example, for a small reseller:
Please note that already from the 1st month the seller receives a sum of several thousand dollars (started selling software from his friends and acquaintances), which immediately falls into his pocket. In fact, the seller almost immediately quickly goes to a good level of sales, if he finds several decent customers, and starts selling them. Many resellers live, having only a few more or less large customers and selling software to them - there is enough life and good.
Conclusion
The topic, as you might guess, is huge, you cannot cover it in any way, well, I tried to at least highlight the basic terms. He didn’t touch on how distributors and resellers cope with the arrival of clouds and the principle of Pay-as-you-Go - buyers want to pay a little bit and instead of large one-time capital costs incur small Operational Expenses.
I will try to tell about it another time.
It is especially difficult to talk with pure "techies" who professionally write programs, create websites, administer hardware and software, but confuse distributors with resellers.
Therefore, I will try to describe how they earn money from selling licenses, what business roles exist in this process. I will also touch on the issue of margin, its approximate distribution and some other things. I will try to describe the most common cases that are not tied to a specific company.
Selling software licenses
The usual license delivery scheme looks like this:
')
Vendor -> Distributor -> Reseller
A vendor is a software maker, more precisely, one who owns the rights to the software (examples of vendors are Adobe, Microsoft, Autodesk). The vendor enters into a contract with the distributor that regulates the transfer of license rights and permits distribution (ie, resale of licenses to resellers for the purpose of resale to end users).
The reseller concludes a sublicense agreement with the distributor that allows selling the license only to the end user (usually this is so, rarely does a vendor allow subdistribution, this is fraught with loss of control over the channel and the appearance of dumping companies). If we consider the final cost, then the approximate monetary shares look like 70% -20% -10% (vendor - distributor-reseller).
Naturally, this is “on average in the hospital”, since the distribution of %% depends on many factors - if the product is sold “like hot cakes”, then% of the distributor and reseller is less, and if serious efforts are needed, or if the product or vendor is new and they need to interest distributors and resellers, then 50%, and even more can go to the reseller. Again, if the reseller is “big” (i.e., sells a lot and does not have many offices), or if there are very few resellers (they sell a unique product), then the distribution share is redistributed. Sometimes, in the case of exclusive items, the reseller is a distributor and receives a large percentage.
Why do you need a distributor?
For most people, the question immediately arises as to why a distributor is needed (most often this question arises among resellers, transforming into “how to become a distributor?”). In Russian conditions, distributors solve issues of payments abroad and customs clearance of licenses, as well as everything related to the logistics of the product (if the product is delivered in boxes, it is almost impossible to import the product, I do not have specially trained people who know how to do it).
Russian manufacturers are also actively working with distributors, as each distributor, in fact, is the key to several thousand local resellers who are accustomed to its logistics, reporting forms, payment rhythms, etc ...
Distributors, by definition, cannot be too much - concluding a distribution agreement is a serious effort both from a legal and organizational point of view - both the distributor and the vendor must identify the responsible people who will organize the workflow, place orders, resolve difficult situations.
In the same way, a distributor cannot support (let's say - equally well support) many vendors, both large and small. All somehow rests on specific people who must at least understand the price list of the manufacturer. These people have to pay salaries and bear other expenses.
Why do you need a reseller?
If distributors themselves are so great, why don't they sell licenses themselves directly to end users? Would you take yourself all the margin? In fact, this is a difficult question, the short answer to which is that the distribution business is a business on the back. Nobody gets rich by selling licenses for NNNN thousand dollars - the task of the distributor is to constantly maintain the sales channel at a certain level. Of course, if the size of the transaction significantly exceeds the average in the channel, the distributor will be pleased, but not for long.
If the distributor wants to sell licenses directly (there are such cases), then he faces the problem of cannibalization of the channel. On the one hand, it looks like a clever trick to give a discount at the expense of its large margin and get a client, but there are no fools among resellers - nobody will continue to work with such a distributor, and any supplier company usually keeps at least 3 distributors (there is even a common rude thing: “1 - will become impudent, 2 - will distort, and 3 will just keep the balance”), then the reseller always has a choice where to go. And he will not be silent about his retirement, which will affect the overall profitability of the channel.
In addition, resellers usually know their customer. It’s only in dreams that it’s enough to put a product on the site, pay in Yandex.Direct and Google AdSense and wait for orders to fall down. In fact, customers need to constantly communicate. There are 2 key points in working with clients - the cost and time to attract a client. For different products, these values ​​are different, but quite significant. And the larger the transaction size, the more the reseller "rubbed into trust", holds meetings and "works with the liver."
Very often, in order to get a client, many resellers make a transaction with zero profitability or even at a loss, in order to later make a profit by selling to this client.
If the system integrator, who needs licenses for a specific project, acts as a reseller, then it is very foolish to try to “drive around” it, you just lose the deal. But about system integrators, the conversation is separate and beyond the scope of this discussion.
Further, resellers can be, say, supermarket chains. Although they do not have any knowledge of software, they can reach an audience that you cannot reach at all in any other way (and for this they “squeeze” manufacturers up to 60-80%).
Purchase of licenses from the point of view of the buyer
Now that we’ve touched on distributors and resellers a little bit, we’ll need to look at how licenses look like from the end customer’s point of view. Here are 2 main points:
- Software licenses are acquired either immediately or as part of various enterprise agreements - by installments in several installments (usually for 3 years with annual payments). Usually the amount of payment is quite large.
- Acquired licenses are credited to the balance of the company and increase its capitalization (with proper registration). This is very important for joint-stock enterprises whose managers usually seek to increase capitalization (and the value of shares), and not profit. Of course, everything depends on the particular enterprise and goals, but it is important to keep this in mind - perhaps, managers at the time of sale are fighting for several million capitalization, and not for saving money.
It is said that the acquired licenses fall into capital costs (Capital Expenses = CAPEX).
Selling licenses in terms of reseller
For a reseller, selling licenses looks like a discrete process consisting of individual transactions. For example, for a small reseller:
- , ( $)
Jan-2010 20 4
Feb-2010 30 5
Mar-2010 35 7
April-2010 28 5
May-2010 30 6
June-2010 40 11
Please note that already from the 1st month the seller receives a sum of several thousand dollars (started selling software from his friends and acquaintances), which immediately falls into his pocket. In fact, the seller almost immediately quickly goes to a good level of sales, if he finds several decent customers, and starts selling them. Many resellers live, having only a few more or less large customers and selling software to them - there is enough life and good.
Conclusion
The topic, as you might guess, is huge, you cannot cover it in any way, well, I tried to at least highlight the basic terms. He didn’t touch on how distributors and resellers cope with the arrival of clouds and the principle of Pay-as-you-Go - buyers want to pay a little bit and instead of large one-time capital costs incur small Operational Expenses.
I will try to tell about it another time.
Source: https://habr.com/ru/post/87052/
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