When it comes to selling hardware, you may be considering your options. Perhaps, you’d like to expand your business and maintain total control over your entire solution. Maybe you’re on the fence due to cold feet from facing issues like sales tax. Ultimately, the decision to sell or not sell hardware is based on your business model and what will work best for you.
To Sell Hardware (Pros):
- End-user experience. For ISVs who choose to sell hardware, the main focus is on the quality of the end-user experience. When ISVs decide to sell hardware, it is typically because it allows them to review and control the entire experience. When the choice of hardware is left up to the VAR or end user, it complicates integrations for an ISV’s support team.
- Increase Revenue. By selling hardware, ISVs can substantially increase revenue. It allows for a smoother, more even cash flow as most retailers usually pre-pay for hardware and distributors offer a 30- to 40-day payment term. It also enables easier selling across various regions, widening ISV reach and increasing the number of prospects.
- Storing and shipping. Often, there is a misconception that ISVs must prepay and have access to a warehouse inventory in order to sell hardware successfully. Fortunately, this is not always the case. ISVs can partner with hardware companies who will stage the entire system before shipping or with distributors who are capable of direct shipping to customers on a daily basis.
Not To Sell Hardware (Cons):
- Laser focus. ISVs who choose not to sell hardware often do so because they would rather stay focused on what they do best, develop innovative software services.
- Liability. Sometimes ISVs prefer to avoid the liability that can sometimes accompany opening multiple credit lines with distributors or resellers.
- Support and warranty. Support and warranty calls due to hardware issues can cause disruptions to day-to-day workflow and productivity.
- Profit margins. When an ISV’s goal is to produce a profit margin that is as high as possible, hardware sales usually reduce that number due to support and service. Additionally, if the ISV is selling through a reseller channel and selling hardware online, this may reduce reseller revenue if a solid pricing structure has not been set up clearly.
- Sales tax. In many states, services are not taxable, however hardware sales always include tax and an ISV’s accounting department must file all revenue from each state in which sales were made.
An alternative option for ISVs who wish to have their software offered as part of a total solution is a partnership with companies who are setting themselves up as “platforms.” These companies are choosing to establish themselves as a payment or hardware platform. In both cases, these companies need software partners to gain footing within specific vertical markets.
Benefits of a Successful ISV and Hardware Vendor Partnership
A successful partnership will be mutually beneficial. The hardware vendor should see an increase in hardware sales and the ISV should see revenue growth with the help of the hardware vendor’s connections, technology, and promotional programs.
When forming a partnership with a hardware vendor, ISVs should ask:
- Is my preferred hardware vendor offering the technology my software needs for both today and tomorrow?
- Does the vendor provide technical, sales, and marketing support when requested?
Am I confident this vendor will be able to grow with me? Does it have connections with distribution channels in multiple states, countries, and industries?