Although 80% of our business is done directly with buyers, 20% of our business comes to FGX through a VAR working to support their clients. I recently had time to step back (working from home has saved me 3 hours a day of agonizing commuting) to analyze the business that we do with VARs, and noticed that the close-rates we had with some VARs is much higher than with others.
On average, our highest performing VAR clients sold ~$5M of IT hardware destined for international locations (which we shipped) a quarter, and the lowest performing VAR clients sold ~$150k a quarter. There wasn’t much middle ground, with most VARs being close to either end of the spectrum.
Naturally, I wanted to dig further to see how we could use the data we had from working with the higher performing VARs to help increase the close rates for the lower performing ones.
The Effect of Deal Pricing on Close-Rates
We deduced that deal pricing wouldn’t be the major reason affecting the close-rates for three reasons:
- VARs are Given the Same Rate – We give all our VAR partners the same rate, unless a VAR has deal registration. We took deal registration into consideration and removed those deals from our analysis.
- The Domestic Competition – It’s unlikely that the outcome of a deal is affected by a difference in the domestic VAR’s pricing. At most, a VAR can reduce their deal pricing by around 1 or 2% vs. another VAR, but this likely has no bearing on the final cost outcome of the deal, as the final cost will be compared vs the in-market price, which is 12-15% more expensive.
- The International In-Market Competition isn’t… well, Competitive – By removing the registered deals and ruling out the domestic competition, we could deduce that the competition most likely didn’t come from other domestic VARs utilizing FGX. The only other competition would be the international in-market VAR. But we know that it’s 12-15% cheaper to buy hardware in the U.S. and deploy it internationally than it is to buy in-market (less Canada and Western Europe). Meaning that the issue most likely wasn’t with the in-market cost comparison.
The Effect of Qualitative Factors on Close-Rates
By ruling out cost, we suspected that the close-rate was likely affected by qualitative factors. We analyzed the last ~2000 deals (for a decent sample size) that weren’t deal registered and discovered the following data points:
- The opportunities where there was at least 1 phone call between FGX, the VAR, and the buyer had a ~30% higher close-rate, and the average deal size ended up being $50,000 USD higher than ones without.
- The highest performing VARs had, on average, 54 more opportunities a quarter than the lowest performing VARs.
- The opportunities where a case study was sent to the buyer had a ~12% higher close-rate than the ones without.
- The opportunities where the hardware value being sold was greater than $30,000.00 USD had a ~225% higher close-rate than deals where the hardware value was less than $30,000 USD.
Because points 1, 2, and 3 are more qualitative in nature, it’s hard to pinpoint whether those actions directly contributed to the higher close-rate. There could have been other confounding factors at play, for example, it wasn’t because FGX was on the call, but rather that the call itself was the main reason that the VAR had a higher close-rate.
Either way, we tried to explain the above findings using our experience and empirical evidence:
1. The opportunities where there was at least 1 phone call between FGX, the VAR, and the buyer had a ~30% higher close-rate and the average deal size ended up being $50,000 USD higher than ones without.
Possible Explanation: Since we’re the ones executing the global deployment, we’re able to better explain to the client what the exact process and challenges are, and we can also ask the proper questions to ensure everyone’s on the same page, etc. When there’s a clear division of responsibility, everyone feels more comfortable with each party executing on their specific expertise.
We’re also able to give the buyer insight into their alternatives, like how the international in-market VAR, structures their cost. For example, a lot of the times, the in-market VAR will hide the total costing from the buyer (e.g. the fine print of their invoice will say, duties and taxes to be billed on the final invoice, and that additional line item could be 0 – 100%+ of the hardware value dependant on destination.)
The majority of our calls were with the higher-performing VARs. We had close to 0 calls with the lowest performing VARs. This could have also been due to the higher-performing VARs having more opportunities in general, thus having more opportunities to have a call set up.
2. The highest performing VARs had, on average, 54 more opportunities a quarter than the lowest performing VARs.
When I saw this, I figured that this could be due to the higher performing VARs simply having clients that are more international and tech-focused in nature. But interestingly enough, the clients of the lowest performing VARs were just as international (meaning they served multinational businesses with at least 4 global locations.) The clients of the higher performing VARs, however, were more tech-focused businesses, so this could be a big reason for the higher average opportunity number. In our own experience with buyers, even if the client isn’t tech-focused, for example a law firm, their global spend a year is still around $2MM – $10MM+.
Another possible explanation for the higher opportunity number is that the higher performing VARs actively sold their partnership with FGX to their clients (but I can’t know for sure,) resulting in the client giving them more opportunity to bid on their international business.
From our own experience working with buyers, once we have closed 2 to 3 deals, they have more trust in the model and naturally bring us more opportunities. This pattern probably applies to almost every other service in the world, once a client enjoys and trusts your service, they’ll bring you more chances to serve them.
3. The opportunities where a case study was sent to the buyer had a ~12% higher close-rate compared to those without.
A possible explanation could be that the higher performing VARs view helping their clients with international as a larger part of their value-add, and sharing our case studies helps them sell more effectively (if we’re in the same email as the client we’ll usually send the case study ourselves, but in other cases, the VAR will ask us for a relevant case study.) Either way, a higher close-rate of 12% is relatively inconsequential when compared to the other data points.
4. The opportunities where the hardware value being sold was greater than $30,000 USD had a ~225% higher close-rate than deals where the hardware value was less than $30,000 USD.
The explanation for this datapoint is most likely because of how an entire deal’s pricing (U.S. hardware costs + FGX deployment costs) is affected by the deal size. There are fixed costs whenever we deploy internationally. For example, customs clearance will cost $500 whether or not you’re moving $1MM or $10.00 worth of equipment. So, when you’re deploying $1000 worth of goods, the fixed costs will make the deployment look relatively expensive. But when the BOM size is larger, those same fixed costs work for you, as you take advantage of economies of scale. It’s likely the reason why our average deployment size is presently ~$225,000 USD.
- Communication is key. Ultimately the hurdle is instilling confidence into the client, and the best way is by providing transparency into the process.
- If you want to sell international deals, be confident. Share FGX’s case studies, showcase the partnership, and share your own personal case studies if you’ve succeeded with us before.
- Smaller sized deals aren’t cost competitive. Deals over $30,000 USD have a much higher close-rate.
Before we conducted this analysis, we actually had a hunch that communication was essentially the key to growing our business. It’s why we started moving our business to being predominantly buyer-focused last year (our next article will be on this topic.)