The margins offered by Avalara's Infinity Partner Program may not be as large as those given for selling accounting software. But Avalara believes the monthly commission that resellers can earn when their customers buy the sales and use tax product can smooth out revenue swings. And the VARs don't have to invest a lot of time in the process.
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The Bainbridge Island, Wash.-based vendor of AvaTax ST, a Web-based sales and use tax system, does much of the work for its 290 value-added resellers, a number that it is seeking to increase. It provides hands-on support, along with selling to the resellers' customers.
"Essentially, they do everything for us," says Allister Carlos, customer accounts manager for ACl Consulting, based in Anaheim Hills, Calif. "And to the client we end up looking like we're great because Avalara is our partner and they identified a particular need or weakness in their manual process."
Avalara does all the marketing, selling, and support, leaving ACI, which sells MAS 90/200 and MAS 500, to focus on its core business and products. If an end user contacts Avalara directly, the company will close the sale. However, Avalara asks the customer to identify the firm from it which purchased its accounting software, automatically enrolling the reseller in the program and paying monthly commissions.
In the few months it has been a member of the Infinity Partner Program, about 10 ACI customers have tested AvaTax ST as part of a free 30-day trial. To date, none of ACI's clients have signed up. If they do, ACI will receive a commission based on the set-up fee and first-month service fee.
"We, in essence, are their salespeople," says Marshall Kushniruk, Avalara's vice president of sales and marketing. "That allows them to go run their business while we continue to add to their bottom line."
Avalara's eight telemarketers drum up the end-user business. Once the customers make a purchase, the resellers receive monthly commissions as long as the companies remain Avalara clients.
Keeping abreast of sales and use taxes is a challenge for most businesses.
AvaTax ST tracks levies in more than 8,000 taxing jurisdictions in the United States. It integrates with an increasing number of accounting software programs, replacing the sales tax module in those systems. The end user hardly sees the Avalara name. To date, the system integrates with Intuit's QuickBooks; Sage Software's MAS 90/200, MAS 500, and Accpac Advantage Series; Epicor's iScala; and Microsoft Great Plains and Navision. Avalara expects to add interfaces for Microsoft's Small Business Financials, Open Systems' Traverse and SAP Business One.
A key to the system's functionality is its ability to verify addresses down to the zip+4 level. It can handle post office box numbers, rural/highway routes, and apartment and suite numbers. Address validation in this detail is needed to apply the correct rates, Kushniruk says. The application also provides nexus management to determine the states in which a company has nexus. AvaTax automatically calculates the taxes on each transaction and provides detailed reporting. Tax tables are updated monthly.
The company recently added the ability to have completed forms printed from the system. Previously, calculations had to be entered into the appropriate form.
"We knew it was the last cog for the end-to-end usage and design," Kushniruk says.
That kind of service is important, according to Mike Nottoli, vice president of marketing for San Diego-based Barsa Technology Solutions.
Barsa, which joined the program just over a year ago, has found the system reduces the risk of entering inaccurate tax rates and lowers the risk of an audit.
"[Avalara] hit the nail on the head with this niche," says Nottoli. "It is a nightmare for clients to keep tabs on all the tax jurisdictions in which they're doing business."
During the summer, Avalara expanded its services, moving into the higher-end market. Its July alliance with TaxWare offers high-end sales and use tax services that have been traditionally provided through the Big Four accounting firms.
The TaxWare alliance lets resellers sell to the upper tier of the SMB market that may prefer not to have a hosted site, as well as serving publicly held companies that do not want an Internet-based system.
For sharing their client rosters with Avalara, resellers receive 20 percent margin on the activation and service fees that average $5,000 the first year.
For example, an AvaTax ST sales tax application to interface with a Great Plains financial management application could cost the end user $1,500 for the one-time activation, plus $350 per month for processing 14,000 invoices per year. When the customer renews an annual subscription, the reseller will receive monthly commissions on the client's $350 monthly fees. Avalara also offers resellers Infinity Reward Points that can be redeemed for gifts.
The margin for TaxWare installations is only 10 percent of the invoiced price. However, those systems can range from $100,000 to well more than $1 million paid by the customer.
The compensation isn't the highest in the business, Kushniruk acknowledges.
"Initially," says Kushniruk, "it might not be as much as they would get with another vendor, but over time it is less work for them." Avalara has unveiled an Infinity Partner Program tier structure with margins based on the number of customers a partner has.
ACI's Carlos considers the margin generous. "There is no cost in it for me," says Carlos, "so, any margin is great."
Dale Potter, co-owner of Salt Lake City-based Premiere Computing Technologies, is content with the recurring revenue stream it has received from Avalara over the past year. The company sells MAS 90/200 and Great Plains accounting software.
"It's adequate," says Potter, whose firm has $4 million in revenue. "The idea of the recurring revenue is attractive to help minimize the ups-and-downs and swings in the business."
"The most important thing for us is it is an effective solution for our clients," Potter continues. Half of Premier's clientele, which includes retailers, manufacturers, and distributors, are in Utah with the remainder in adjoining states such as Colorado, Idaho, and Nevada. Some of them do business across those and into other U.S. states. "Clients with multi-state operations have the complicated task of staying abreast of and complying with ever-changing tax rates," he says.
Potter is happy with Avalara's ability to tailor its system, a capability that is provided through AvaTax On-demand, which makes third-party, custom-built, or any other system, Avalara's AvaTax On-Demand" makes the Avalara Web Services application programming interface available to developers via a software developer's kit. The SDK can be used to develop interfaces for those using e-commerce, third-party, or custom-built systems.
Each reseller receives a complimentary demo copy of AvaTax ST and a free version for in-house use, along with interfaces to all supported accounting systems so that they can demonstrate the product to clients.
Avalara seeks VARs that can demonstrate experience with accounting software. Resellers who wish to join the Infinity Partner Program can apply via the Web. The company does not plan to charge resellers for enrolling for the foreseeable future.
"We may at some point charge a nominal fee, but we are at least a couple of years away from that, if ever," says Kushniruk. "I would rather create interest and awareness in the partner channel by creating value for them, rather than receiving their monies."
HQ: Bainbridge Island, Wash.
Phone: (877) 780-4848
Products: AvaTax ST
Riccardo A. Davis is Associate Editor of Accounting Technology and can be reached at email@example.com.