Taking care of customers is not only good for the users of Red Wing Software's accounting application, it's a paying proposition for the vendor's software resellers. VARs are now eligible for 30 percent margins when a customer renews service and maintenance contracts under a new program called Customer Care Membership that was introduced last fall by the Red Wing, Minn.-based software vendor.
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It's something of a carrot-and-stick approach in a single tool. Resellers that sell renewals and bill end users directly receive 30 percent margin on renewal rates that range from $700 to $2,500.
But for those end users billed by Red Wing Software, resellers have 90 days to redeem the margin in the form of a credit towards the purchase of software.
Customer Care also provides added benefits, particularly to new users, who receive what Red Wing called substantial discounts on classroom training and on-site professional services, and personalized online sessions related to training or implementation need. Those were added on to program features that were previously available, such as unlimited toll-free and email support, product updates, tax table and tax form changes shipped automatically, access to an online Community Forum, and a newsletter.
Customer Care replaced the previous Red Wing Maintenance plan. However, maintenance subscribers were automatically enrolled in the new program and given the added benefits.
Platinum reseller Rick Anderson, owner of East Tennessee Systems, says that the margins from renewals consistently challenge him. "If I haven't used the credit in 90 days, that's money out of my pocket," says Anderson. "If I lose it, it's my fault; not Red Wing's."
The 30 percent on renewals, Anderson says, "is an extra incentive to make sure the customer stays happy."
Offering VARs a financial incentive to assist Red Wing in keeping their customers in the fold is an added benefit to the program, according to Mark Machtemes, Red Wing's business development manager.
"Now, we want VARS directly involved in the renewal process, because they can generate ongoing revenue from that client," says Machtemes. "It also gives them much more of a financial incentive to stay close to the customer."
According to Anderson, 90 percent of his East Tennessee Systems' clients renewed last year.
"It definitely has increased our profit," says Anderson, whose Hixson, Tenn.-based reselling firm had revenues of approximately $375,000 in 2005. It also handles accounting software from TIW Technology and specialty vendors ClickBase and RIATA Technologies; in addition to Red Wing.
Anderson says that as much as 35 percent of the three-decades-old firm's revenue came from the sale of Red Wing products and modifications to its software.
A Double Approach
Red Wing serves two markets. It is probably be best known for its agricultural financial software products, including AgChek, Perception, and Center Point, and some specialized packages, such as Cow/Calf, a herd management program.
On the business software side, it also has Perception for Municipalities, which provides fund and payroll accounting. Its general business accounting line is called TurningPoint, which was introduced in November 2002. That came after the company underwent significant change in its form and product line early in the decade. In May 2001, the former Red Wing Software was purchased by a publicly held company that was then known as Active IQ Technologies, which also acquired the former Champion Business Systems.
The software operations became known as Red Wing Business Systems. Then, on April 30, 2003, Red Wing was purchased by its management after Active IQ tired of the software business, and moved into mining, changing its name to Wits Basin Precious Minerals.
Although Red Wing does not disclose revenue, in fiscal 2002, its last full year under Active IQ, it had $4.2 million in revenue and claimed 400 resellers and 20,000 customers.
Meanwhile, the company retired the Champion and Red Wing lines, choosing the newer TurningPoint as the growth vehicle for its commercial business. The channel program peaked in the late 1980s with about 700 resellers, and is now down to the approximately 200 that the company considers capable of doing a good job.
"The number has gone down, but the expertise has gotten much better," says Machtemes. "There was a concerted effort on our part to determine who was doing a good job selling the software and we've continued those relationships."
Red Wing is actively recruiting resellers with a strong accounting knowledge to add to its channel. "I think our ultimate goal would be to add 100 partners over the next three years," says Machtemes. The Minnesota-based vendor wants to strengthen its reseller presence outside of its Midwest base and penetrate the West Coast, East Coast, and southern United States.
Red Wing has three reselling tiers-Provider, Premier, and Platinum Partners-that receive margins of 30, 40, and 50 percent respectively.
"In comparison to other companies, Red Wing's margins are 10 percent to 20 percent greater," says Randy Greco, vice president of Niles, Ill.-based ChoLab, which has been a Platinum-level reseller for five years.
While the percentages for margins aren't greater than those offered by competitors, they kick in at far lower levels. To get 50 percent margins, Platinum VARs must buy $10,000 in Red Wing products each year; Premier Partners, $5,000. Provider Partners, who do not need to meet a volume requirement, must pay $795 annually to enroll in the channel program. The VARs also receive a number of common education programs and services that include seminars, joint marketing efforts, and co-op dollars.
The company also generates about 10 percent of its annual sales from Corporate partners, which are ISVs that integrate TurningPoint with their own vertical applications. They receive margins in line with those of Red Wing's Premier and Platinum Partners, and also receive technical assistance.
An additional 10 percent of Red Wing's revenues is produced through its internal sales force, whose six staff members primarily handle renewals and product sales migration. The company offers custom implementation planning and data migration services.
The company also offers separate partnering programs for the agricultural market.
In terms of keeping the product line fresh, 2005 was an active year for Red Wing. It introduced TurningPoint 3.0 in August, with enhancements in the Accounts Receivable, Order Entry, and Inventory modules.
In October, it introduced Version 10.0 of its payroll package, including changes that were designed to speed up the payroll process.
In general, ChoLab's Randy Greco says, Red Wing listens to its resellers when it comes to product line changes. "I am pleased with the way Red Wing handles our [resellers'] suggestions," says Greco. "They do incorporate them."
Greco noted that he and other resellers had asked Red Wing for a financial overview, which the vendor quickly developed. This became the Financial Snapshot report that enables users to check their financial status
The real-time report is just one of the many ways, Greco says, that Red Wing helps its resellers enhance their profitability. He also noted the complementary marketing materials, training, and sales leads provided by Red Wing.
However, some resellers, including Anderson, would like stronger communication throughout the year.
Instead of having to wait until Red Wing's annual reseller conference, Anderson says, he would like to be able to share his experiences and have others share theirs throughout the year.
"We all need to make more of an effort to communicate with each other so we can support each other better," Anderson says. "We're all growing and learning; if not, we're going to go out of business."
RED WING SOFTWARE
HQ: Red Wing, Minn.
Phone: (800) 732-9464
Products: TurningPoint, AgChek, Perception, CenterPoint