Changing the Margin Game?

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Throughout its history, the accounting software market has been dominated by the pursuit of product margins. It's a basic formula: The greater the margin, the more money is left for expenses, and hopefully, for the bottom line. But margins have been squeezed: squeezed by competition; squeezed by the vendors who want to improve their own profits by raising the volume required to get the best prices, while the top margin percentage rates themselves decline.

The resellers' best answer to the squeeze has been to sell high-margin items such as services and maintenance contracts, a response that is unlikely to change. But there are other revenue sources outside of selling products and related services, and they will be increasingly tapped as we enter the era of transaction-based revenue.

Payroll has always had components that provide income based on transactions. But the thing that could fundamentally change the business is credit-card payment processing services.

Partner Insights

Credit card processing has a natural relationship to accounting software. Numbers from credit card purchases must get into the accounting system and the more automated that process is, the better.

Accounting software vendors are now entering the payment processing business in which they provide the technology to get the credit-card information from the merchant to the bank and get the money into the right places.

Going International

The hands across the sea in business are increasingly the hands of software resellers.

That's the subject of "Going International," which looks at the need some resellers see for expanding their businesses outside of the United States and for others from other countries to move into the U.S.

One thing that's not new is each year's change to tax software features. Associate Editor Riccardo Davis provides this year's details on the annual ritual of rewriting the compliance applications in "Tax Season Preview."

Another thing that's not new is the need to find compensation plans that reward, and keep, quality workers. Writer Antoinette Alexander explores the issues in "The Lure."

Getting and keeping clients is also one of the goals, and a good Web site can aid in process. In "Building a Compelling Web Site," write Melissa Klein looks at how firms develop sites that stand out.

Companies serving the POS market have been quickest to enter.

Synchronics, the POS specialist purchased late last year by Radiant Systems, has had been in the business for years. Intuit, which has had POS products for five years, entered the business via acquisition two years ago. Cougar Mountain Software took a build-your-own approach in jumping in during the spring.

It's Sage's acquisition of Verus Financial Management earlier this year that demonstrates what the vendors think is at stake. Sage paid five times annual revenue for Verus Financial Management. All of these companies provide gateways, the technology that routes the transaction, whether from credit or debit cards, or checks, to the right bank credit card company.

It is Sage that has the most ambitious plans for its channel.

It wants VARs to become independent sales organizations that get their clients and prospects to sign up for Verus services. This may be as simple as a checklist for asking clients and prospects a series of questions about their need for merchant services.

The benefit is that when a client signs up with Sage, the reseller will receive a slice of the revenue from every transaction originating with that merchant for as long as the business stays with Sage.

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