Avalara Pays Commission for Infinity

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Don’t expect large upfront margins when reselling Avalara’s Web-based sales-and-use tax application. Instead, expect to keep getting paid for infinity.

That’s the concept behind the Infinity Rewards Program for ERP resellers who also sell AvaTax, which matches, standardizes and appends the Zip code Plus 4 to each address, keeping track of the multiple jurisdictions companies have to track when dealing with customers, including county, local taxes and myriad other ever-changing rates. AvaTax calculates sales tax in the background while ERP systems continue to run. When companies sell one AvaTax contract, they earn commissions on both the setup and service fees during the first month. If they sell another contract in month two, they continue to earn service fee commissions on the first contract plus commissions for the second contract.

Commission starts at 20 percent during the initial sale and scales down to 10 percent over time, but it never goes below that number and they continue to collect as long as that customer continues using the product and paying the monthly subscription fee, which varies based on product but can range anywhere from $99 to $1,800 per month based on the number of transactions. (Setup starts at roughly $450 and can scale to about $8,000.)

Partner Insights

Vendors that provide more expensive on-premise products offer 30 percent or more license margins, but Avalara could not afford to offer that much the first year, says Scott McFarlane, founder, president and CEO.

“We had to be different than someone who was selling a one-time software deal,” McFarlane says. “We called it Infinity because we want our partners to share in the lifelong revenue. We had rousing success in the make-money-while-you-sleep [philosophy].”

Avalara, which only sells through the channel, launched the program in mid-2004 by reaching out to about 50 Microsoft GP resellers, followed by Sage MAS 200 VARs.

Since then, Avalara started OEM relationships with several other major ERP vendors — including Intuit, Infor, Epicor, NetSuite, Exact Software and others — and started reaching out to those companies’ resellers as well.

At Sage’s Insights partner conference in May, Avalara signed 67 VARs, bringing the total number that signed on this year alone to roughly 120 (and growing by at least 18 per month), with McFarlane predicting the amount of new members to quadruple those in 2007. As of June, roughly 877 individual companies had signed up, about 30 to 40 of which have multiple offices, according to Pat Falle, Avalara’s vice president of sales.

Roughly 35 percent of the total are GP resellers, 35 percent Sage, 10 percent Infor, 12 percent QuickBooks and 8 percent Epicor, Falle says. Another 97 were added to the channel with the mid-June acquisition of Independent Systems and Programming.

Identifying Problems

Avalara finds that resellers often don’t recognize that clients have sales and use tax problems, primarily because the dealers have never talked about the subject with their own customers. It’s often the end-user who makes the VAR aware of the problem.

When Avalara attends Microsoft Convergence event, McFarlane interacts with both resellers and customers and finds it’s the customers who know they need AvaTax.

“A partner will say, ‘I have no customers with a problem.’ Five minutes later, the customer will have the partner by the ear and say, ‘You need to get me in with this.’ People are out of touch with sales tax,” McFarlane says.

Because of this, Avalara requires new partners to name one or two of their top customers who they believe have sales tax problems. Then Avalara goes out with those resellers and teaches them how to sell its product.

Therese Logeais, president of Technology Integrators, discovered that her MAS 90 and MAS 200 customers who have sales tax problems are an easy sell.

One such customer sells hats to hunters across the United States and was using CCH to download tax rates in each of those states. He purchased enhancements to import the information into Sage’s product, but found the process still required him to enter information manually.

“As soon as I told him about it [AvaTax], that was pretty much a done deal,” Logeais says.

Technology Integrators uses it internally track the myriad taxes in Minnesota, where the company is based.

Minnesota has state taxes, along with additional taxes for the Minneapolis suburb, the county and a local St. Paul tax, and most recently a football stadium tax, all of which Logeais was tracking in Crystal Reports based on Zip code.

“That’s impossible to maintain,” Logeais says. “Now you just put in AvaTax and it calculates the taxes, and also verifies addresses. The time you spend [without AvaTax] vs. the cost of product is a no-brainer.”

As far as the low upfront margin is concerned, Logeais says it doesn’t bother her.

“Even if we don’t get a margin, we’d still do it,” Logeais says. “We’re not losing money on it or having to change the philosophy of our business, it’s just adding another feature we could offer our clients.”

Education and training remains important, however.

Joining the program is free, resellers must undergo training on how to sell the product and identify prospects. At times, Avalara’s marketing department will put together an email campaign or its sales department will help close deals. Free online classes also are available through Avalara University five days per week.

They also have to participate in some type of other activity with Avalara on a quarterly basis, such as a Webinar, trade show or mail campaign, and have internal sales meetings with the company. And the larger the VAR is, the more is expected of them, McFarlane says.

“I’m not bashful about dropping a partner from out program if they don’t meet our criteria,” he says.

Attracting Accountants

Adding partners to the Infinity Rewards Program obviously has not been problematic, and neither has been adding developers to its Alliance Program (75 announced in May).

Finding CPAs to join Avalara’s Professional Accountants Network will take more focus this year, however.

PAN has 75 members, though some of those overlap with the Infinity members.

Firms that participate in the program receive a free copy of AvaRates Now, Avalara’s rate lookup application, for every firm employee (a value of $495.95) and an AvaTax license for the CPA firm with up to 3,300 transactions per year. Customers referred by those accountants will receive two months of free service with the purchase of an annual contract (a value up to $3,600). The firms also gain the ability to offer billable services for assisting with the AvaTax Dashboard and nexus setup.

Avalara gained 500 CPA firm customers through its August 2007 acquisition of Trustfile, which enables accountants to transfer money from a client’s bank account to the state’s bank account. In hopes of attracting more CPAs, Avalara plans to expand those capabilities to all 50 states, and not just electronically because ISPI’s flagship product, Laserbridge+, handles the paper aspect of Trustfile’s offering.

One Michigan-based reseller who offers AvaTax as an add-on module to his distribution customers is also a CPA who joined the PAN.

“We can go to our customers and say we have the ability to calculate their sales and use tax, and we become a business advisor,” says Brian Buck, technology solution director of CS Solutions.

One customer who distributes products to Wells Fargo bank discovered the institution wanted to sell to branches in other states, growing its tax compliance concerns overnight.

“They were going to have to take a fulltime accounting staff and dedicate them just to that,” Buck says. “We’re trying to get them to go to the next step of using AvaFile,” which will allow Avalara to file on their behalf.

Buck deals with many other third-party add-ons but is impressed with AvaTax’s ease of implementation — two to six hours — and Avalara’s responsiveness to technical glitches.

He’d love to see more upfront margin but acknowledges that the subscription model is new to CS Solutions and likes the idea of a guaranteed revenue stream.

Beyond cash, Infinity Rewards also come in points, which can be redeemed for items such as big-screen TVs, jewelry and high-tech gadgets.

“One partner said she looks at Avalara as her trip with her family to Cancun every year,” McFarlane says. “It was very powerful and motivated us and proved what we knew would be the right system. It’s a revenue stream you hadn’t counted on and can do things you normally wouldn’t do.”

Avalara Snapshot

Founded: 1999

Company HQ: Bainbridge Island, Wash.

Offices: 3 (including one in India)

Employees: 86 U.S.; 26 India

Resellers: 877 (Infinity Rewards)

Key Product: AvaTax

Phone number: 877.780.4848

Web site: http://www.avalara.com/index.cfm/page/partnersoverview

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