A question for this group: For large or small IT resellers focusing on the US Federal government, such as CDW, Carahsoft, SHI, and V3Gate, can anyone tell me what percentage the reseller company typically receives? For example, if the Federal government buys $1 billion worth of software from a reseller, what percentage do they typically receive after paying other companies?
I’m also wondering if anyone has experience in this business. What are the most challenging aspects, and are there any catches? Thanks.
There isn’t a set profit margin for anything I’m aware of in the retail side of IT.
Theres too many variables. Just as an example, if you are selling commits for Cloud Services, Microsoft for example, could have maximums. That means if you close a $100 million commit over 5 years don’t expect 5x more margin compared to a $20 million.
If you want to break into the tech sector I’d focus on professional services. You have more control over the cost, and can communicate the value to the customer easier with less friction compared to selling “Just another HPe” reseller.
All I can tell you for certain is that government RFP’s are always more expensive than commercial ones.
The specific percentage that IT resellers receive can vary based on several factors, including the type of products or services being sold, the volume of sales, the relationships with manufacturers, and negotiation skills. Reseller agreements can be complex and may involve various terms and conditions.
In general, IT resellers often work on thin profit margins, and their revenue is derived from the difference between the price at which they purchase products from manufacturers (wholesale price) and the price at which they sell them to the government or other customers (retail price). The percentage can vary widely, but it’s not uncommon for resellers to operate on single-digit profit margins.
Challenges in the IT reselling business, especially in the federal government sector, can include:-
Competitive Bidding: The federal government often requires competitive bidding, and resellers may need to compete with other companies to secure contracts. This can put pressure on profit margins.
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Regulatory Compliance: The federal government has specific procurement regulations and compliance requirements. Resellers need to navigate and adhere to these regulations, which can add complexity to the sales process.
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Relationship Management: Building and maintaining strong relationships with government agencies, manufacturers, and other stakeholders is crucial. Government contracts often involve long sales cycles, and relationship-building is key to success.
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Changing Technology Landscape: The IT industry is dynamic, with technologies evolving rapidly. Resellers need to stay updated on the latest trends and ensure that they can provide cutting-edge solutions to meet government needs.
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Security and Certification Requirements: Federal government contracts often come with stringent security and certification requirements. Resellers need to ensure that the products and services they provide meet these standards.
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Payment Challenges: Government payment cycles can be longer compared to private-sector transactions. Resellers may face cash flow challenges due to extended payment periods.
As for the specific percentage in your example, it’s challenging to provide an exact figure without specific details on the products, services, and agreements involved. Moreover, this information is often proprietary and may not be publicly disclosed. If you are considering entering the IT reselling business or seeking specific details, it would be advisable to consult with industry experts, legal professionals, or individuals with direct experience in the federal government IT reselling sector.
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Most govt services go through a RFP process and they award it to whomever is lowest at that time.