Your SaaS company is growing steadily, yet there’s one pesky problem that keeps you up at night: How can you continue to scale that growth with your existing teams and resources?
This is where a channel partner might come in handy. Channel partners act as a middleman between you and your end customer, providing sales, implementation, and/or customer support services.
It’s a mutually beneficial relationship: Channel partners help get your product into the hands of more customers, while they too, generate revenue by distributing your product and/or selling ancillary products and services.
A channel partnership can be a vehicle for increasing revenue and growing market share without you having to hire and train more employees, and invest in office space, tools, and equipment to support those employees.
Want proof? Just look at Microsoft, with 95% of its revenue flowing through its partners. Or Shopify, who made $673 million in 2017 revenue, while its partners made nearly $800 million. Or consider Gigamon, whose channel business grew more than 35% in its first year in 2020.
These stories are impressive, but we hate to break it to you: Channel partnerships aren’t easy. They’re evolving and complicated, and there’s lots to learn about them—which is why we’re going to untangle this complex partnership category together.
You ready? Let's get started.
- But first, what is a channel partnership?
- Is channel right for me? It depends.
- Types of channel partnerships
- The channel is changing
- Getting started
But first, what is a channel partnership?
Think of a channel partner as an extension of your sales team. They resell, manage, and/or deliver your product, helping you (the company or vendor) go to market faster. They make money through referral fees and/or by selling complementary services like consulting, training, and customer support.
The beauty of channel partnerships is that together, partners and vendors can reach more customers and gain bigger slices of market share.
Partner-influenced revenue and ecosystem qualified leads are KPIs to measure the health of a channel partnership.
If done correctly, channel sales can source new revenue streams and help propel growth. “Distributors and resellers typically drive 70% or more of a tech vendor’s revenue,” according to the Boston Consulting Group (BCG). Identity security company SecureAuth is a prime example of this. In 2019, it drove nearly 70% of its business through channel partners and adopted a 100% channel strategy with a 50% year-over-year growth target.
Channel partnerships aren’t a new phenomenon in the tech world. Rewind to the ‘70s and ‘80s era of licensed software, and you’ll see how tech veterans like Microsoft, SAP, HP, and IBM relied (and still do) on channel sales to achieve growth.
Is channel right for me? It depends.
Channel partnerships aren’t just between companies—they’re between humans who just so happen to work for those companies.
Like any meaningful relationship, a channel partnership takes work. It requires patience and effort to establish a channel program. And once you do, you need trust, collaboration, and access to data to nurture long-term relationships and avoid dreaded channel conflicts.
Stewart Townsend, who built channel programs at Zendesk and DataSift, recommends companies invest in channel sales when they hit 50+ employees and $1+ million in revenue.
It takes about 9-12 months to get a program off the ground and get to cost-neutral.
For Sendoso’s Brian Jambor, setting the right expectations is key. “You are not usually going to knock out double-digit millions in revenue from a partnership strategy in year one. You have to get tightly aligned with your executive team and the board as to what they should expect in the short term,” he says.
(If you're seriously considering a channel strategy, read our blog post, "6 Questions to Answer Before Launching Your Channel Partner Program".)
Pros and cons
What are the pros and cons of the channel? Liz Cain, partner at OpenView, sums them up nicely—here are some highlights:
- Lower customer acquisition costs
- Gain market share in geographies/territories without having to invest in the infrastructure (i.e. offices, staff, local sales and marketing presence) to support it
- Strengthen your brand and credibility among customers by working with a trusted, reputable partner
- Focus on core competencies
- Less control over the sales process makes it difficult to forecast revenue
- More risk exposure for your brand reputation
- Harder to get direct customer feedback
- Supporting partners can be time consuming—it requires consistent and timely communication, training, onboarding, and resources.
- Less per-sale profits because you have to share revenue with partners
For that last bullet, Cain adds, “While you might retain less of each individual sale, you will probably be reducing your [customer acquisition costs] and—hopefully—expanding your reach so that your overall sales volume increases.”
Types of channel partnerships
Channel partnerships come in various shapes, sizes, and acronyms: Resellers, Value Added Resellers (VARs), Systems Integrators (SIs), agency partners, indirect sales partners, affiliate partners, Business Process Outsourcers (BPOs), and Managed Service Providers (MSPs).
There are almost a dozen flavors to choose from with lots of blurred lines between them. It all boils down to finding the arrangement that works best for you and your partner(s). Let’s dig into some specific channel partnership types and examples.
Direct sales are when you (the vendor) sell your product and/or services directly to your end customer. In an indirect sales channel, your partner (a third-party entity) sits between you and the customer, brokering the sale for you.
Note: All these channel partnership types/examples represent indirect sales. Don’t get too hung up on the terminology because it varies depending on who you ask and can get confusing. Instead, focus on how indirect sales channels can be a growth tool for SaaS companies.
Kevin Cohn, Chief Customer Officer at Brightflag, shares why indirect sales are “the holy grail of SaaS” in this blog post.
“Indirect sales, where a third party bears the cost and does the work of customer acquisition (and frequently professional services and customer success/support, too), can be the holy grail of SaaS, because it allows you to ‘sell while you’re sleeping’ — to grow revenue disproportionate to expenses to an even greater extent than usual,” said Cohn.
Cohn’s formula: Lost revenue (discounts to third party) + cost of partner team < cost of demand generation + sales + professional services + customer success/support.
Some examples of indirect sales:
monday.com and Xertica
monday.com doesn’t need an internal global sales team when it has 85 (and counting) channel partners operating in 45 countries.
One of its channel partners is Xertica, a Latin American cloud computing consulting firm. Xertica implements and supports monday.com’s Work Operating System (Work OS) for customers in the Latin American market, where monday.com has 10,000 customers.
Thanks to Xertica, monday.com doesn’t need to invest in hiring, training, and retaining implementation and customer success teams in Latin America. Xertica already has a strong presence in the Latin American market, and they understand the pain points of their target audience—a major pain point being that customers need tools and resources to support remote work (a shift caused by the COVID-19 pandemic).
Xertica helps local customers efficiently adapt to remote work and automate their project management processes by offering monday.com configuration and implementation services.
Pipedrive and Performance Insights
Pipedrive acquires new leads via affiliate partners (which we explain later), and it outsources its sales and services to solution provider partners (e.g. consultants, value-added resellers, integrators).
Performance Insights knows its customer: financial institutions. That’s why they’re well suited to resell PIPEDRIVE FS to clients like BBVA Compass, South State Bank, The Insurance Center, and more. In turn, Pipedrive can acquire more users in the financial services industry without heavily investing in an internal sales team.
Channel partnerships are clearly a growth lever for Pipedrive. In early 2020, the company announced it had “tripled its customer base in three years, growing from 30,000 more than 90,000 across the globe.”
Reseller partners sell a vendor’s products with few customizations or modifications to specific markets.
Tech Data Corporation and Oracle
As a technology reseller for 1000+ companies and 150,000+ products, Tech Data Corporation’s business relies entirely on channel sales.
By selling its cloud offerings via Tech Data, Oracle has achieved market expansion and grown its customer base. Oracle distributes universal cloud credits (almost like a “prepaid card”) to Tech Data’s partners via the Tech Data StreamOne Marketplace, a digital store for partners to buy and manage cloud products and services.
Tech Data’s partners use these cloud credits to purchase Oracle’s Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) offerings. For example: If a customer is already using an Oracle database, a Tech Data partner can use Oracle’s cloud credits to purchase Oracle’s IaaS or PaaS offerings to help that customer migrate their database to the cloud.
This channel partnership enables Oracle to increase revenue for its cloud offerings and helps Tech Data continue being the largest North American distributor of Oracle.
KnowBe4 and Informational Services International Dentsu
KnowBe4, a security awareness training and simulated phishing platform, has a reseller agreement with Information Services International Dentsu, Ltd. (ISID), a Japanese IT solution provider.
As a reseller, ISID provides sales, marketing, and customer support for KnowBe4’s platform. ISID can offer KnowBe4’s platform as a solution for Japanese customers who want to mitigate their employees falling victim to a growing number of phishing emails and security scams.
The partnership enables KnowBe4 to enter and grow market share in Japan without having to build its customer base from scratch. Why? Because ISID has more than 2,500 customers—a pool of potential prospects for ISID to sell KnowBe4 to.
Value-added resellers (VARS)
VARs sell third-party software, hardware, and applications directly to end users at a markup. The “value-added” piece comes from partners bundling vendors’ products with services like consulting, configuration, and customizations.
CloudSmiths and Salesforce
CloudSmiths is Africa’s largest and only independent Salesforce partner. It resells Salesforce and sells complementary training, configuration, implementation, and consulting services (i.e. the “value-added” piece)
CloudSmiths has earned Salesforce Partner awards for contributing to Salesforce’s revenue and earning the most Salesforce Certifications for its region. The company has deep Salesforce expertise and completed more than 170 projects for clients across 20 countries.
In turn, Salesforce has market share in Africa and doesn’t need to spin up or maintain its own sales, training, and delivery capabilities.
Komprise and IBM
In 2018, Komprise and IBM struck a strategic reseller deal, allowing IBM to sell Komprise intelligent data management software along with its cloud storage offerings.
By bundling the solutions, Komprise gets into more customers’ hands while IBM strengthens its value proposition in the market: Customers can scale their Network Attached Storage (NAS) capacity with Komprise, while also lowering overall cloud storage costs with IBM.
In an agency partnership, the agency has exclusive rights to offer a vendor’s product as part of its own product and/or service offering.
Hootsuite’s Global Agency Partner Program
Hootsuite’s digital services partners can offer Hootsuite’s solutions as part of their services for clients. Partners also get exclusive access to Hootsuite education, certifications, resources, and tools to help strengthen their Hootsuite expertise.
For example, DEG, a digital agency and the first North American Hootsuite Digital Services Partner, provides services—like content strategy workshops, planning, consulting, campaign management and more—and then uses Hootsuite’s platform to execute targeted social media campaigns for clients.
Even though Hootsuite’s sales team isn’t directly interacting with the client, Hootsuite is still driving product adoption and gaining revenue via DEG. In turn, DEG provides an end-to-end social media offering to its clients by pairing its consulting services with Hootsuite’s platform.
Square and Seeed
Seeed, is a digital transformation and eCommerce agency. As a preferred agency partner for Square, Seeed provides integration and eCommerce development services for Square’s solutions.
Square and Seeed make each other look good! Square can drive sales for its payment solutions without having to support customers who want to integrate Square with their eCommerce platforms.
It’s easier for Seeed to attract customers when most of them already know and love Square’s payment solutions. Seeed can offer a trusted solution to its clients and benefit from Square’s brand reputation in the market.
In an affiliate partner program, partners refer customers to vendors and earn a referral fee.
FreshBooks Affiliate Program
FreshBooks’ affiliate partners can earn up to $10 per free trial signup and up to $200 for each trial sign up that converts to a paid plan. This affiliate program helps FreshBooks, a cloud accounting software company, grow its sales funnel without having to invest in additional lead generation and sales teams.
For example, imagine you’re a small business owner and FreshBooks affiliate partner. Let’s say you send your affiliate link to 2,000 companies and half of those companies sign up for free trials. Assuming you earn $10 per trial sign up (for 1000 trials), that’s $10,000 of revenue—a nice chunk of change just for referring business to FreshBooks.
If FreshBooks gets hundreds or even thousands of affiliate partners, imagine how quickly it can scale its free trial signups and potentially convert them to paid plans!
SurveySparrow’s Affiliate Program
SurveySparrow has more than 20,000 customers using its omni-channel experience management platform.
Here’s how SurveySparrow’s affiliate program works: Partners get a unique affiliate link that they share with prospects and leads in their network. When someone signs up for a SurveySparrow paid plan with that link, the partner makes a 25% recurring commission.
SurveySparrow provides email and social media tips and offers marketing materials like creative banners to help its partners be successful. They even have a calculator to help partners crunch their commission numbers.
This program helps SurveySparrow grow its paid plans and enables partners to earn referral revenue while also helping their customers. Affiliate partners like ASL Marketing, a student marketing data company, can refer SurveySparrow to its customers who want to engage and measure feedback from their target audiences.
The channel is changing
You’re probably thinking, “Wow, these all sound pretty similar.” Well, that’s because they are.
As partnerships continue to evolve, so do the dotted lines between partnership types, categories, and terminology. There are different perspectives on where the channel is heading: Some think it’s dying, others think it’s thriving, and then some see it converging with technology partnerships.
“B2B channels are in transition — from a tiered, resale, and fulfillment function to a more fluid indirect ecosystem of affiliates, advocates, alliances, and referral partners,” according to Jay McBain, Forrester’s Principal Analyst, Channel Partnership and Alliances.
Bottom line: There’s no one-size-fits-all approach. The right partnership strategy is the one that works best for your business, your partners, and your customers.
If you’re ready to embark on a partnership journey, then look no further than our Partnership Playbook—a 65-page comprehensive guide of pure partnership gold featuring those who've been there and done it.