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Everything You Ever Wanted To Know About Channel Partnerships

If you want to scale your SaaS business and do it fast, consider looking beyond the capabilities of your internal teams. Time, energy, and money are all limited resources, so you need to use them wisely.

That’s where channel partners can come in handy. A channel partner can help you accelerate revenue and reach more customers with little incremental investment from your team.

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 channel partnerships aren’t as easy as you’d think. There's much more to this complicated and evolving partnership category. From terminology and types to examples and more, let’s untangle channel partnerships together.

Jump ahead

But first, what is a channel partnership?

channel partnerships SaaSThink of a channel partner as an extension of your sales team. They resell, manage, and/or deliver your product, helping you 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. 

A channel partnership is just one of three common partnership categories. The other two are technology and strategic partnerships.

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, they take 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.

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:

Pros:

  • 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

Cons

  • 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.”So while the individual pie slices might get skinnier, the pie itself will also expand and get bigger.

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.

 

Indirect sales 

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:

StartApp

StartApp is a mobile media and data company that partners with app publishers and advertisers to distribute its mobile data solutions. This strategy helps them partner with over 500,000 applications and reach a billion mobile app users globally.

Pipedrive 

Pipedrive acquires new leads via affiliate partners (which we explain later in this post), and it outsources its sales and services to solution provider partners (e.g. consultants, value-added resellers, integrators). In early 2020, Pipedrive announced it had “tripled its customer base in three years, growing from 30,000 more than 90,000 across the globe.”

 

Resellers

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. It's the largest North American distributor of Oracle. Because of this, Oracle has achieved market expansion for its cloud offerings and gained access to Tech Data’s partners, fueling the growth of its own ecosystem.

 

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, selling complementary training, implementation, and consulting services. 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 with its cloud storage portfolio. Now, customers get the best of both worlds: They can scale their Network Attached Storage (NAS) capabilities with Komprise, while also lowering overall cloud storage costs with IBM.

 

Agency partners

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 unveiled a global agency partner program in 2014. Its agency partners bundle Hootsuite with their social programs for clients, and get exclusive access to Hootsuite education, certifications, resources, and tools—further strengthening their credibility and expertise.

Square and Seeed: 

As a preferred agency partner for Square, Seeed wraps Square’s payment solutions within its ecommerce solutions. Square makes money each time Seeed sells its integrated solutions, and Seeed strengthens product stickiness by offering a trusted name to its customers.

 

Affiliate programs

In an affiliate partner program, partners refer customers to vendors and earn a referral fee—that’s it.

FreshBooks' Affiliate Program

FreshBooks’ affiliate partners can earn $5 per free trial signup and $55 per paid subscriber. Plus, top performing affiliate partners can unlock bonus commission offers. 

SurveySparrow’s Affiliate Program

With SurveySparrow’s affiliate program, partners earn 25% commission on every referral. Their program arms partners with tips, insights, and advice to support a successful experience.

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.

Getting started

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.