How to Reduce CAC, Boost Retention, & Increase Sales with Channel Partners

Editor’s note: The following is an excerpt from our new eBook The Complete Guide to Channel Sales & Marketing.

The best channel strategies are built around serving the needs of your customers and helping your partners grow their business, but that doesn’t mean that partnership work is altruistic. When all is said and done, you must be able to quantify the value channel delivers to your business and show how helping others ultimately helps your company.

Matrix Partners General Partner David Skok identifies the three keys to successful growth in SaaS as:

  1. Acquiring Customers
  2. Retaining Customers
  3. Monetizing Customers

If you can master these three elements of your business, you can rest fairly certain you’re doing things right. Interestingly, in the right situations, a value-added reseller can provide an important advantage in each of these areas.

Skok also establishes two guidelines that are extremely useful in determining the viability of any SaaS business. While traditional software licenses require a substantial upfront investment, the SaaS business model is built around the concept of recurring revenue. Because your return is delivered over an extended period of time, the two figures you need to manage are the cost of acquiring a new customers (CAC) and the lifetime value of your customers (LTV).

Skok’s guidelines, which he has validated with many SaaS businesses, state that to be successful:

Using the VAR Channel to Reduce CAC

Based on these guidelines, keeping your CAC as low as possible (at least in relation to LTV) is clearly critical. In the right cases, VAR channel resellers can be an extremely effective way to reduce your CAC. In his SaaS Metrics 2.0 guide, Skok quotes Brad Coffey, Hubspot VP of Product and Corporate Development:

“At HubSpot, we started to see some of our biggest improvements in unit economics when we started segmenting our business and calculating the LTV to CAC ratio for each of our personas and go to market strategies,” Coffey says.

“As one good example — when we started this analysis, we had 12 reps selling directly into the VSB (very small business) market and four reps selling through Value Added Resellers (VARs). When we looked at the math we realized we had a LTV:CAC ratio of 1.5 selling direct, and a LTV:CAC ratio of five selling through the channel. The solution was obvious. Twelve months later we had flipped our approach — keeping just two reps selling direct and 25 reps selling through the channel. This dramatically improved our overall economics in the segment and allowed us to continue growing.”

It will take some time to get to a point where you have enough experience and data to demonstrate specific trends, but once you’ve identified those trends you will be able to also identify opportunities to optimize your channel efforts.

Using the VAR Channel to Improve Retention

The second of Skok’s keys to success — retaining customers — is one he believes should take top priority. “The second item should be first on your list of things to get right,” he says. “If you can’t keep your customers happy, and keep them using the service, there is no point in worrying acquiring more of them. You will simply be filling a leaky bucket.”

Reducing churn is another area where a VAR channel can provide critical support. In some cases, the primary causes of customer turnover can be at least partially addressed by VAR channel partners:

  1. You are not meeting your customers’ expectations. If the product is not providing enough perceived value, your customers aren’t going to stay customers for long. VAR channel partners can help customers get the most out of your software so they can realize the full benefit of using it.
  2. You are unable to increase adoption. SaaS software can be especially susceptible to low adoption because the amortized cost makes the overall expense seem lower, so there is less urgency for the customer to recoup costs. VAR channel partners can help ensure adoption through hands-on management of the software on behalf of customers, or by integrating your software into their standard workflows.
  3. Your sales team has oversold the product or sold it to the wrong customer. While direct sales reps may be tempted to hype particular features or move forward with a sale even when they know your product isn’t exactly the right fit, a VAR channel partner (who has a working relationship with the customer) will always make sure that the customer knows exactly what she is buying.

By definition, VAR channel partners can, and often do, take on a lot of the heavy lifting associated with helping customers integrate, adopt, and use your product. They are one step closer to your customer, and therefore better able to ensure customer happiness on a case-by-case, day-by-day basis.

Is investing in the channel really the right move for you? Click below to find out:

Channel Flowchart Final image

Using the VAR Channel to Increase Upsell/Cross Sell Opportunities

The VAR partner’s close proximity to the customer can also work to your advantage by providing your product team with an up-close-and-personal, real-world look at what customers actually want.

Since, in many cases, your channel partners will be either managing your software on behalf of your mutual customers, or will at least be working hand-in-hand with them, they will have direct access to real-time feedback on what’s working and what’s not, which features customers are really using, and which features are on the customer wish list.

Customers are also more likely to be frank in their feedback when talking with a channel partner than when talking with someone inside your organization, meaning that — in some cases — the channel may be your best way to get at the truth quickly.

Overall, whether it’s just part of your sales strategy, or the focus of your entire go-to-market plan, using the VAR channel can help improve your performance across all three of Skok’s keys to SaaS success.

 

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