Channel Sales for SaaS: What It Is, When it Works, and How to Build Your Own
March 15, 2019
Some of the most successful and influential SaaS companies include channel sales in their go-to-market strategy. Brands including HubSpot, Atlassian, Slack, Xero, Zendesk and Klaviyo use a variety of partner programs and other tactics to expand into new markets, scale their sales efforts and take advantage of partners’ existing connections and credibility.
For the uninitiated, channel sales refers to the process of partnering with third parties to get your product into the end user’s hands. Part of the appeal of this approach is that it’s a very effective way to scale revenue without having to go through the expense and effort of scaling your direct sales team. The ability to tap into the existing sales organizations of partners can be both very efficient and also cost effective.
That’s not to say that designing and building a successful channel sales program is easy. There are certain product and audience situations for which a channel strategy is more appropriate. And there are definitely certain requirements a company has to meet in order to make a partner program viable.
To help you explore the possibilities, let’s take a closer look at exactly what a channel strategy is, how it works, when it’s a good fit and how it all comes together.
Channel Sales versus Direct Sales – The Good and the Bad
While it’s not the end-all-be-all, a good, old-fashioned pros-and-cons list is not a bad place to start if you’re trying to decide whether or not a channel sales program is a good fit for your company. Understanding the advantages and risks can help you quickly identify any deal breakers that would rule channel sales out as a sales strategy for your organization.
Channel – Cons
The downside of channel sales can be broken down into three main categories: loss of control, increased complexity and—of course—reduced per-sales profits.
Loss of Control
Bringing a partner into the sales process means there will be an intermediary between you and your end user. In some models, you may not even have any direct contact with the sales process at all. While being more hands-off might become a positive attribute, it also comes with some potential risks:
- If a deal is in trouble or mismanaged, you may not have the ability to step in to salvage the situation.
- Because you won’t usually have visibility into partner pipelines, it will be more difficult to predict revenues.
- You may lose the ability to dictate timelines and other key aspects of a deal, which can then put your delivery and support teams in a difficult situation.
- You may inadvertently put your brand’s reputation at risk if you associate with a partner who doesn’t live up to your standards.
- You will likely lose opportunities to get feedback directly from customers, and even when partners share customer feedback, it might be delayed, incomplete, or even inaccurate.
While channel sales relieve some of the burden of building up and managing your own sales team, you’re still responsible for supporting your partners.
- Timely and clear communication is critical to any channel sales program. Any time you update your messaging, product mix, features, offers, etc., you need to ensure that the update will be made across all your partners, not just a centralized sales team.
- You are also responsible for onboarding and training your partners. As the old saying goes, “Garbage in. Garbage out.” The quality of your outcomes depends on the quality of your partner support.
- On a related note, relationships can get sticky pretty quick over conflicts between partners and your direct salespeople, or even between 2 partners. If your internal salespeople are competing for the same customers your channel partners are trying to reach, that’s a recipe for disaster.
Reduced per-sale Profits
Finally, there’s the obvious—when you involve a partner in the sale, you will have to take a cut in profits in order to give them their share. This, however, is one of those times when it’s usually best to avoid the penny-wise/pound-foolish trap. While you might retain less of each individual sale, you will probably be reducing your CAC and—hopefully—expanding your reach so that your overall sales volume increases.
Channel – Pros
Now that we’ve got the bad news out of the way, here are some of the reasons channel sales is a popular strategy among leading SaaS brands.
- To help offset those reduced profits, channel sales is designed to reduce sales, marketing and distribution costs. Because your partners are established entities who already market to the audience you’re trying to reach, your overhead costs are greatly reduced.
- Once you have established your program and defined your model, you can scale very effectively by simply bringing more partners into the program. Doing this will not require major expansion of your internal resources since a single channel manager can handle multiple partnerships.
- Channel sales is also a low-cost way to expand into new markets. Whether you’re working with a single partner or a partner network, a channel strategy allows you to plug into an existing market presence. This eliminates the need to build and manage new offices, spend for local advertising, or hire additional on-the-ground personnel.
- On the branding side, working with an established and respected partner gives you instant credibility in their market and with their audience.
- Collaborating with channel partners also provides the opportunity to do rapid testing with new customer audiences, product features, promotional offers and brand messaging.
- Depending on how you design your program and what kind of partners you work with, a channel program can also reduce your customer success burden by shifting the responsibility for customer onboarding, training and technical support and service to qualified partners.
Direct Sales – Pros and Cons
On the flip side, direct sales—sales involving an in-house sales team who interact directly with the customer—comes with its own pros and cons. As you might expect, most of these are pretty obvious opposites of what we can expect from channel sales:
- There are higher costs associated with direct sales because your success depends on building and managing an in-house sales team. Hiring, training and compensating this team can be a very expensive undertaking both in time and money.
- Relying solely on direct sales also makes it more difficult to scale because scaling will require bringing on more sales people, which means more time and money spent on recruiting, onboarding and on-going training.
- In a similar vein, if you’re only doing direct sales, it will be more costly and challenging to get into new markets. Instead of simply incorporating new partners, you will need to potentially open a new company, establish new offices, hire new staff and everything else that’s required to establish a local presence in a new market.
- You retain full control of your sales process from designing the flow, to managing the pipeline, to having the conversations with customers. You own every deal from end to end, including having direct access to customer feedback.
- Your per-sale profits increase because you don’t have to share revenue through channel discounts.
- You don’t have to rely on external parties for revenue. By keeping everything under your roof, you will have better insight into sales forecasts and be able to adjust accordingly.
- You control a valuable feedback loop which allows your team to iterate quickly and determine which message is resonating with your customer base.
Channel Models – Many Flavors to Choose From
Another strength of channel marketing is that there are a variety of engagement models to choose from.
Affiliate marketing refers to programs in which the company selling a product rewards affiliates who promote and recommend that product to their audience. This category includes programs built around relationships with existing users, content creators, industry influencers and so forth.
Value-added Resellers (or VARs) purchase third-party software to sell to the end user at a markup bundled with added features, integrations, configuration or other professional services. These kinds of arrangements ultimately enable the VAR to deliver a “full-service” or “turnkey” solution.
Distributors are the proverbial middle man, providing a connection between the product company and a network of resellers who will then sell to the end user. Working with a distributor can shorten time to market by leveraging their existing distribution channel. In some cases, distributors also provide training, technical assistance and other kinds of support to channel resellers.
Managed Service Providers (MSPs)
Similar to VARs, but different in that they maintain longer relationships with their end customers, MSPs provide operational and maintenance IT services to businesses that do not have an in-house IT department. They may offer network maintenance, hardware repair, help-desk services, email management and many other services. In addition, they purchase third-party software to bundle with these services.
SIs purchase third-party hardware and software components (usually from multiple vendors) and integrate them to create a customized solution for the end user.
Combining elements of MSPs and SIs, IT consultants are typically brought in to help a customer design a customized IT solution. They may provide advice, design services, project management, administration and other types of support needed to bring the project to fruition.
Strategy Alignment – When a Channel Program Is the Right Fit
While there are many benefits to incorporating a channel element into your go-to-market strategy, it’s not the perfect fit for all companies. In addition to considering how channel marketing aligns with certain attributes of your organization, it’s also important to consider timing. There is definitely a “right moment” at which to add channel sales into the mix.
- Product maturity: If your product is still evolving, you may not want to put yourself in a position of having channel partners sitting between you and your end users. At this stage, getting fast, honest and accurate user feedback is critical to help you assess and analyze what’s working and what’s not.
- Target Market: If you primarily sell to enterprise businesses, a channel strategy may not be the best fit because your number of potential customers is fairly limited. If you are selling to mid-market and small businesses, however, your list of potential customers is a lot longer, and a channel strategy may be a more efficient and cost-effective way to reach that many people.
- Buyer Profile: If your product is bought not by someone in IT but by Line of Business (LoB) buyers, but you don’t have relationships at that level, a channel partner may be a valuable asset who can help you reach that influential group of buyers.
- Integration Opportunities: If your product must be combined with other products or services before an end user can realize its full potential, a channel strategy with partners who provide complementary technology and services is a smart move.
- Growth Strategy: If you are looking to expand your sales territory into new geographic areas or countries, a channel strategy is one of the best ways to mitigate risk, scale across new locations, and generate revenue quickly.
- Company size and maturity: Smaller companies—especially early-stage companies—often explore the channel sales model as a way to grow their business without having to make substantial investments in building and maintaining their own sales team. As these companies grow and mature, they may choose to pursue both direct and channel sales.
- Sales process maturity: Before you take on channel partners, you have to be sure that you have a strong and in-depth understanding of your sales process—the customer journey, sales cycle stages and length, buying triggers, typical stakeholders and so on. You need to know every detail inside and out so that you can teach it effectively to your channel partners.
- Sales process complexity: Channel sales is best suited to products that have a relatively short and simple sales process. The more complex and lengthy the sales process, the more challenging it will be for partners to resell successfully.
- Geographic Footprint: If your office locations are all over the map, a channel sales model can help reduce the need for multiple sales teams, thus reducing overhead costs.
- Revenue Urgency: While setting up a channel program usually ultimately less costly than recruiting, hiring and compensating your own salesforce, it will require a fair amount of time and money to do it right. If your company is at a stage where revenue is needed sooner than later, it may be wiser to stick with direct sales until you feel you have the financial bandwidth to invest in channel sales.
Identifying and Recruiting Channel Sales Partners
Once you’ve decided that a channel sales strategy is right for your company, and you’ve invested the time to develop your program and refine your model, it’s time to start building partner relationships.
The first step in this process is to identify the types of partners you want to target. In addition to determining the broad brushstrokes such as which types of partners (VARs vs. MSPs, for instance) and whether or not you will use distributors, it’s time to get down into some details about the characteristics of your perfect partner. A few attributes to consider include:
- Company size
- Market position
- How many and which vertical markets they serve
- Existing customer relations
- Product portfolio relevance and alignment
- Commitment to partnering
- Overall company growth strategy
Once you have gotten clear on who you’d like to partner with, you can design a recruitment campaign tailored to that audience. You can use a variety of inbound and outbound tactics including events, collateral, branding, social media, blogs and other content, webinars and more.
Whichever tactics you choose, it’s important to ensure that the content and conversations are useful and relevant to potential partners. The more you can make it about their needs and their customers’ needs, the better off you’ll be.
Motivating Channel Partners
Once you have landed partners in your program, you need to find ways to motivate them to invest and engage in being a valuable partner. This can be challenging because, unlike an in-house sales team, you do not have any actual leverage with which to influence your partners’ level of engagement or performance. The most effective ways to motivate partners are to stay in touch, provide excellent resources, and—whenever possible—offer them something extra. When you’ve reached a certain level, you may also want to consider doing some business planning with your partners.
Regular contact is key to maintaining and nurturing any relationship, and channel partnerships are no exception. By developing an ongoing cadence of communication, you will not only stay top of mind with your partners, you’ll also be able to keep them up to date on product news, brand messaging changes, major announcements, and so forth. You can communicate via email, Slack, a Facebook group, in-person events, periodic webinars or any other method that works for your partners.
Empower your partners with high-quality, in-depth content that inspires them and gives them the confidence to sell your product even though they are not actually part of your company. Provide collateral and reference materials for every stage of the sales cycle. Give them well-documented and easy-to-understand product specs, case studies, testimonials, competitor comparisons, call scripts and conversation guides to help them overcome buyer objections.
Everyone likes a little special treatment. Getting a cut of the sale may be what gets a partner to join your channel network, but keeping them working enthusiastically on your behalf might take a little more. Some companies use a tiered system to break partners into categories based on volume or performance and then reward those differentiated groups accordingly. Some companies offer bonuses for reaching certain sales milestones. Sometimes, the extra benefit is some kind of elite training, priority listing in a partner guide, or the chance to get some face time with key clients. And sometimes, the extra incentive is old-fashioned swag like tickets to special events.
To get the most out of more advanced partner relationships, collaborative business planning is a great way to add value by having a deeper understanding of a partner’s business and how their goals align with yours. This kind of effort can deliver a strong return, but it does take some careful planning and attention to details. When you’re ready for this step, you can learn more about how to set expectations, control the scope, establish a system of record, and successfully implement training, documentation, and information sharing in this post about maximizing channel relationships.
Measuring Channel Program Success
Finally, after you’ve done all the hard work of designing, setting up, and building out your channel sales program, it’s time to see how well its performing against your business goals. As with any measurable activity, there are almost countless metrics you can use to gauge the success of your program. Which ones give you the most accurate indication of how things are going will depend on specifics about your business and your program.
To get you started, Hubspot—a company that has seen great success with its channel program—has compiled a pretty comprehensive list of relevant channel metrics covering partner recruitment, sales success, and profitability. From partner attrition rate to the percentage of closed partner-submitted deals to the CAC for partner sale versus direct sale, there are plenty of ways to assess how well your program is delivering for your business.
Is your interest piqued? Get more information and insights about channel marketing on our blog.