Everything You Ever Wanted to Know About Channel Partnerships
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 program 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 generate revenue for themselves 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. Most of the large tech companies you’ve heard of utilized the channel to reach their current size.
(Looking for more partnership stats? Here are 25 articles demonstrating the business impact on partnerships.)
These stories are impressive, but there’s a catch: Channel partnerships aren’t easy. They’re ever-evolving, 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?
A channel partnership is just one of three common partnership categories. The other two are technology and strategic partnerships.
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.
If that still sounds a little hazy, consider the travel industry. While you can book a hotel room directly, oftentimes, you’ll get a better deal if you book through an online travel agency (like Orbitz or Expedia), and an even better deal if you bundle it with an airline booking. While the hotel loses a percentage of the sale price, the customer acquisition cost makes this a worthy tradeoff.
The beauty of channel partnerships is that together, partners and vendors can reach more customers and gain bigger slices of market share.
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.
Pros and cons
What are the pros of the channel? For starters, a channel partner program can come through in the clutch when your company is experiencing fast growth. If the demand is there and your sales team is unable to keep up with all of the demand, a channel partner can get your product into customer hands without you needing to hire AEs.Liz Cain, partner at OpenView, sums up some of the other advantages:
Pros of channel partner programs:
- 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 business
So why isn’t everyone hopping on the channel bandwagon?
Bringing on resellers can cut into your margins and hurt your bottom line if you’re not developing your direct sales simultaneously. It’s a trade: some margins in exchange for more revenue.
Here are the other cons to keep in mind:
Cons of channel partner programs:
- 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.
Tip: You can mitigate some channel partner program downsides by utilizing this 4-criteria checklist to vet your channel partners.
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.
A note with all this terminology: It can slightly vary depending on your industry, geography, or plain ol’ personal preference.
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.
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.
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).
One example of a solution provider partner is Performance Insights, a global reseller and system integrator for PIPEDRIVE FS, a pre-configured solution for financial services.
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 to more than 90,000 across the globe.”
Reseller partners sell a vendor’s products with few customizations or modifications to specific markets.
KnowBe4 and Information 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.
SugarCRM and Redington Gulf
SugarCRM, a CRM platform, signed a reseller agreement with Redington Gulf to expand its presence in the Middle East.
Through this partnership, SugarCRM can extend its platform to Redington Gulf’s network of 15,000 customers in the Middle East, and gain access to a network of 34,000 resellers and more than 70 sales offices.
For Redington Gulf, the reseller partnership provides its customers both cloud and on-premises solutions—an improvement from the cloud-exclusive options that were not feasible for customers in the Middle East.
In 2022, SugarCRM announced a 59% year-over-year increase in new customers, which it attributed in part to international growth through channel partnerships.
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.
NASCAR and Southern Computer Warehouse (SCW)
Yes, we definitely picked this example because, well, NASCAR, but even the auto racing giant saw a need for
speed additional IT hardware and software products. In January 2022, NASCAR announced a multi-year partnership that named SCW as its official Technology Value-Added Reseller.
As part of the deal, NASCAR now has access to SCW’s one million technology products.
In an agency partnership, the agency has the rights to offer a vendor’s product as part of its own product and/or service offering.
Agency partnerships can sometimes blur the line between channel vs. tech partnerships, because some agencies may have their own products.
Sprout Social’s Agency Partner Program
Sprout Social’s Agency Partner Program gives agency partners exclusive resources, training, and access to their community of agency experts.
Agency partner B Squared Media, a digital marketing agency specializing in social media management, uses Sprout Social to create and track the success of clients’ social media campaigns. B Squared Media gets a referral bonus any time they sign on a new client to Sprout Social, and Sprout Social gets the additional business without having to onboard the client themselves.
Sprout Social even makes it easy for prospective clients to find an agency partner through their Agency Matchmaker service.
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.
Is the 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.
While that’s a good framework to keep in mind, it’s worth noting that there is no one-size-fits-all approach to channel. A company should launch a channel partner program when it makes sense for them. However, there are several indicators that you’re ready to take it on:
- You’ve established product-market fit
- You’ve standardized your direct sales model
- You’re prepared for smaller margins
For a more in-depth explanation, look no further than our blog post, “6 Questions to Answer Before Launching Your Channel Partner Program.”
For Brian Jambor, VP of Global Channel Programs at Uberall, 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.
How do you track the success of channel partner programs?
Partner-influenced revenue and ecosystem-qualified leads are KPIs to measure the health of a channel partnership.
Some companies with channel partner programs use partner relationship management (PRM) tools to track revenue generated by channel partners. A PRM helps companies register, manage, and track attribution for their channel partnerships. A workflow for a partner manager at a tech company, or ISV, working with a channel partner might include:
Step 1. Map their prospect accounts with their channel partner’s prospect or customer populations in their PEP and identify a list of prospects the channel partner can sell their product into
Step 2. Provide their channel partner with all of the resources the channel partner needs to sell their solution effectively to the overlapping accounts (like enablement sessions)
Step 3. Register the co-selling opportunities in their PRM to track the account throughout the sales cycle and the resulting revenue when the deal closes
Confused what the difference is between a PRM and a PEP? Don’t worry—there’s a blog for that.
The channel is changing
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.
This is evidenced in our 2022 State of the Partner Ecosystem report, in which channel and strategic partnerships experienced a dip, while technology partnerships increased:
“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, former Forrester 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.
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