Thought Leadership

The Importance of Channel Partnerships for SaaS

The Importance of Channel Partnerships for SaaS

Most SaaS companies don't start as powerhouses with hundreds of employees. Instead, they usually begin with a handful of people – often just enough to handle critical company functions. Then you grow with your sales, ensuring that your costs don't substantially outpace revenue.

That's where channel partnerships can help. Channel partnerships can provide a path to scale your sales growth without scaling costs accordingly.

We introduced channel partnerships in our overview post on SaaS partner programs, but now we'd like to get into the details.

What are channel partnerships?

Channel partnerships are relationships between you and other companies (channel partners) that allow you to offload some portion of your marketing, sales, onboarding, or support tasks to those partners.

You allow others to offer your product in the market, and your partners gain revenue by selling your product and related services. You don't have to grow your teams to do this. Instead, your partners act as a secondary sales team and do some of the work of selling and servicing your product.

Understanding the importance of SaaS channel partnerships

While a few SaaS companies have grown huge without channel partner programs, they are in the minority. Companies from Atlassian to Shopify, and many others, have built out extensive channel partner ecosystems. These ecosystems have massively accelerated revenue growth beyond what the companies could have managed independently.

For example, Shopify has several partner programs, but its Shopify Affiliate Program is an excellent example of a channel partnership. Through that program, Shopify has tens of thousands of affiliates worldwide. In 2020, Shopify Partners (channel and otherwise) created $12.5 billion in revenue. For its part, Atlassian estimates that one-third of all its revenue involves its partners.

What are the types of channel partnerships?

While there are many different perspectives on (and names) for types of channel partnerships, we've found the following terms helpful for understanding SaaS channel partnerships:

  • Indirect Sales Partner: Someone who brokers sales for you in a specific market. They incur the costs of acquiring customers, so you don't have to. This type of partnership might exist when Company A needs to sell in a new country but doesn't have a presence there. It then partners with Company B (with an existing sales network in that country) for indirect sales.
  • Referral Partner: Someone who directly refers potential customers to you. A referral partner can sometimes be known as an affiliate partner. Referral/affiliate partners can be companies or individuals.
  • Reseller Partner: Someone who markets and sells your product, but usually to specific market sectors and with add-ons (additional products and services). In some cases, the reseller may even white label your product.

All of these may receive commissions based on sales and participate in other revenue-sharing arrangements.

The benefits and challenges of SaaS channel partner programs

We've touched on the benefits of channel partner programs for your partners (commissions and revenue sharing), but what are the benefits for your company? What value do you get from building channel partner relationships?

Here are a few of the benefits:

  • Short path to new customers. In most cases, your channel partners already have customers. Getting them to refer those customers to you (or sell them your product) is a great way to get past the "I don't know you" phase.
  • Increase bottom line. You are ahead of the curve if you don't need to hire additional people, but your sales increase substantially. You'll be sharing the revenue with your channel partners, which means you have revenue to share.
  • New market exposure. Channel partners often have connections in specific market sectors that you don't. Via your partnership, you can ride their coattails into relationships that you would otherwise have taken years to build.
  • Tap into new resources. Your channel partners have the people and the skills to help you do more with less. You are bringing your product to the relationship, and they may be bringing prospects, sales and marketing skills, and even training and support capabilities.

As with anything else worthwhile, channel partnerships require work. No matter what exact shape your channel partnership program takes, you'll probably need to address the following challenges:

  • Resources to manage partners. While you won't need to add new people to your sales and marketing teams, you also shouldn't expect that an existing resource in one of those teams will be able to manage your channel partner relationships at scale. It's not uncommon for channel partnerships to require a team to manage them properly. And that's probably a full-time job for these team members.
  • Process changes. Your current sales and marketing processes are all tied to your internal teams. Adding in channel partners means you'll need to revamp many of those processes and add several new ones. Among other things, you'll need to add procedures for onboarding and training partners, joint marketing planning, and handling legal matters such as contracting and liability.
  • Greater distance from critical data. Whether we are talking about the sales data for forecasting and planning or what's going on with each customer's account (customer needs, customer sentiment, market trends, and product feedback), you will not have the same access to the channel accounts as you currently do with your direct accounts. You'll need to factor in this added distance to ensure that you minimize the possibility of miscommunication and poor planning.
  • Shared brand responsibility. Managing your brand was more straightforward when it was just you. However, once you have channel partners, you've authorized them to act for your brand. Staying on top of branding and marketing and having clear rules and consequences is critical.
  • Channel conflicts. You've set up the channel partnership to broaden your market, but it is nearly inevitable that you will run into channel conflicts. This happens when your internal sales team is trying to sell to the same customers as your channel partners. The best way to get out in front of conflicts is to have clear rules and roles and a straightforward process for resolving conflicts when they arise.

Are channel partnerships in your future?

Channel partnerships can make the difference between seeing modest growth and watching your sales take off. Once you have a product and a defined place in the market, channel partnerships can accelerate your sales growth without requiring huge investments.

Proper planning up front can help you maximize the benefits and mitigate the challenges of channel partner programs. There is no "one-size-fits-all" approach to channel partnerships, so you can tailor one to exactly what you need for your product, partners, and customers.

Next, learn about tech partnerships for SaaS companies.

About Prismatic

Prismatic is the integration platform for B2B software companies. It's the quickest way to build integrations to the other apps your customers use and to add a native integration marketplace to your product. A complete embedded iPaaS solution that empowers your whole organization, Prismatic encompasses an intuitive integration designer, embedded integration marketplace, integration deployment and support, and a purpose-built cloud infrastructure. Prismatic was built in a way developers love and provides the tools to make it perfectly fit the way you build software.

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