A channel partner is a company that sells products and services for a technology manufacturer or vendor.
This technology may include hardware, traditional software, Software as a Service (SaaS), or cloud computing solutions.
What is a channel partner?
Channel partners basically onboard other people to sell your product for you. From referral and affiliate programs to consultants and agencies. But by far, the option that could potentially bring you in the most sales is resellers and sales channel partners.
These programs are comparable to getting your product into next to the cash counter in a department store. They have a proven, talented, and dedicated sales team. Hundreds of customers trust them and want to buy from them – and a brand that people trust. All you have to do is supply them with the goods.
In the tech world, massive enterprise companies have entire sales channel departments who sell outside technology solutions to their clients. It’s an incredible opportunity to scale your business, but one that you need the right strategy to execute on properly.
Why use channel partnerships?
First and foremost, they’re lucrative. More than 40 percent of the $5 trillion global IT market is in North America, primarily the United States. The industry accounts for $1.8 trillion of U.S. value-added GDP – more than 10 percent of the national economy – and 11.8 million jobs.
There are over half a million software and IT services companies in the United States, which includes software publishers, custom computer programming service suppliers, computer systems design firms, and facilities management companies.
If you’ve ever thought channel partner programs were ineffective for software companies, you’re wrong. Channel partnerships are a major opportunity to build your brand, expand your customer advocates, and scale your revenue. These programs are a great way for startups and enterprises to generate demand for their product and build brand awareness.
Different types of channel partners in SaaS
Here are some of the different types of channel partners you’ll find in SaaS companies.
Systems integrator (SI)
A systems integrator is a company that buys individual hardware and software components from many different vendors and integrates them into one customized solution which meets the business needs of its customers.
A distributor is a middleman between two companies: the manufacturer of a product or service and a channel partner who will resell the item to their customers. A vendor may choose to sell through a distributor to shorten its time to market because the distributor already has an established distribution channel. The distributor may also augment the vendor’s resources by providing training, technical assistance, marketing, and sales support to all of the channel partners.
Value-added resellers (VAR)
A value-added reseller is a company that purchases technology products, adds value by bundling additional features or services to the original product, and resells the bundled offering to its customers. The VAR might purchase a piece of computer hardware and build a specific software application to be sold with it or the VAR might add value by providing technical support, training, or installation to go along with the product to be sold.
Managed service providers (MSP)
A managed service provider is a company that manages, monitors and maintains a company’s IT infrastructure. This may include remote monitoring of the company’s network to ensure that it is accessible by employees at all times, management of end user devices, data security and storage, product installation and upgrades, and more.
MSPs are frequently hired by:
- Small and midsize businesses that do not have an IT professional on staff and want to off-load this responsibility to a company expert in IT management.
- Larger enterprises that want to eliminate the day to day tactical responsibilities from their IT team so they can focus on more strategic technology initiatives.
An IT consultant provides independent IT advice, network design services, project management, support, and administration to businesses. An IT consultant may provide similar services to those offered by a managed service provider but does not provide the long-term monitoring and management of the client’s network infrastructure.
When should I start engaging with sales channel partners?
You can and should begin engaging with sales channel partners if: you’re just starting out, you’re trying to get your first 10 customers, or you’ve just built an MVP.
But be warned: don’t start a reseller program. The ideal stage for channel partnerships is when your product and services are validated from some customers. You should have a good support staff and engineers available to work full time on all channel partner initiatives.
- Resellers and sales channel partners are strategies to accelerate and speed up existing growth. Not assist growth from scratch. Plus, they’re only good at selling something that already works. If you can’t prove that your product brings tremendous value to its users, these sales partners aren’t going to magically start selling it for you.
- If your product doesn’t work, you’ll lose out on potential clients and be the talk of the town – and not in a good way. Think of it as a domino effect. One major issue with any channel partner will lead to spreading of a bad review among their entire community.
- Their margins are high on your product and you’ll end up paying frequent recurring commissions to sell your product. You’ll make less money with them, but they’ll be your on-field work force without salary. A reseller will only accelerate the momentum and growth you already have.
If you’re six months to a year in, have a product that already has traction and growth, have experimented with and found success with influencer marketing, and in/outbound sales, then you want to only engage with them when the time is right and you’re ready for that type of scale. Never before.
How to deal with your channel partner
Once you’ve had the meetings and you’ve signed the contract, the actual work will start. The work isn’t signing the reseller – it’s what happens after you sign the contract.
But still, 80% of startups focus their energy on negotiating and ignore the partners who are going to sell their product. And what happens if a sales rep isn’t convinced that a product is amazing and they’re going to make lots of money selling it? Nothing.
Instead, you should be investing at least two months working on the channel partner, before they can work on their customers on your behalf.
At the bare minimum, this means you need to:
- Connect regularly with your new sales partner’s office: Bring a support person, an engineer, and a marketer, and connect with your new partner’s office to sell your product on a weekly basis. Be extremely active in offering all kinds of support.
- Create marketing and sales collateral for their team: Write the partnership announcement with them and give them sales scripts, case studies, and any other marketing materials they need. Even better if you have the bandwidth to create content personalised for your partners.
- Talk to their reps and coach them: Pick a few top sales reps from their team and observe how they sell. Be around to explain how to overcome objections and get the sale.
- Research well as to how your product fits in their portfolio: Understand what other products they’re selling and find ways yours can integrate with and complement them.
- Sell up from the sales team to the C-suite: Do everything you can to help the reps make money. Because the more success they have selling your product, the more they’ll talk about it to people above them.
- Be open to negotiation: Partners can bring in bigger deals from you once the product gets validation. Big deals means more commissions and probably a bundled discount of your product. Don’t lose out on business due to inflexibility.
- Be particular in payouts: Try to never miss a payout. Commissions are bread and butter for a few small independent resellers. Being inconsistent in general also leaves a general distaste for your partners.
By following these techniques, you’ve built the same amount of traction with them that you have with your other customers. And it’s going to take time, effort, and money. While it might take resources, these programs can make all the difference in scaling your business and hitting tens or even hundreds of millions in revenue. If you put in the work, you’ll hit incremental revenue and results.
Without the right approach, you’re wasting your most valuable resource: time.
There’s no denying that this is a costly customer acquisition strategy, and there’s always the possibility you could go through all this work and still have the partnership fall flat.
But the potential results are worth the risk.
Before you approach channel partnerships, make sure you have a product you know you can sell and give them everything they need to do the same. With the right time and effort, these kinds of partnerships can become rocket fuel for your startup.