Venture Capitalist at Theory

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2 minute read / May 5, 2016 /

The Rising Importance of Reseller Channels in SaaS

The notion of channel sales in SaaS companies is becoming more common than in has been in the last few years, and for some businesses like Intacct, channel partnerships drive more than 50% of sales.

Channels used to be about software customization, delivery and support. Most SaaS has little customization, manages all the delivery and are better suited to handling the support. Plus, value-added resellers charged buyers on a per-project basis which doesn’t align neatly with the recurring subscription intrinsic to SaaS. So there hasn’t been a great fit.

But the reasons underpinning channel sales for license software companies are theoretically as compelling for SaaS companies. Channel sales (when another company sells, implements and/or supports your startup’s product) can be a big strategic asset for three financial reasons.

First, channels can generate more new business and increase revenue without the need to hire more sales people. By leveraging another company’s sales team, your startup’s cost to book a marginal revenue dollar decline, as revenue scales and net margin increases.

Second, the channel partner can support the product, reducing the cost of goods sold for the SaaS company. This increases the SaaS company’s gross margin.

Third, channels diversify customer acquisition for a SaaS company insulating the bookings number from the episodic underperformance typical of a single channel go-to-market. More predictable growth commands greater multiples in the fundraising market. Additionally, channels can enable companies to serve new geographies without having to establish presences there.

Developing reseller channels do require building a dedicated internal team to cultivate relationships, educate resellers, align internal and external incentives, and ensure success. Plus, there can be some complexities in sales compensation. How does a SaaS company compensate a sales person if they are competing with a channel partner to close the same account? Eg, many businesses pay commission twice: to the channel and the AE.

As the SaaS ecosystem matures, and SaaS revenues increases from 14% of overall software dollars to 20, 30 and 40%, the reseller and channel market must evolve along with it. And SaaS startups that can take advantage of these distribution opportunities successfully will develop a sustainable competitive advantage for themselves.

Read More:

A Key Moment in Time for Vertical SaaS Startups