SaaS Channel Sales Increasing Dramatically

SaaS Channel Revenue Sales Dramatically Increasing  

In 2007, when OPEXEngine launched its first benchmarking of SaaS vendors, almost no SaaS companies in the data set were selling to end-user customers through a channel. Over a decade later, that statistic has changed dramatically. In the early days of SaaS, the idea was that subscription pricing did not allow a partner margin, so almost all SaaS companies sold direct. Companies like SalesForce and Intacct (now Sage Intacct) have proven that you can build a SaaS business through a partner channel. Intacct started selling their cloud-based financial application through an extensive partnership with the American Institute of Certified Public Accountants (AICPA) which jump started their growth.

OPEXEngine’s 2018 Benchmarking

In 2018, OPEXEngine’s most recent benchmarking of SaaS companies includes vendors with 95+% of revenue coming through an indirect, partner SaaS channel.

Here’s an example from our 2018 dataset, taken from several hundred SaaS companies with revenues between about $5M and $500M. All companies pay a subscription for the benchmarking service, and OPEXEngine works with their finance departments to valid numbers. In the dataset, the percentage of companies selling through the channel has increased from less than 5% in 2007 to 55% in 2018.

% of Channel Revenue

SaaS Channel Revenue Sales Dramatically Increasing

Source:  2018 OPEXEngine

Do Low ACVs Sell More Through the SaaS Channel?

We wondered if certain SaaS business models tended to have more channel sales than others.  For example, our initial thesis was that SaaS vendors selling large, enterprise subscriptions, with an average contract value (ACV) of $100,000 or more, would be mostly sold direct. We segmented the data for Indirect SaaS Channel Revenue by ACV. We found that between half and up to two-thirds of companies in most ACV segments have some channel revenue. The segment with the highest percentage of companies selling any amount of sales through the channel were companies selling subscriptions priced between $10k-$30k.

SaaS Channel Revenue Sales Dramatically Increasing

Source:  2018 OPEXEngine

SaaS Channel Revenue Sales Dramatically Increasing

Source:  2018 OPEXEngine

SaaS Channel Revenue Sales Dramatically Increasing

Source:  2018 OPEXEngine

SaaS Channel Revenue Sales Dramatically Increasing

Source:  2018 OPEXEngine

Key Take Aways

SaaS companies selling through partner channels has increased dramatically in the past decade. The increase in channel sales has paralleled the increase in international sales (sales outside the U.S.) in addition to domestic sales through the channel. Most SaaS companies will have a mix of direct and indirect revenues in the US, while they may have mostly channel sales in international markets, especially before having any kind of local operation in international markets.

SaaS companies need to take into account two major issues when selling through the channel:

  • Maintaining a direct relationship with the end-user for customer success, enablement, and expansion, and
  • Maintaining customer records, transactions and systems generally so that the SaaS vendor has accurate SaaS metrics, like Customer Acquisition Cost (CAC), retention rates, and Customer Lifetime Value (CLV)

Most SaaS companies selling through the channel are selling their product through a partner channel that implements or customizes their SaaS application for the end-user. SaaS companies are able to keep the partner margin somewhat lower than was the case with packaged software, as SaaS partners are typically earning a significant portion of their revenues from services associated with the base SaaS application.

We do not see any significant difference in profitability between companies with higher or lower channel portion of revenue.

As more and more traditional software vendors transition over to SaaS, we expect to see more sophisticated and extensive channel models. These traditional software vendors have decades of experience building and managing channels. Traditional software companies, however, will need to learn from SaaS companies how to maintain and build the relationship with the end user of their software, and to integrate their internal systems to track customer relationships when selling through the channel.  SaaS is anything if not a numbers game.

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1 Comment

  1. cdevita@growthprocess.com

    Lauren,

    Thanks for this report. I had been wondering if/when SaaS sales through the channel would grow.

    Reply

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