Cloud channel strategies have evolved significantly over the past 20 years. Today there are a variety of channel models that SaaS companies have leveraged to exponentially increase sales and their potential customer base. In the early days, most business strategists said that the subscription model didn’t leave any room for channel margin, so the only way to access the market was to sell directly to customers. Selling direct remains the dominant sales method for most in SaaS. Along the way, a variety of SaaS companies, have been successful with partner strategies, from SalesForce to Hubspot and Atlassian. The channel has contributed to the fast growth of these companies and helped reduce Customer Acquisition Cost (CAC).
In the OPEXEngine benchmarking, we see the number of SaaS vendors selling through the channel increasing year over year -- in 2019, 60% of SaaS companies reported selling more than 1% of revenue through partners. While the number of SaaS companies selling thru the channel is increasing, the percentage of channel sales out of total sales for those companies is still under 10%. There are some outliers of SaaS companies selling primarily through channel, but not the majority.
Defining SaaS Channel Sales
Defining and tracking channel sales, channel expenses and channel margins can be tricky in the SaaS world. If a sale isn’t made directly thru a channel partner, then how much credit does the channel get? And if you can’t exactly define the revenue, then how do you associate the expenses and costs with the revenue and calculate margin on channel sales. Like most metrics, it is best to keep it simple and build out from there. First off, it is important to define how you are getting channel sales: You sell through your partner – partner sales
- Distributors
- Resellers
- Some marketplaces and ecosystems that sell product themselves
Your partner incorporates your product into their product
- VAR
- System integrators who sell your product as part of a solution
You and your partner sell together – partner “influenced” sales (but you sell the subscription directly to the end-user)
- Marketing affiliate programs
- Consultants and Agents
- Technology partners
- Some systems integrators who do not sell technology only services
Marketplaces & Ecosystems
SaaS and Cloud-based IT products have given rise to new and evolving models of marketplaces and ecosystems which enable sales. Marketplaces can reduce the complexity (and cost) of administering direct sales and provisioning of customers.
For the SaaS vendor selling through an ecosystem, it is important to capture all the costs associated with the ecosystem, including product and marketing expenses, as well as channel sales investments.
Here are two different examples to see how SaaS ecosystems are an evolving:
Ingram Micro Cloud Marketplace, an ecosystem of buyers, sellers and solutions which acts as a virtual reseller for customers and channel partners to purchase, provision, manage and invoice Cloud-based products. Ingram Micro has effectively moved its business as the world’s largest IT distributor to the Cloud. Corporate and other large IT purchasers value a marketplace like this to manage complex IT procurement and manage provisioning of Cloud-based products.
SalesForce’s AppExchange, launched in 2005, the AppExchange was the first of its kind in the SaaS world, offering a mix of free and paid apps, organized by category. Many point to the AppExchange as the business model that spurred SaaS to take off. It provided access to a huge market (SalesForce’s customer base) to new app developers who developed on AppExchange, giving rise to companies like Apptus and FinancialForce that both started on the AppExchange. Companies rising to prominence on the AppExchange also benefited hugely from SalesForce’s dramatic growth and brand appeal. In addition, the AppExchange gave SaaS vendors legitimacy in the eyes of corporate buyers in the early days of the Cloud market.
Tracking Channel Sales
Channel sales is an important avenue to increase SaaS revenues and reach more customers but channel management and operations requires close attention to avoid over- or under-budgeting for the appropriate investment. To increase revenues profitably, companies need to track and plan channel revenues and expenses accurately. Here’s a suggestion of some of the key metrics to track:
High Level Channel Metrics
- Total channel revenue
- Percent of total revenue coming from the channel
- Channel expense going into OpEx
- Channel cost going into Cost of Revenue (COR)
- Margin of all channel expenses and costs against channel revenue
Granular Channel Metrics
- Number of channel partners
- Number of partner channel sales deals closed
- $ value of channel deals
- Average $ value of channel deals
- Average Sales Cycle for channel deals
- Number of channel sales dedicated to channel
- Revenue or ARR productivity of channel sales headcount
- Sales expenses associated with channel
- Marketing expenses associated with channel
- R&D expenses associated with channel
- Admin or G&A expenses associated with channel
OPEXEngine has been benchmarking channel revenue for Software and SaaS companies for over a decade. We welcome a broader discussion of channel metrics and channel strategies. Please contact us at info@opexengine.com for more information about how you can benchmark your company or to contribute to the channel discussion.
