Successful channel partnerships are hard work, and they too often distract early stage companies from the important task of launching their products and building end-user acceptance. Startup teams can be overwhelmed by inbound partnership requests, and either ignore them, or (perhaps worse) sign up everyone as partners without proper consideration. But the good news is that channel partners can efficiently accelerate your revenues with the right experience and strategies in place. Let’s first take a look at why startups should engage with channel partners.
WHY YOU SHOULD WORK WITH CHANNEL PARTNERS
In most cases it’s all about reach, reducing your (long-term) customer acquisition costs and meeting the customer(s) where they buy.
David Skok’s invaluable annual SaaS survey, conducted with Pacific Crest Securities, provides useful data on SaaS companies and their revenue. The report highlights how important it is a SaaS company to consider channels when designing their go-to-market strategy.
As a whole, companies who used channel sales as their primary mode of distribution (I call these “channel-first” companies), saw a median growth rate of 33% versus 29% for all survey respondents (and 28% for those that relied only on Field Sales). So companies can achieve higher growth rates by leveraging the channel.
The research results get interesting when comparing companies in terms of their CAC (“Customer Acquisition Cost”) by primary mode of selling. According to the survey, the average CAC for companies for companies with over $2.5M in revenues was $1.07 (translation: on average they are spending $1.07 for every $1 in average contract value or ACV). However, companies that sell through the channel (those that are “channel-first”) are spending an average of only $0.53 per $1 of AVC.
Since data shows that you can achieve higher revenue growth and lower CAC through the channel, then every company would be leading with a channel-first model, right? It turns out that 51% of companies surveyed (>$2.5M in revenue) are going to market primarily with Field Sales teams. Only 7% of companies surveyed said that they were going to market primarily through channels. Part of the reason is that companies selling to larger enterprises tend to rely on field sales teams. But in many cases companies are getting it wrong when it comes to selling through the channel, and they give up.
If you are convinced that your startup should go to market using the efficiency and cost benefits of the channel, then the next question is when do you engage the channel? We’ll drill into the issues associated with engaging the channel either too early or too late in the next post.