What is a Channel Partner?

Growing a software, hardware, or IT services business never has a single answer. Every company has a different path for growth and what is good for Company A might not work at all for Company B. That said, one of the most powerful – and common – ways to grow such a business is to leverage channel partners. This post will help you better understand what a channel partner is, how channel partners can complement your growth efforts, and common structures when it comes to aligning with channel partners.

Understanding Channel Partnership

Think of a channel partner as an augmentation or extension of your own sales team. A channel partner can resell or offer your product or service, helping you (the company or vendor) get to market faster and close more deals. The channel partner generates their own revenue from fees paid to them by your company, increasing prices and keeping the extra margin, or by cross-selling other services like consulting, training, and customer support to the customers that buy from them.

Channel partnerships are particularly effective in driving more revenue or growing market share without the burden of hiring, training, and managing more of your own employees. For example, Microsoft recently disclosed that 95% of its revenue is generated by partners including managed service providers and IT firms.  While that is admittedly a large and prominent example, the power of channel partnerships in the IT space is hard to deny.

Channel partnerships have long been a key part of the technology sector. As far back as the 1970’s companies like IBM, SAP, and Microsoft were leveraging the channel to grow quickly and across different sectors. In short, channel partners serve as the resource to source new opportunities and close deals, delivering another company’s offerings and brand to more clients and customers.

In spite of the clear benefits, channel partnerships can be complicated. As with most things worth doing in business, complications and potential roadblocks must be navigated to get the most out of channel partnerships.

A channel partner program requires planning and a framework for success.  Before that can be created, however, it is important to start by answering one important question: is leveraging channel partners the right decision for your business?

Channel Partnerships for Your Business

The answer to whether or not channel partnerships would benefit your business is nuanced and depends a great deal on the size and state of your own organization. Channel partnerships, like most business relationships, come down to the dynamic between the people involved. That is to say that partnerships do not happen in a vacuum; there are personalities at play. These relationships take work. It requires patience and effort to establish not just a channel program but also trust and rapport with the people on the other end of the relationship. Communication and collaboration are key to avoid conflicts and misunderstandings.

A number of considerations go into deciding when it is the right time and way for you to build a channel partner program. This includes your company’s market, product, desired market, and the sales tactics and motions you already have in place. Some channel partnerships come together easily while others take time. As a rule of thumb, it will take between six and twelve months for a channel partner program to get up and running and even longer to deliver returns.

Pros and Cons

A channel partner program has a number of pros and cons that must be considered in advance. Here are the most significant.

Pros:

  • Reduced customer acquisition costs: Channel partners delivering on a pay-for-performance model mean that costs are directly correlated to revenue growth.
  • Increased market share or sector penetration without the burden of adding your own infrastructure.
  • Leaves you to focus on core competencies like product or support, leaving sales to channel partners.

Cons:

  • Sales process is out of your hands. Channel partners are guiding more of the conversation about your product and services than if you are doing it yourself.
  • Gathering customer feedback can be more of a chore if you are removed from the sales relationship.
  • Partner support can be a time-consuming burden and requires different communication and collaboration than you are used to.
  • Revenue share with partners means a potential decrease in your revenue-per-customer or revenue-per-unit.

Different Types of Channel Partnerships

There are a wide range of different channel partnership types.  These include: Resellers, Value Added Resellers (VARs), Systems Integrators (SIs), agency partners, indirect sales partners, affiliate partners, and Managed Service Providers (MSPs).  The right type of channel partnership for you comes down to what works best for all parties involved, aligning not just revenue but also support, maintenance, and service.

Here are but a few examples of channel partner types:

Reseller

As the name suggests, a reseller partner resells your products or services to their customers. Most resellers handle the invoicing and customer service for their customers, essentially adding onto the price you charge them before they invoice their customers. One of the benefits of a reseller program is that invoicing your reseller partners is often easier than invoicing all the customers they bring you. One potential drawback is that the price you charge will need to be competitive enough for your reseller to add some margin and still be able to earn a sale.

Affiliate

Affiliate programs have grown in popularity in recent years, despite drawing the ire of the FCC. In an affiliate model, you provide a way for channel partners to sell your goods and services and collect a fee for doing so. Unlike the reseller model, in an affiliate program, the billing and support will be handled by your organization. Affiliate programs can be a great way for your partners to generate sales without the messiness of maintaining the ongoing support or billing relationship. Affiliate programs are quite popular with online software sales, less-so when it comes to offering managed services.

White label partners

White label partners are those that sell your services or goods but put their name on them. To successfully offer this type of channel program, you’ll need to be able to provide everything from support to solution without any branding or having your name displayed. White label partnerships are extremely popular for companies that want to offer more solutions to their customers without having to invest in growing their own team.

Alliance partners

Alliance partners can be those that provide introductions and referrals or those that co-sell with your team on larger opportunities. Oftentimes the benefits don’t come in the form of a commission but rather in the fact that bringing your business into a potential opportunity can increase the channel partner’s chance at winning their piece of that business. This happens often in the hosting and infrastructure arena as well as with managed service providers leveraging a last-mile partner or 24-hour NOC partner, for example.

Getting Started

According to the Boston Consulting Group (BCG), “distributors and resellers typically drive 70% or more of a tech vendor’s revenue. In summary, channel partners help introduce your product or service to new segments of customers and generate revenue for both their company and yours along the way.  Managed with appropriate communication and collaboration, channel partnerships can be a good thing for all involved

If you are ready to embark on a partnership journey, then we invite you to contact us for assistance. There are many aspects of creating a successful channel program where we can lend a hand or point you in the right direction. Understanding what makes for a good channel partner goes a long way in creating a strong channel program. Our team is at the ready to lend a hand as you explore if a channel program is right for you.

About the Author:

Hartland Ross is the Founder and President of eBridge Marketing Solutions. He has over 15 years experience in marketing and business development, focusing for the last decade or so on the technology sector. Prior to starting up his own internet marketing agency, he operated a successful franchise, worked with two different online advertising startups and was the VP of Sales and Marketing for a national development and training company. He now puts his entrepreneurial and business skills to work running eBridge, which since its inception has supported the internet marketing efforts of over 150 web hosts worldwide.

Posted June 25, 2021
Categories: Channel Marketing
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