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Want to know what gets a certain SaaS CEO excited these days (other than MRR, of course)? Let’s start with the growing number of great thought leadership articles touting the mounting importance of reseller channels and partner programs WITHIN SaaS – by some well known venture capitalists, nonetheless! Case in point – According to Tomasz Tunguz, one of my favorite SaaS bloggers and a VC at Redpoint Ventures, implementing channel sales across recurring revenue models should be just as compelling as it is at traditional software and hardware companies.
Tunguz makes three critical points to supplement this argument:
- Channels generate new business and increase revenue without the need to hire more salespeople – aka, partners lower customer acquisition costs (CAC)
- By supporting the product while reducing the cost of goods, channel partners can actually help increase a SaaS company’s gross margin.
- Indirect sales and marketing channels diversify a company’s customer acquisition and enable it to serve new geographies without having to establish a physical presence.
I couldn’t agree more. In fact, we here at Allbound think that reseller channels in SaaS are integral—even critical—to your organization’s ability to hit many of your key SaaS KPIs. Sure, the emergence of the Cloud and SaaS and their subscription-based pricing models have presented some major new challenges. But they’ve also brought with them a wealth of opportunity if approached with the right strategies and tactics.
The BIG Three – MRR, LTV and CAC
To start, let’s quickly illustrate the importance of recurring revenue – annual (ARR) and monthly (MRR). Subscription-based pricing models obviously stand in contrast to traditional, cash-friendly models that have fueled the channel for decades. Instead of large, one-time payments, customers now pay in smaller increments. As the market increasingly leaps toward SaaS, the channel is beginning to see revenue streams flow in new directions.
To simplify things, there are three basic metrics that run the show for SaaS organizations:
- Monthly Recurring Revenue (MRR): The amount of recurring revenue on a monthly or annual basis (made possible by the even distribution and highly predictable nature of subscription-based revenue).
- Lifetime Value of a Customer (LTV): The dollar value generated from a customer, minus cost to service that customer.
- Customer Acquisition Cost (CAC): The cost of all sales and marketing expenses (salaries, benefits, payroll taxes) divided by total new customers.
Together, these metrics help SaaS and subscription-based organizations monitor the financial viability of their channels. Furthermore, they emphasize that there are two primary levers for influencing a subscription-based business: the costs to acquire a new customer (CAC) and the gross profit from that same customer over his or her lifetime (LTV).
The Peril (and Prevention!) of Churn
To further complicate matters, churn—or losing a customer due to cancelation—can be a huge detriment to SaaS organizations. When a customer churns, the potential for future upsell is lost and an organization’s recurring revenue is moot. As annuity is cut short, a SaaS company must bite the bullet. And if this happens repeatedly, an organization can suddenly find itself at risk.
So what does this all mean for your SaaS reseller program?
Well, luckily for you, partners who are well-enabled can drastically help prevent churn. To begin, it’s important to never, ever oversell product capabilities. If customers aren’t using the product—or are simply dissatisfied with its support—they’re susceptible to churn. Learning to say “no” to the wrong customers is critical step in reducing churn from the get-go. When it comes to your partners, equipping them with comprehensive training and in-class product support, SaaS companies can utilize their channel to retain customers, and ultimately, grow wallet share.
Now, more than ever, it’s important for organizations to treat channel partners as an extension of their sales teams. Reseller roles aren’t being replaced—they’re being redefined. Partners now have the ability to step up as critical components, and true partners, of your organization. Empowering your partners with true channel collaboration ensures that they get the tools they need to make your SaaS products profitable.