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The Subscription Economy: Why Channel Sales Is Essential for SaaS
March 9, 2017
The Subscription Economy: Why Channel Sales Is Essential for SaaS

channel sales saas

In the midst of the most recent software-as-a-service (SaaS) boom, there’s been a popular myth that SaaS has eliminated the need for channel partners and channel partner programs. This misunderstanding is perhaps derived from an outdated report that relayed that only 23 percent of B2B SaaS vendors utilized a channel program, compared to 80 percent of on-premises software vendors.

In the past, channel sales largely dealt with on-premise software customization, delivery, and support. Unlike these vendors, SaaS had very little customization, managed delivery, and reduced the need for support. Plus, value-added resellers generally charged buyers on a per-project basis—which is at odds with the SaaS subscription-based model.

We’re here to say that that’s old news. To confirm this, a recent survey forecasts that global cloud traffic will more than quadruple by the end of 2019 and that SaaS will be the most popular and adopted service model for public and private cloud workloads, accounting for 59 percent of total cloud workloads.

As SaaS continues to evolve, it continues to embrace channel sales. While SaaS admittedly requires a few adjustments to truly embrace reseller integration, the two currently exist in harmony. And channel partners should prepare for a new reality.


Recurring Revenue

It’s true that subscription-based pricing directly contrasts with more traditional, cash-friendly models that have powered the channel for years. These days, customers expect to pay in smaller increments throughout a longer duration of usage, rather than cough up a huge lump sum.

As the market skews toward SaaS models, revenue streams in the channel are beginning to flow in new directions. And knowing how the subscription economy operates is crucial for channel providers.

Without delving too deep, these three metrics help SaaS organizations monitor the financial viability of their business:

  • Monthly Recurring Revenue (MRR): Recurring revenue on a monthly or annual basis, made possible by the distribution and highly predictable nature of subscription-based revenue.
  • Lifetime Value of a Customer (LTV): Dollar value generated from a customer, minus the cost to service that customer.
  • Customer Acquisition Cost (CAC): Cost of all sales and marketing expenses—salaries, benefits, payroll taxes—divided by total new customers.

What does this mean in plain English? That, ultimately, there are two primary influencers for a subscription-based business: the costs of acquiring new customers and the profit contribution of those customers recovered over their lifetime. It also means that channel partners can build a strong revenue stream by maximizing the lifetime value of these customers.

Much like traditional software, it’s entirely possible to build a SaaS business based on a high volume of lower-complexity projects—or fewer, more intensive projects.

Retaining Customers

Churn is a huge concern in the subscription economy. That’s why SaaS companies strive for high engagement among customers. It’s also why proactive, rather than reactive, support is the name of the game in the industry.

Simply put, if customers aren’t using a product or are unsatisfied with a company’s support, they’re likely to churn. And the best way to retain—and grow—revenue is by providing superior support and ensuring that a product delivers value.

Think that it’s impossible to create long-lasting, sustainable SaaS engagement with channel partners? Think again. Channel partners can act as invaluable assets to SaaS companies by filling in the gaps with an extra layer of support.

By structuring partner programs around how successful a given partner has been in reselling your product, you can create a competitive ecosystem that not only reduces churn, but also encourages reps to provide a superior customer experience and ensures that your services actually deliver value.

The cloud isn’t replacing the need for channel sales partners—it’s redefining their role. Reinvent the economics of your SaaS channel partnerships by empowering reps to sell easily, confidently, and successfully.