Channel Partnerships: Proceed With Caution

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Channel Partnerships: Proceed With Caution

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Channel partnerships can be a key tool for jump-starting revenue growth, but they're not sustainable in the long run.

Conventional wisdom holds that channel partnerships can be a cost-effective way for SaaS companies to expand their reach and acquire more customers. But these relationships may come with significant costs—channel partners may not have the right incentives to push your product and they are difficult to monitor. Our analysis shows that SaaS companies considering channel partnerships should proceed with caution. They are useful when companies need to grow beyond their internal capabilities, but in the long run they are not the best use of precious sales and marketing dollars.

In our post entitled “Want to Accelerate Value Creation?” we explained why we think growth efficiency—the net new ARR each dollar of sales and marketing generates—is an important and useful metric for SaaS companies. We’ve used that metric—along with detailed sales and marketing data from nearly 200 companies in our SaaSRadar database—to test several common SaaS sales and marketing practices. (See, for example, our post on “land and expand.”)

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As the chart above shows, channel partnerships are a mixed bag. We found that companies in our database that relied heavily upon channel partnerships to acquire new customers generally grew less efficiently. SaaS companies that did no marketing through channel partners had a 1.70 growth efficiency score, on average, while companies that relied on partners for 10% or more of their new customer acquisition only had a 0.71 growth efficiency or lower. Looking at new logo growth, however, yields a different picture. The companies in our survey that grew their new customers the fastest over a 12-month period were those who acquired 1-5% of those customers through channel partnerships. And with more channel partnerships, the data in our survey becomes a little noisy. This suggests that channel partnerships can be useful to achieve certain key growth objectives in the lifecycle of a company, but that they shouldn’t be relied upon too heavily at all times.

About the Authors

Richard Acton-Maher Headshot
Richard Acton-Maher
Product Manager

Richard leads our SaaSRadar product, Fuel's leading benchmarking solution for Pre-IPO SaaS companies.

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Junaid Mohiuddin Headshot
Junaid Mohiuddin
Senior Client Advisor

Junaid leads our SaaS practice and helps startups grow their enterprise value.

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