Foundations are built on a mutually beneficial relationship with the channel partners, or distribution partners, that sell to your target market.

Channel sales is a proven way to scale your business. A channel partner does the selling directly to a customer, as opposed to working with a direct sales force where reps are in direct contact with the customers.

Channel partners bring industry expertise, market knowledge and additional sales capacity. Avoid commoditising your product; you want customers seeing you as providing unique value that allows you to maintain both high margins and brand recognition in the marketplace.

Developing mutually beneficial relationships is one of the overriding tenets of managing a channel sales program. Ensure partners are properly incentivised, educated on product road maps and have access to critical materials needed for successful selling — including contracts, pricing models and product collateral.

They should also provide leads, assistance in closing business and industry expertise.

Your channel partner should be able to provide qualified leads. This is critical since they often have a major advantage over your sales force in terms of access to the accounts. After all, they spend a good amount of time in front of those customers already and have established relationships. A good channel partner will understand that you would like to remain the one responsible for closing the deal so they will simply pass along any leads that are ready for consultation. They should also be able to help close the deal, not just pass the lead to sales.

Finally, a channel partner should always have industry expertise or have a strategic reason why their company would benefit from having your product in their portfolio (and thus enough incentive from their leadership).

Partner discounts are one of the most powerful ways to drive revenue through the channel.

When creating a discount strategy, you must balance the desire to drive revenue with the limits of your business model. Substantial discounts can drive revenue through the channel and are an important tool in ensuring long term growth of your channel partner network.

However, if you overuse discounts, you will likely face revenue challenges and lower margins. Therefore, discounting should be used strategically to promote specific sales goals or products that may not be selling as well as expected.

It is critical for both parties to have a clear sense of what type of discount will be offered and how it will affect revenue.

Discounts can be a powerful driver of revenue for SaaS companies. A discount that is too generous, however, can undermine the channels’ ability to generate the recurring revenue necessary to make the discount worthwhile. In this case, it’s your job to make sure your SaaS company understands the importance of striking a balance between encouraging growth and maintaining profitability.

You should first determine what type of discount will most effectively drive revenue. This can be done by assessing your current customers and their expected future purchases of various products. An effective discount structure should have three important characteristics: First, it should be based on monthly recurring revenue (MRR) rather than one-time transactions — this will ensure that you are not giving discounts to customers who aren’t likely to purchase any new products or upgrades in the short term. Second, the discount should allow you to recoup some of your cost — usually 20% or more — based on MRR before allowing for profit margins. Third, discounts should not significantly lower ARR because doing so could reduce long-term growth potential for both parties and result in lower returns for investors over time (basically no one wants a deal that looks great on paper but results in business losses).

SaaS companies that deliver an enterprise product need to consider their product’s annual recurring value (ARR) when coming up with channel partner discounts.

If you’re a SaaS company offering an enterprise product, it’s important to consider annual recurring value (ARR) when determining channel discounts.

Your ARR is the average annual revenue generated by a single account or customer over time. It’s a way to measure your long-term growth potential and calculate how much each customer contributes to your total revenue over time.

When considering channel partner discounts, it’s important to remember that every deal is different, and some partners will demand more incentives than others. The higher the value of the deal, the better discount a partner will likely expect.

Some companies offer tiered discounts based on tiers of partnership: bronze, silver, gold, platinum. Other companies offer tiered incentives based on the product being sold: entry level, middle tier, top tier. Still other companies offer tiered discounts based on their customers’ annual spend: $0-$10K/year, $10-$50K/year, $50-$100K/year.

The right approach for you will depend on your business model and your partnerships with resellers or distributors.

About the Author

Jan Aertgeerts is a Salesforce Certified Technical Architect (CTA) and Managing Director at Harrier. Jan is passionate about building secure, high-performance technical solutions.