6 Indirect Distribution Channels (for SaaS)

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What is an Indirect Distribution Channel?

You might be won­der­ing what exact­ly is an indi­rect chan­nel of dis­tri­b­u­tion. If so, you’re in the right place as we will cov­er that top­ic and whole lot more. To begin, a dis­tri­b­u­tion chan­nel (some­times known as a sales chan­nel or mar­ket­ing chan­nel) refers to a means by which a com­pa­ny sells to cus­tomers.

Indi­rect chan­nels of dis­tri­b­u­tion play a crit­i­cal role in mod­ern SaaS go-to-mar­ket strate­gies. Espe­cial­ly for star­tups and mid-mar­ket com­pa­nies look­ing to scale with­out build­ing large inter­nal sales teams, choos­ing the right indi­rect dis­tri­b­u­tion chan­nel can be the dif­fer­ence between flat growth and expo­nen­tial reach. These chan­nels allow you to tap into exist­ing cus­tomer rela­tion­ships and dis­tri­b­u­tion infra­struc­ture owned by third par­ties.

Direct dis­tri­b­u­tion chan­nels refer to a sit­u­a­tion where the com­pa­ny’s own employ­ees are direct­ly inter­act­ing with and get­ting cus­tomers to buy its goods and ser­vices.

An Indi­rect Dis­tri­b­u­tion Chan­nel or Indi­rect Mar­ket­ing Chan­nel refers to sell­ing and mar­ket­ing a com­pa­ny’s goods and ser­vices through a third-par­ty inter­me­di­ary. In this way, the com­pa­ny is ini­tial­ly NOT in direct con­tact with the cus­tomer. The com­pa­ny’s employ­ees reach cus­tomers indi­rect­ly through third par­ties. 

In the con­text of a SaaS com­pa­ny, I’ll be talk­ing about indi­rect sales chan­nels, or indi­rect dis­tri­b­u­tion chan­nels, for SaaS busi­ness­es. For SaaS star­tups, there are 6 types of indi­rect dis­tri­b­u­tion and mar­ket­ing chan­nels avail­able to reach cus­tomers. Let’s dis­cuss each type in detail and explain which chan­nels are most use­ful in which types of sit­u­a­tions.

Flowchart of direct and indirect distribution channels, including third-party distributors, app stores, in-app sales, resellers, and white-label partnerships

The Six Types of Indirect Sales Distribution Channels

There are six dif­fer­ent indi­rect dis­tri­b­u­tion chan­nel options for you to con­sid­er adopt­ing in your busi­ness. We’ll start with the indi­rect sales chan­nels for the low­est price points and move up to more com­pli­cat­ed and more enter­prise-lev­el sales.

1. App Stores

The first is the app stores. If you have a small mobile app, send it through an app store like Google Play Store or Apple’s App Store. It’s a very sim­ple way of get­ting peo­ple to buy your app. Typ­i­cal­ly, this is appro­pri­ate for price points under $10 or $15 — a $2 app, $4 app, and so on and so forth.

The advan­tage of this par­tic­u­lar approach and chan­nel is that these app stores have an enor­mous amount of traf­fic. There are peo­ple search­ing to get an app. By being in the store, you are find­able, and you can sell more of your apps. The down­side is that there are inter­me­di­ary costs. They take a cut, which is the down­side.

This mod­el is one of the most acces­si­ble indi­rect chan­nels of dis­tri­b­u­tion for ear­ly-stage SaaS com­pa­nies launch­ing low-tick­et prod­ucts.

2. In-App Purchases

The sec­ond indi­rect chan­nel is to use what I call “in-app pur­chas­es.” You are on the app store to get that ini­tial sale, and some­times, you offer the base prod­uct for free as a way to get it into users’ hands. They start using it, and as they encounter more advanced fea­tures that they want to use (because they’re in the mid­dle of work­ing on some­thing), then they can buy those fea­tures with­in the app, and upgrade the capa­bil­i­ties of your app.

I dis­tin­guish this because, in the app store, it’s real­ly the app store’s search engine that’s dri­ving the traf­fic that gets you an audi­ence, where you can then con­vince them to make a down­load. With in-app pur­chas­es, it’s the qual­i­ty of your app that has drawn vis­i­tors direct­ly to your app. Then, it is your pro­mo­tion­al efforts with­in the app that set up the pur­chase as well as ini­ti­ate the pur­chase process of buy­ing an upgrad­ed app from with­in the app itself. So that’s your sec­ond option.

This form of indi­rect dis­tri­b­u­tion chan­nel works par­tic­u­lar­ly well for SaaS busi­ness­es using a freemi­um mod­el with prod­uct-led growth.

3. Resellers

The third option for an indi­rect sales chan­nel is resellers. A clas­sic exam­ple of this is how Ama­zon resells Microsoft Office. They either sell a phys­i­cal disk (as they have in the past), or more com­mon­ly, they sell a down­load code from Ama­zon.

In this par­tic­u­lar case, when I buy Microsoft Office from Ama­zon, Ama­zon is the one that charges me, not Microsoft. So, that’s an exam­ple of using a reseller. You could have resellers at the low end, under $100. You could have some­thing else that resells at thou­sands or tens of thou­sands of dol­lars as well. That’s the third option.

The reseller mod­el rep­re­sents a high-lever­age indi­rect dis­tri­b­u­tion chan­nel, par­tic­u­lar­ly when tar­get­ing niche or geo­graph­ic mar­kets where the reseller already has trust and access.

4. White Label Resellers

I’ve cov­ered app stores, in-app pur­chas­es, and resellers. The fourth option is what I call SaaS “white label resellers.” That’s when you sell your tech­nol­o­gy to a third par­ty that takes your tech­nol­o­gy, puts their brand­ing, brand name, and logo all over that core tech­nol­o­gy, and resells it as their own. The cus­tomer does­n’t real­ly real­ize that you are the under­ly­ing provider of that tech­nol­o­gy. They just real­ize they’re buy­ing from a trust­ed source from which they’ve pur­chased often before.

So, that’s an exam­ple of using a white label reseller. Cer­tain com­pa­nies want to pro­tect their brands. They like your tech­nol­o­gy, but they don’t want to intro­duce oth­er par­ties into their cus­tomer rela­tion­ship. For those kinds of part­ners, a white label rela­tion­ship might make sense.

Among indi­rect chan­nels of dis­tri­b­u­tion, white label­ing gives you vol­ume with­out brand vis­i­bil­i­ty, which can be a strate­gic trade­off depend­ing on your long-term goals.

5. Other Technology Providers

Our fifth option is to incor­po­rate and sell with oth­er tech­nol­o­gy providers. In those sit­u­a­tions, it’s very sim­i­lar to a white label reseller rela­tion­ship, where it is the part­ners’ iden­ti­ty and brand iden­ti­ty that’s dri­ving the sale. But in an “oth­er tech­nol­o­gy providers” type of dis­tri­b­u­tion mod­el, there’s usu­al­ly inte­gra­tion rather than a straight-up resell.

They’re actu­al­ly tak­ing your tech­nol­o­gy, real­ly tight­ly inte­grat­ing it with their own, cre­at­ing, essen­tial­ly, a third offer­ing that nei­ther you nor they have inde­pen­dent­ly, and then sell­ing that to their cus­tomers under their logo. So, more tech­nol­o­gy inte­gra­tion and devel­op­ment efforts are required for this par­tic­u­lar option.

This is a more sophis­ti­cat­ed form of an indi­rect dis­tri­b­u­tion chan­nel that requires engi­neer­ing align­ment but can lead to deeply embed­ded use cas­es and stick­i­er rev­enue.

6. Professional Services Firms

The sixth and final indi­rect dis­tri­b­u­tion chan­nel is using pro­fes­sion­al ser­vices firms. Pro­fes­sion­al ser­vices firms can facil­i­tate or ini­ti­ate a sale in a cou­ple of dif­fer­ent ways. This is typ­i­cal­ly more com­mon in more expen­sive offer­ings start­ing in the tens of thou­sands or high tens of thou­sands of dol­lars — but more com­mon­ly hun­dreds of thou­sands, if not mil­lions of dol­lars — in terms of the annu­al con­tract val­ue. That’s where pro­fes­sion­al ser­vices firms tend to get more involved.

This can be done in a cou­ple of dif­fer­ent ways. You can sell along­side a pro­fes­sion­al ser­vices firm. Maybe a cus­tomer wants to buy your soft­ware, but the inte­gra­tion is way too much work for them to do in-house, and just buy­ing the soft­ware is a very incom­plete solu­tion. A pro­fes­sion­al ser­vices firm will sell along­side you, and it’s a part­ner-assist­ed sale, for lack of a bet­ter term.

There­fore, the cus­tomer says, “Oh, you have a tech­nol­o­gy offer­ing from your com­pa­ny and a ser­vices offer­ing from some­body else. That com­bined solu­tion looks real­ly good. It’s very com­plete. I don’t have any open issues. I’m going to make that pur­chase.” That’s a part­ner-assist­ed sale.

Oth­er times, part­ners will just buy your licens­es and a num­ber of seats from you whole­sale. They’re going to buy 100 seats, 1,000 seats, or 5,000 seats, and then they’re going to wrap their ser­vices around your tech­nol­o­gy offer­ing and sell what’s called “a man­aged ser­vice” to end cus­tomers.

You see the slide in Tel­co ser­vices. You see it a lot in account­ing-based ser­vices, where there’s an account­ing tech­nol­o­gy plus accoun­tants who oper­ate that tech­nol­o­gy to achieve a par­tic­u­lar out­come for a cus­tomer.

Gen­er­al­ly, the more com­pli­cat­ed a par­tic­u­lar prob­lem is to solve, the larg­er the com­pa­ny that’s buy­ing the soft­ware, the high­er the price point, then the more often you have part­ners involved in the sale either to assist the sale or real­ly to be a whole­saler in the mid­dle, wrap­ping their ser­vices around your par­tic­u­lar offer­ing.

This mod­el is often the most com­plex of all indi­rect chan­nels of dis­tri­b­u­tion, but also the one that deliv­ers the high­est deal sizes and longest con­tract terms.

Which Indirect Distribution and Marketing Channel Is Best for Your Business?

I cov­ered six dif­fer­ent indi­rect sales chan­nels, or indi­rect dis­tri­b­u­tion chan­nels.

The right choice depends an awful lot on your strat­e­gy. What are you try­ing to accom­plish? Who are you try­ing to reach? What are your price points?

Every indi­rect chan­nel has trade­offs. They have dif­fer­ent eco­nom­ics. They have dif­fer­ent strengths. The key is to be super thought­ful about what you are try­ing to accom­plish and be accept­ing of the trade­offs involved in each par­tic­u­lar choice.

By strate­gi­cal­ly align­ing your go-to-mar­ket plan with the most suit­able indi­rect dis­tri­b­u­tion chan­nel, you can increase your lever­age, short­en sales cycles, and reach cus­tomers you wouldn’t oth­er­wise be able to access.

I hope this guide helps. If you’d like to be noti­fied about sim­i­lar resources, fill out the form below. If you have any ques­tions on indi­rect sales chan­nels, please feel free to add a com­ment below and I’ll be hap­py to answer your ques­tions.

Additional Resources

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Vic­tor Cheng
Author of Extreme Rev­enue Growth, Exec­u­tive coach, inde­pen­dent board mem­ber, and investor in SaaS com­pa­nies.
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1 thought on “6 Indirect Distribution Channels (for SaaS)”

  1. Youtube Apk

    Great insights on indi­rect dis­tri­b­u­tion chan­nels! I nev­er real­ized how much they could enhance a SaaS com­pa­ny’s reach. The exam­ples you pro­vid­ed were very help­ful in illus­trat­ing the dif­fer­ent approach­es. Look­ing for­ward to imple­ment­ing some of these strate­gies!

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