9 SaaS Distribution Channels (with Examples)

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What Are SaaS Distribution Channels?

In SaaS, dis­tri­b­u­tion chan­nels refer to who sells the prod­uct to the cus­tomer and what method they use. There are a few com­mon­ly used SaaS dis­tri­b­u­tion chan­nels, includ­ing inbound and out­bound sales forces, eCom­merce self-ser­vice, and third-par­ty app stores.

Choos­ing the right dis­tri­b­u­tion chan­nel to use in a par­tic­u­lar stage of a company’s lifes­pan is a major strate­gic deci­sion for a CEO. Specif­i­cal­ly, it has numer­ous impli­ca­tions for the company’s eco­nom­ic mod­el, the com­po­si­tion of its new hires, and the pric­ing nec­es­sary to be com­pat­i­ble with a par­tic­u­lar chan­nel. Typ­i­cal­ly, new star­tups begin with a sin­gle sales chan­nel and will, over time, adopt more.

How Is SaaS Software Distributed?

SaaS Distribution Channels

There are mul­ti­ple dis­tri­b­u­tion chan­nels for soft­ware prod­ucts, includ­ing SaaS offer­ings. They can be bro­ken down into two cat­e­gories:

        A. Direct Dis­tri­b­u­tion Chan­nels
        B. Indi­rect Dis­tri­b­u­tion Chan­nels

First, let’s look at the def­i­n­i­tion of each cat­e­go­ry. Then, we’ll get into the spe­cif­ic options with­in each.

Direct dis­tri­b­u­tion chan­nels involve a SaaS company’s own employ­ees, staff, and tech­ni­cal assets. They con­tact and sell to the cus­tomer. For exam­ple, let’s say you run XYZ SaaS Com­pa­ny and you sell to cus­tomers via a direct sales chan­nel. Your cus­tomers’ invoic­es, con­tracts, or cred­it card state­ments will show “XYZ SaaS Com­pa­ny” as the mer­chant of record.

Alter­na­tive­ly, indi­rect dis­tri­b­u­tion chan­nels refer to SaaS com­pa­nies sell­ing through a third par­ty. These can include resellers, app stores, and oth­er part­ners. For a true indi­rect chan­nel (as opposed to a hybrid or par­tial­ly indi­rect chan­nel), the mer­chant of record is not your com­pa­ny. Instead, it is a third party’s name that appears on the customer’s cred­it card state­ment, con­tract, or invoice.

It is not unusu­al for a SaaS com­pa­ny to rely on more than one sales chan­nel. This is espe­cial­ly true when a com­pa­ny ser­vices a wide range of cus­tomers, from indi­vid­ual con­sumers to For­tune 500 com­pa­nies. Also, it tends to occur as a com­pa­ny gets big­ger and runs into points of dimin­ish­ing returns in a sin­gle chan­nel.

A. Direct Distribution Channels for SaaS Companies

Saas Direct Distribution Channels

The price point or annu­al con­tract val­ue (ACV) of a SaaS offer­ing will often dic­tate which chan­nels are eco­nom­i­cal­ly viable. For instance, tech­nol­o­gy-auto­mat­ed dis­tri­b­u­tion chan­nels typ­i­cal­ly have a low­er oper­at­ing cost per sale than those chan­nels that involve high­ly paid sales­peo­ple who vis­it prospects in per­son. These direct dis­tri­b­u­tion chan­nels list­ed in order of least to most expen­sive to oper­ate include:

  1. eCom­merce Self-Ser­vice (on a Com­pa­ny-Owned Web­site) (suit­able for SaaS prod­ucts gen­er­at­ing <$1,000 per cus­tomer per year)
  2. Phone-Based Sales Force (suit­able for SaaS prod­ucts gen­er­at­ing $1,000 to $99,999 per cus­tomer per year, with $1,000 to $25,000 per year being the sweet spot)
  3. Field-Based Sales Force (suit­able for SaaS prod­ucts gen­er­at­ing $100,000 to $10 mil­lion+ per cus­tomer per year)

Because the oper­at­ing costs of these chan­nels will vary con­sid­er­ably, dif­fer­ent direct dis­tri­b­u­tion chan­nels are bet­ter suit­ed for cer­tain types of cus­tomers and price points over oth­ers.

1. eCommerce Self-Service (on a Company-Owned Website)

One com­mon­ly used direct sales chan­nel for SaaS com­pa­nies is a com­pa­ny-owned eCom­merce web­site. This approach relies on online mar­ket­ing and an eCom­merce web­site to source, sell, and ful­fill pur­chas­es. Usu­al­ly, this chan­nel is more com­mon amongst SaaS offer­ings with low­er pric­ing.

This is a com­mon chan­nel for con­sumer SaaS appli­ca­tions and for SaaS offer­ings geared toward small and mid­size busi­ness­es (SMBs). A com­pa­ny that relies on eCom­merce as a chan­nel requires ample online mar­ket­ing skills. Mar­keters in this kind of com­pa­ny need to gen­er­ate leads online. Addi­tion­al­ly, they must man­age the con­ver­sion process from prospect to sold cus­tomer entire­ly online. Typ­i­cal­ly, they do this with­out ever talk­ing to a cus­tomer direct­ly (oth­er than a lim­it­ed sam­ple for research pur­pos­es).

Here are sev­er­al com­pa­nies that sell SaaS offer­ings via online self-ser­vice/eCom­merce:

While eCom­merce focus­es on the com­pa­ny-owned web­site, the com­pa­ny can extend beyond its web­site to attract poten­tial cus­tomers to its web­site. There are a few ways a com­pa­ny can accom­plish this:

  1. Paid Social Ads
  2. Paid Search Ads

i. Paid Social Ads

With the rise of social media, eCom­merce can effec­tive­ly use var­i­ous plat­forms such as Face­book, Insta­gram, and Twit­ter to pro­mote the ser­vice. This can be accom­plished through paid ads that tar­get a spe­cif­ic audi­ence who would be inter­est­ed in the prod­uct. Paid ads can reach an exten­sive num­ber of peo­ple and gen­er­ate aware­ness, which can lead to addi­tion­al rev­enue for the com­pa­ny.

ii. Paid Search Ads

SEO (search engine opti­miza­tion) has changed how com­pa­nies can adver­tise their ser­vice. A com­pa­ny can either research or work with a mar­ket­ing agency to find pop­u­lar search terms, then cre­ate ads that will attract peo­ple to its web­site based on pop­u­lar key­words. Once the cus­tomer nav­i­gates to the web­site, the com­pa­ny then can rely on eCom­merce to car­ry out the sale.

On aver­age, the sales cycle for eCom­merce-based sales can run any­where from a few days to a few weeks.

2. Phone-Based Sales Force

Anoth­er very com­mon sales chan­nel in SaaS busi­ness­es is the tele­phone-based (or video­con­fer­enc­ing) sales force. A phone-based sales force doesn’t meet with cus­tomers face-to-face. They do not trav­el. Instead, the sales­per­son works either in the office or from home. They com­mu­ni­cate with cus­tomers via var­i­ous dig­i­tal tech­nolo­gies — phone, video­con­fer­ence, email, etc.

There are two sub-cat­e­gories of phone-based sales forces. They are:

         i. Inbound Phone Sales
        ii. Out­bound Phone Sales

i. Inbound Phone Sales

Inbound phone sales refer to cus­tomers who call in for more infor­ma­tion regard­ing a company’s offer­ings. The prin­ci­pal role of the sales­per­son is to call cus­tomers back after the cus­tomer ini­ti­ates con­tact in some way. For exam­ple, they may have request­ed a phone call, down­loaded a white paper, attend­ed a webi­nar, or request­ed a fol­low-up.

Typ­i­cal­ly, a mar­ket­ing depart­ment with a “lead gen­er­a­tion” or “demand gen­er­a­tion” role gen­er­ates these prospects. Then, the role of phone sales is to respond to the inbound inquiries gen­er­at­ed by the mar­ket­ing team. Pri­mar­i­ly, inbound phone sales teams work with “warm” prospects. These are poten­tial cus­tomers who already have some degree of aware­ness of the com­pa­ny, its offer­ings, or its exper­tise. The phone team’s role is to close the leads that mar­ket­ing gen­er­ates.

Tradeoffs of Inbound Phone Sales

Often, com­pa­nies that rely on inbound phone sales have high mar­ket­ing labor costs and adver­tis­ing costs. The down­side of rely­ing on lead gen­er­a­tion mar­ket­ing and an inbound sales team is that cost-effec­tive adver­tis­ing options are lim­it­ed. For instance, there are only so many peo­ple on Google search­ing for a spe­cif­ic key­word phrase. Sim­i­lar­ly, there are only so many peo­ple on SaaS prod­uct review web­sites like Capterra.com and G2.com.

Many of these paid adver­tis­ing sites work on bid­ding sys­tems. In these cas­es, your ads can appear ahead of your com­peti­tors’ ads if you’re will­ing to pay more. How­ev­er, as an adver­tis­ing medi­um matures and becomes more crowd­ed, the cost to get a click from a paid ad increas­es as a result. At some point, it’s no longer eco­nom­i­cal­ly worth it. This leads us to our next type of phone-based sales force.

Lead gen­er­a­tion mar­ket­ing and inbound sales work well for prospects who are aware they have a prob­lem, are gath­er­ing infor­ma­tion to bet­ter under­stand the prob­lem they have, and often are active­ly look­ing for a solu­tion. I refer to this kind of prospect as “active demand” as they are “active­ly” look­ing for infor­ma­tion or to buy a solu­tion. Typ­i­cal­ly, less than 5% of the indi­vid­u­als or busi­ness­es in a mar­ket are active­ly look­ing for a solu­tion.

For exam­ple, there are approx­i­mate­ly 275 mil­lion reg­is­tered vehi­cles in the Unit­ed States. By law, all of them must be insured to legal­ly dri­ve on the road. In any giv­en year, only a small per­cent­age of car own­ers are active­ly look­ing for insur­ance. Those who are look­ing are con­sid­ered active demand. The rule of thumb is that, in any giv­en mar­ket, only 5% of the mar­ket is active­ly look­ing for a solu­tion at any giv­en time.

ii. Outbound Phone Sales

An out­bound phone sales dis­tri­b­u­tion chan­nel is one where the sales team reach­es out to ini­ti­ate first con­tact with a prospect. In short, out­bound phone sales teams per­form “cold calls” and oth­er out­reach meth­ods (such as emails or LinkedIn direct mes­sages) to make first con­tact with a prospect. Since the sales­per­son is the one to reach out, the func­tion is apt­ly named “out­bound” sales.

With this dis­tri­b­u­tion chan­nel, the out­bound sales team is respon­si­ble for: 1) Gen­er­at­ing the lead; and 2) Clos­ing the sale (as opposed to the inbound sales mod­el where the mar­ket­ing team gen­er­ates the lead, and the inbound team is only respon­si­ble for clos­ing the sale).

Typ­i­cal­ly, the out­bound sales team is bro­ken up into two roles. First, there’s the sales devel­op­ment rep­re­sen­ta­tive (SDR) or busi­ness devel­op­ment rep­re­sen­ta­tive (BDR). They are respon­si­ble for mak­ing cold calls, gen­er­at­ing leads in the form of sched­uled sales appoint­ments. Then, the SDR/BDR typ­i­cal­ly pass­es that lead off to an account exec­u­tive (AE) who is respon­si­ble for clos­ing the sale.

In this way, the SDR/BDR per­forms an anal­o­gous func­tion as the lead gen­er­a­tion or the demand gen­er­a­tion team with­in the mar­ket­ing depart­ment that is paired with an inbound sales team.

Pri­mar­i­ly, the ben­e­fit of an out­bound sales team is greater mar­ket reach. With inbound sales, you’re large­ly lim­it­ed to only the active buy­ers in a mar­ket. With out­bound, you can reach peo­ple who have the under­ly­ing need for your prod­ucts but are not active­ly search­ing for a solu­tion at the moment. This is known as “latent demand,” and 95% of the mar­ket falls in this cat­e­go­ry.

Usu­al­ly, the sales cycle for phone sales can run any­where from a few weeks to a few months.

3. Field-Based Sales Force

The final SaaS direct dis­tri­b­u­tion chan­nel is a field-based sales force. Typ­i­cal­ly, these are very high­ly paid sales pro­fes­sion­als accus­tomed to sell­ing six‑, seven‑, or eight-fig­ure deals with senior exec­u­tives in For­tune 500 com­pa­nies. As con­tract val­ues get into the six and sev­en+ fig­ures, sales­peo­ple often make those sales face-to-face. Ulti­mate­ly, deals of those sizes are as much about the rela­tion­ship between the buy­er and the sales­per­son as they are about the prod­uct. It’s eas­i­er to estab­lish and build rela­tion­ships face-to-face.

Because of the com­pen­sa­tion costs of a field-based sales force, you need your price point or annu­al con­tract val­ue (ACV) to be over $100,000 — prefer­ably sig­nif­i­cant­ly so.

Usu­al­ly, sales cycles for deals of this size run any­where from a month up to a few quar­ters.

B. Indirect Distribution Channels for SaaS Companies

Saas Indirect Distribution Channels

Indi­rect SaaS dis­tri­b­u­tion chan­nels involve third par­ties in the sales and trans­ac­tion process. In a pure indi­rect chan­nel sit­u­a­tion, the rela­tion­ship is between the cus­tomer and the inter­me­di­ary. Here are sev­er­al indi­rect dis­tri­b­u­tion chan­nel options:

  1. App Store Mar­ket­places
  2. In-App Pur­chas­es
  3. Resellers
  4. White Label Resellers
  5. Oth­er Tech­nol­o­gy Providers
  6. Pro­fes­sion­al Ser­vices Firms

1. App Store Marketplaces

App stores from Apple, Google, Microsoft, and oth­ers allow SaaS and one-time sale app mak­ers to sell their offer­ings through the mar­ket­place of a much larg­er com­pa­ny. In this case, the advan­tage is that there’s enor­mous traf­fic in the mar­ket­place from peo­ple who want to buy apps. These mar­ket­places offer both one-time sales and recur­ring sub­scrip­tion mod­els. Thus, it’s easy to reach a larg­er glob­al audi­ence with no sig­nif­i­cant invest­ment to get start­ed.

At the same time, there are down­sides to app store pur­chas­es. For one, there is a loss of strate­gic con­trol. Addi­tion­al­ly, there’s a sig­nif­i­cant rev­enue-shar­ing com­mit­ment to the app store mar­ket mak­er.

2. In-App Purchases

Relat­ed to the App Store indi­rect sales chan­nel is the use of the app itself as the sales chan­nel. While using the app, one may encounter advanced func­tion­al­i­ty that one can’t access with­out an upgrad­ed sub­scrip­tion fee. In this case, the app itself becomes the sales­per­son.

When this takes place, the inter­me­di­ary han­dles the billing. This would be con­sid­ered a sub­set of the rev­enue stream from the app store chan­nel. How­ev­er, I list it here sep­a­rate­ly to draw greater atten­tion to it.

3. Resellers

The old­est and best-estab­lished indi­rect sales chan­nel is the reseller. Pre­vi­ous­ly, when soft­ware was sold pri­mar­i­ly on phys­i­cal media, com­pa­nies like Sta­ples, Office Depot, and Com­pUSA bought soft­ware at whole­sale prices and sold it to con­sumers and small busi­ness own­ers. The key traits of a reseller are that the inter­me­di­ary buys at a dis­count­ed price and sells at a markup. Mean­while, soft­ware com­pa­nies tra­di­tion­al­ly don’t have any of the con­tact infor­ma­tion of the end-user.

Addi­tion­al­ly, an impor­tant dis­tinc­tion of the tra­di­tion­al reseller is that the cus­tomer is aware of the SaaS company’s brand name.

With soft­ware mov­ing to the cloud, the reseller chan­nel still exists. The best exam­ple is going to Amazon.com and buy­ing Microsoft Office from Ama­zon. In this case, your cred­it card receipt lists Ama­zon as the mer­chant of record. When you down­load Microsoft Office, you do so while logged into your Ama­zon account. As such, the pur­chase is an annu­al recur­ring sub­scrip­tion between you (the user) and Ama­zon.

When you down­load Microsoft Office, as of this writ­ing, you’re actu­al­ly down­load­ing an installer for the desk­top ver­sion. You also get online access to Microsoft Office in the cloud.

Essen­tial­ly, when you buy Microsoft Office through Ama­zon act­ing as a reseller, you’re still aware of the Microsoft brand name. You’re aware you’re using Microsoft Office.

4. White Label Resellers

A white label reseller is an inter­me­di­ary that also resells your offer­ing. How­ev­er, as a con­di­tion of the part­ner­ship agree­ment, the iden­ti­ty of the SaaS com­pa­ny is hid­den or obscured. Orig­i­nal­ly, the term white label came from the gro­cery indus­try and canned goods. You can buy name-brand canned beans from Del Monte, or you can buy the store brand. In some cas­es, the actu­al food may come from the same orig­i­nat­ing farms… with a store-brand­ed “white label” placed on the unla­beled can.

This idea has also car­ried over into soft­ware. In a pure white label rela­tion­ship, the tech­nol­o­gy is resold, unmod­i­fied, with­out your SaaS company’s brand­ing. Instead, the reseller uses its brand­ing.

Pure white label reselling is less com­mon these days in SaaS (though very com­mon in phys­i­cal goods). In the past, it made sense when the reseller had a very strong brand name and cus­tomer rela­tion­ship, while the “man­u­fac­tur­er” was unknown. The rea­son­ing was that the cus­tomers trust­ed the reseller’s name a lot more than some no-name man­u­fac­tur­er.

For exam­ple, let’s say a U.S.-based SaaS com­pa­ny has opt­ed to expand inter­na­tion­al­ly through a white label reseller part­ner­ship. The SaaS com­pa­ny has no brand recog­ni­tion in the inter­na­tion­al coun­try and no desire to add employ­ees in that mar­ket. How­ev­er, it has found a well-estab­lished, well-known play­er in that mar­ket to part­ner with. Now, the part­ner may resell the prod­uct in their coun­try and pro­vide sales and sup­port in the local lan­guage.

5. Other Technology Providers (That Embed Your Offering Within Their Technology Offering)/Original Equipment Manufacturer (OEM) Type of Partner

Anoth­er indi­rect sales chan­nel involves part­ner­ing with oth­er tech­nol­o­gy providers. These tech­nol­o­gy providers embed your SaaS tech­nol­o­gy with­in theirs, behind the scenes. Then, they sell the com­bined bun­dle to cus­tomers under their own brand name. SaaS com­pa­nies who chose this route are often referred to as orig­i­nal equip­ment man­u­fac­tur­ers (OEMs). In these cas­es, the cus­tomer and end-user only per­ceive a rela­tion­ship with the oth­er tech­nol­o­gy provider. Typ­i­cal­ly, the user has no idea your SaaS com­pa­ny is involved.

This rela­tion­ship is slight­ly dif­fer­ent from a white label reseller rela­tion­ship. Essen­tial­ly, the key dif­fer­ence is that your SaaS tech­nol­o­gy is resold with mod­i­fi­ca­tions. Usu­al­ly, these mod­i­fi­ca­tions involve inte­gra­tions between the oth­er provider’s tech­nol­o­gy and yours.

For exam­ple, there may be a SaaS offer­ing that gives small busi­ness­es the abil­i­ty to send emails or SMS mes­sages to cus­tomers. In this case, the end-user may not be aware that, behind the scenes, there’s anoth­er SaaS com­pa­ny involved, pro­vid­ing email deliv­ery and SMS mes­sage deliv­ery ser­vices (that some would char­ac­ter­ize as an “infra­struc­ture as a ser­vice,” or IaaS).

6. Professional Services Firms (That Embed Your Offering Within Their People-Delivered Services)

The final type of indi­rect chan­nel would be part­ner­ing with a pro­fes­sion­al ser­vices firm. In this sce­nario, the cus­tomer pays for a pro­fes­sion­al ser­vices con­tract with the ser­vices firm. In turn, the peo­ple-ori­ent­ed ser­vices firm buys SaaS licens­es from your com­pa­ny in order to use your tech­nol­o­gy to serve their client. For exam­ple, let’s say you pro­vide a human resources man­age­ment SaaS prod­uct. You might part­ner with a human resources con­sult­ing firm. The con­sult­ing firm buys your tech­nol­o­gy in bulk to wrap into their pro­fes­sion­al ser­vices with clients.

In this case, the offer­ing the cus­tomer buys is a “man­aged ser­vices” offer­ing. They pay for peo­ple (from the ser­vices firm) and tech­nol­o­gy (from your SaaS com­pa­ny). In this exam­ple, the ser­vices firm is some­times also called a “tech­nol­o­gy-enabled ser­vice provider.”

There’s an old adage that in order for a tech­nol­o­gy project to suc­ceed, you need three things: 1) Peo­ple; 2) Process; and 3) Tech­nol­o­gy. When you’re adopt­ing an indi­rect SaaS dis­tri­b­u­tion chan­nel, you’re part­ner­ing with some­one else who pro­vides the peo­ple and process while you pro­vide the tech­nol­o­gy.

Which Distribution Channel Is Best for a SaaS Company?

There is no dis­tri­b­u­tion chan­nel that’s ide­al for all SaaS com­pa­nies under all con­di­tions. Rather than think­ing about the best dis­tri­b­u­tion chan­nel, it’s more use­ful to think of dis­tri­b­u­tion chan­nel selec­tion as a “best fit” deci­sion. Which dis­tri­b­u­tion chan­nel best fits our sit­u­a­tion?

Two things dri­ve this deci­sion:

  1. Eco­nom­ics
  2. Strat­e­gy

Economics

The price and the pric­ing mod­el of your prod­uct will dri­ve how you pro­mote it. It’s not a “one size fits all” approach to sell­ing every prod­uct. Think about how you are plan­ning on sell­ing your prod­uct – whether that’s through a sub­scrip­tion mod­el or a one-time pur­chase mod­el.

If you sell a mobile app on a $10 per year sub­scrip­tion fee, you sim­ply can­not afford quo­ta-car­ry­ing sales reps trav­el­ing in the field and meet­ing with prospects.

Sim­i­lar­ly, if your SaaS offer­ing requires a lot of tech­ni­cal inte­gra­tions before a For­tune 500 cus­tomer can use it, and your min­i­mum annu­al con­tract val­ue is $1 mil­lion a year, there’s no way you’re sell­ing that via eCom­merce and ask­ing cus­tomers to click their shop­ping cart and check out.

Strategy

Do you want to use the dis­tri­b­u­tion chan­nel every­one else is using because you know it works? If so, that’s cer­tain­ly one valid line of rea­son­ing, and it’s often use­ful.

Alter­na­tive­ly, do you want to zig when every­one else zags and use a dis­tri­b­u­tion chan­nel that oth­ers do not?

For exam­ple, a clas­sic trade­off with dis­tri­b­u­tion chan­nels is when a com­pa­ny has both direct and indi­rect chan­nels. Your part­ners don’t always like com­pet­ing with your sales­peo­ple. This is known as chan­nel con­flict. It’s an issue.

In some busi­ness­es, one valid dis­tri­b­u­tion strat­e­gy is to only focus on indi­rect sales chan­nels and work­ing with part­ners. The part­ner­ship pre­sen­ta­tion goes some­thing like this: “We are the only part­ner-friend­ly com­pa­ny in the space. We have no direct sales force. We only pros­per by help­ing you pros­per. Why would you want to give mon­ey to a com­pa­ny that’s try­ing to com­pete with you via their direct sales force?” That’s a valid option.

Anoth­er option would be to tar­get the low end of the mar­ket. Go with a low-price, high­ly auto­mat­ed, self-ser­vice, eCom­merce-based approach to dis­tri­b­u­tion. Con­verse­ly, you could go the oppo­site route. You focus on the high­er end of the mar­ket, pro­vide a fea­ture-rich offer­ing, and price it two to three times the price of the com­peti­tor. You also assign a sales­per­son, an account man­ag­er, and a cus­tomer suc­cess rep­re­sen­ta­tive to new accounts. In this case, your offered solu­tion is reas­sur­ing­ly more expen­sive and wor­thy of some­one bet­ting their career on you.

Additional Resources

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author avatar
Vic­tor Cheng
Author of Extreme Rev­enue Growth, Exec­u­tive coach, inde­pen­dent board mem­ber, and investor in SaaS com­pa­nies.
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2 thoughts on “9 SaaS Distribution Channels (with Examples)”

  1. Pingback: How Is SaaS Software Distributed?

  2. Melissa

    Won­der­ful arti­cle! Came across this page while search­ing for dis­tri­b­u­tion chan­nels for soft­ware. Our SaaS prod­uct is called Cart2Order and we are def­i­nite­ly going to use some of the tips pro­vid­ed in this arti­cle. Thanks!

    Reply

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