7 SaaS Sales Models to Elevate Your Business

The fol­low­ing guide defines and explains the var­i­ous SaaS sales mod­els, how to choose the right dis­tri­b­u­tion chan­nel for your SaaS com­pa­ny, and a frame­work to help think about which sales chan­nels make sense under which sit­u­a­tion.

Every SaaS com­pa­ny needs sales. This is not sub­ject to debate. What is sub­ject to much debate is which mod­el to use to best gen­er­ate sales. Rather than think­ing of the out­come of gen­er­at­ing sales, it’s more use­ful to think of gen­er­at­ing SaaS sales in terms of dis­tri­b­u­tion chan­nels and sales mod­els.

A dis­tri­b­u­tion chan­nel is a means by which to reach a cus­tomer in the mar­ket­place, engage in a sales process, and ulti­mate­ly close a deal. As I empha­size in my book Extreme Rev­enue Growth, it’s strate­gi­cal­ly vital to choose your dis­tri­b­u­tion chan­nel wise­ly. Many founders think about “the prod­uct.” When some­one says, “I have a great idea for a start­up,” they’re invari­ably talk­ing about the prod­uct. The bet­ter founders think about the prob­lem the cus­tomer pos­sess­es but can’t solve. The pro­fes­sion­al CEO thinks about dis­tri­b­u­tion chan­nels and sales mod­els.

Here’s why.

There must be strate­gic align­ment between the cus­tomer, the sales mod­el, and the prod­uct design. Depend­ing on which cus­tomer seg­ment you tar­get and which sales mod­el you choose, you build the prod­uct dif­fer­ent­ly. This is a vital con­sid­er­a­tion that’s often over­looked by founders who fail to cross the chasm to become a pro­fes­sion­al CEO.

With this in mind, let’s look at the dis­tri­b­u­tion chan­nel options to gen­er­ate SaaS sales.

Con­tents of this Guide

Direct SaaS Sales Chan­nels

• eCom­merce-Based Sales Chan­nel
• Tele­phone-Based Sales Force
• Field-Based Sales Force

Indi­rect SaaS Sales Chan­nels

• Reseller Chan­nel
• OEM Chan­nel
• Sell with Ser­vices Part­ners
• Sell through Ser­vices Part­ners

How to Choose Your SaaS Sales Chan­nel

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Direct SaaS Sales Chan­nels

With direct sales chan­nels, the SaaS com­pa­ny has direct con­tact with the buy­er and user of the prod­uct. They know the name, address, and billing infor­ma­tion of the cus­tomer. The cus­tomer per­ceives a direct rela­tion­ship with the SaaS com­pa­ny. The agree­ment is between the SaaS com­pa­ny and the cus­tomer. The SaaS com­pa­ny bills the cus­tomer direct­ly. When the aver­age per­son thinks about a sales force, they think about a direct sales chan­nel.

eCom­merce-Based Sales Chan­nel (Self-Ser­vice)

An eCom­merce-based sales chan­nel con­tacts the cus­tomer, deliv­ers the sales mes­sage, and clos­es the finan­cial trans­ac­tion entire­ly online. This is the most com­mon­ly used chan­nel for con­sumer and small busi­ness cus­tomer seg­ments. Exam­ples of com­pa­nies using this mod­el for con­sumer and SMB (small- and medi­um-sized busi­ness) cus­tomer seg­ments are Apple iCloud, Drop­box, Ever­note, Zoom, Shopi­fy, and Sales­force.

For all of these SaaS prod­ucts, you or I can vis­it their web­sites, learn about their prod­ucts, and sub­scribe, all in a mat­ter of min­utes. The entire sales process is dig­i­tal.

The selec­tion of this kind of chan­nel is typ­i­cal­ly dri­ven by the annu­al con­tract val­ue (ACV). If a cus­tomer is only worth $100 in con­tract val­ue per year for a con­sumer busi­ness, the eco­nom­ics of oth­er dis­tri­b­u­tion chan­nels sim­ply aren’t fea­si­ble.

Tele­phone-Based Sales Force (Inbound & Out­bound)

The next step up from an eCom­merce sales chan­nel is a tele­phone-based sales force. This involves teams of sales pro­fes­sion­als on the phones, clos­ing deals. The tele­phone sales force can be used in two capac­i­ties. It can be used to field inbound inquiries from prospects. This involves a prospect call­ing the com­pa­ny to learn more about its prod­ucts. This is often referred to as “inbound sales” because the prospect is ini­ti­at­ing the call (or some­times fill­ing out a form request­ing a phone call) and is call­ing “in” to the com­pa­ny. Inbound sales typ­i­cal­ly involve effec­tive lead gen­er­a­tion mar­ket­ing that starts the sales edu­ca­tion process dig­i­tal­ly and then directs the prospect to a tele­phone-based sales rep to close the sale. This is an offline-to-online sales process.

The oth­er com­mon mod­el for a tele­phone-based sales force is to do “out­bound” sales. In this approach, the sales force makes out­bound phone calls to con­tact, qual­i­fy, and begin the sales process entire­ly by phone. This is referred to as “out­bound” sales because an employ­ee of the SaaS com­pa­ny is call­ing “out” to the mar­ket­place to reach a prospect.

In some SaaS com­pa­nies, the call cen­ter sales force is entire­ly inbound-focused. In oth­ers, it is entire­ly out­bound. In some com­pa­nies, a sin­gle sales force han­dles both inbound and out­bound sales calls. In oth­ers, there are two sep­a­rate sub-teams — one focused on inbound and the oth­er on out­bound.

The right con­fig­u­ra­tion depends a lot on the effec­tive­ness of mar­ket­ing efforts and the cost of those efforts. In my expe­ri­ence, it makes sense to start with a mar­ket­ing-enabled sales effort where leads are hand­ed off to the sales team as inbound leads. How­ev­er, lead gen­er­a­tion chan­nels tend to get more expen­sive on a cost-per-lead basis as the vol­ume of leads increas­es. You even­tu­al­ly hit a dimin­ish­ing returns curve.

In these sit­u­a­tions, you can make one of three choic­es: 1) you main­tain the exist­ing pace of new cus­tomer acqui­si­tion at a steady rate – one where you’re com­fort­able with the ratio of life-time val­ue of the cus­tomer (LTV) ver­sus cus­tomer acqui­si­tion cost (CAC) (the LTV/CAC ratio); 2) you improve the LTV of the cus­tomer via upsells, cross-sells, and reduced churn (which cre­ates more room to increase spend­ing on cus­tomer acqui­si­tion, thus mov­ing fur­ther out on the dimin­ish­ing returns curve); or 3) you switch to out­bound lead gen­er­a­tion.

Usu­al­ly, out­bound sales calls are more expen­sive (a.k.a. less effec­tive on a per-call basis) because the prospects may have very lit­tle aware­ness of your com­pa­ny and prod­ucts. The con­ver­sa­tion starts from a point of much low­er aware­ness com­pared to a lead that has been cul­ti­vat­ed for many weeks or months. It is the dif­fer­ence between “cold” calls ver­sus “warm” calls.

How­ev­er, as you run out of vol­ume for warm calls and incre­men­tal inbound calls get more expen­sive to gen­er­ate, there comes a tran­si­tion point where, sud­den­ly, the eco­nom­ics of out­bound calls are com­pa­ra­ble to and maybe even less expen­sive than the cost of the incre­men­tal inbound lead. It’s at this point that the SaaS sales orga­ni­za­tions will start incor­po­rat­ing out­bound calls.

Amongst the com­pa­nies I work with, this has hap­pened in the $15-mil­lion to $25-mil­lion annu­al recur­ring rev­enue (ARR) range. This is not a hard and fast rule. The ARR lev­el doesn’t cause the switch to out­bound calls. It’s the key per­for­mance met­rics of the CAC rel­a­tive to the LTV that dri­ve the deci­sion-mak­ing. The fact that this seems to hap­pen around $15 mil­lion in ARR is a cor­re­la­tion, not cau­sa­tion.

In the pre-SaaS days, the rule of thumb was that a tele­phone sales force was eco­nom­i­cal­ly fea­si­ble for a one-time license sale of $1,000-$10,000. These days, I’ve seen phone sales work for an AVC range of $1,000-$100,000. How­ev­er, the cal­iber of the indi­vid­ual sales reps and sup­port­ing resources (such as sales engi­neers) needs to be very high as one approach­es the $100,000 AVC range.

Field-Based Sales Force

A field-based sales force has been the clas­sic, “go-to” dis­tri­b­u­tion mod­el for enter­prise soft­ware sales and now enter­prise SaaS sales. In the pre-SaaS days, this is what it took to sell the $1 million-$20 mil­lion deals. In today’s world, this very loose­ly trans­lates into $100,000-$1 mil­lion+ ACV. From a customer’s point of view, when you buy a prod­uct that’s in the ACV range to be sold by a tele­phone sales force, you’re buy­ing “the prod­uct.” For deals in the $100,000-$1 mil­lion+ ACV range, you aren’t just buy­ing the prod­uct, you’re buy­ing “the com­pa­ny.” When the sales­per­son sells to an enter­prise buy­er, she isn’t just sell­ing the prod­uct, she is also sell­ing her­self and her abil­i­ty to deliv­er.

When an enter­prise buy­er buys some­thing of this deal size, it is quite often a “bet your career” move. Years ago, when chief infor­ma­tion offi­cers and VPs of sales want­ed to switch from clas­sic enter­prise sales force automa­tion (e.g., Siebel Sys­tems) to Sales­force, it was a bet your career move. If you were wrong, if you made the wrong choice, or if you made the right choice but it was exe­cut­ed poor­ly, you were fired and your résumé was ruined.

In addi­tion, enter­prise cus­tomers, and thus enter­prise deals, have more tech­ni­cal com­plex­i­ty. Inte­gra­tion needs are typ­i­cal­ly much more exten­sive for For­tune 500 and Glob­al 2000 cus­tomers than SMB cus­tomers. If you’re sell­ing a SaaS prod­uct to a func­tion­al exec­u­tive, such as a vice pres­i­dent of mar­ket­ing or sales, for a Glob­al 2000 com­pa­ny, and your solu­tion needs to inte­grate with exist­ing sys­tems, the infor­ma­tion tech­nol­o­gy team will need to get involved and approve a deal.

These deals typ­i­cal­ly involve mul­ti­ple deci­sion-mak­ers and deci­sion-influ­encers with var­ied needs. This is a more com­plex sale tech­ni­cal­ly, func­tion­al­ly, and polit­i­cal­ly. It is also a sale that demands a lot of trust and rela­tion­ship-build­ing. It is quite com­mon for SaaS com­pa­ny exec­u­tives to get involved in clos­ing a deal and serve as an exec­u­tive spon­sor for the cus­tomer after the con­tract is signed.

In essence, the cus­tomer wants assur­ance that, if some­thing goes wrong, there will be one or prefer­ably two peo­ple with pow­er whom they can call to expe­dite help.

When I used to run the eCom­merce prod­uct line for Art Tech­nol­o­gy Group (since acquired by Ora­cle and rebrand­ed Ora­cle Com­merce Cloud), one of the first things I did when I took over P&L was fly around the world to my top cus­tomers to say hel­lo, apol­o­gize for past mis­takes we made as a com­pa­ny (dur­ing our hyper-growth phase), and to say, “If there’s any­thing you need that’s not work­ing, call me. I will per­son­al­ly take care of it.” I called this my “World Apol­o­gy Tour.”

In addi­tion, strong enter­prise field sales reps know that sales at this lev­el are very much a “rela­tion­ship-based sale.” They know that the cus­tomer is bet­ting their career on them. Sea­soned reps know that if they screw over a cus­tomer by over-promis­ing and under-deliv­er­ing, that cus­tomer will not be a repeat cus­tomer at their cur­rent and/or future employ­ers. This is one rea­son why sea­soned enter­prise sales reps push real­ly hard on the prod­uct and pro­fes­sion­al ser­vices team to make sure that the promis­es she makes to the cus­tomer will be kept by every oth­er part of the orga­ni­za­tion. You see, the enter­prise sales rep is bet­ting her career on the sale too.

With all this career bet­ting going on, the key is rela­tion­ships… and rela­tion­ships are built more eas­i­ly in per­son.

Indi­rect SaaS Sales Chan­nels

Indi­rect sales chan­nels refer to one’s SaaS offer­ing being sold through or in con­junc­tion with anoth­er orga­ni­za­tion. The clas­sic indi­rect sales chan­nel in the offline world is the “mid­dle­man” or brick-and-mor­tar retail­er. Proc­ter & Gam­ble (P&G) gen­er­ates upwards of $65 bil­lion in sales a year. Yet nei­ther you nor I can buy Tide deter­gent, Gillette razors, or Crest tooth­paste direct­ly from them. When any­one buys those prod­ucts, the receipt always says Wal­mart, Ama­zon, or some oth­er retail­er. This is a clas­sic exam­ple of an indi­rect sales chan­nel.

If you intend to sell through an indi­rect sales chan­nel, it’s impor­tant to rec­og­nize that chan­nel part­ners them­selves are, in some sense, “users” of the prod­uct. Do you know why Boun­ty paper tow­els are pack­aged in bun­dles of 12 or 18? Do you know why the rolls of paper tow­els are lined up with­in the plas­tic wrap in a cer­tain con­fig­u­ra­tion? These deci­sions are not arbi­trary. These deci­sions were inten­tion­al to meet the ware­hous­ing, trans­porta­tion, and shelv­ing require­ments of the retail­er.

Retail store shelves are set at a cer­tain height. If you pack­age a six-pack of paper tow­els in a way that’s too tall, it won’t fit on the shelf and the retail­er won’t agree to sell it. If a man­u­fac­tur­er sells, say, a four-pack of a par­tic­u­lar item, they are required to write on the pack­ag­ing “This is a set. Do not open this box.” This mes­sage is intend­ed to be read by the Ama­zon dis­tri­b­u­tion cen­ter employ­ee that receives inbound goods from man­u­fac­tur­ers.

When you involve anoth­er par­ty in your sales process, their needs must be con­sid­ered for how you build your prod­uct, how you price it, your finan­cial mod­el, how you pack­age it, and how you go to mar­ket (e.g., sales and mar­ket­ing).

Sev­er­al con­sumer brands have emerged that are geared toward mil­len­ni­als who spend more time on social media than watch­ing cable TV. Some of these brands have Ama­zon as a pri­ma­ry sales chan­nel. Two of the com­pet­i­tive advan­tages of sell­ing con­sumer goods on Ama­zon are 1) the num­ber of five-star reviews; and 2) sales veloc­i­ty. The prod­uct with the most high-qual­i­ty reviews tends to get bet­ter place­ment in Ama­zon prod­uct search­es. (This is espe­cial­ly true if the refund rate on high­er-rat­ed prod­ucts is sub­stan­tial­ly low­er.) Prod­ucts with bet­ter place­ment in Ama­zon search results tend to get more sales. Prod­ucts that sell well also get bet­ter place­ment on Ama­zon search­es. As a result, there is a pos­i­tive self-rein­forc­ing cycle to dom­i­nat­ing the war for pos­i­tive Ama­zon reviews.

Some of these con­sumer prod­ucts have changed their prod­uct pack­ag­ing to explic­it­ly ask cus­tomers to leave an Ama­zon review. It’s actu­al­ly on or attached to the pack­age itself.

In addi­tion, if you’ve ever bought fur­ni­ture from Ama­zon, that box and man­u­al will say, “If you need help or are miss­ing a part, do not call the retail­er. Call us instead at 800-XXX-XXXX.” They do this because many retail­ers do not like prod­uct returns (espe­cial­ly for large pack­ages weigh­ing 60+ lb, or 27+ kg). The retail­er will often charge the man­u­fac­tur­er exten­sive han­dling fees to process the bulky and heavy return clut­ter­ing up their ware­house. Because of the demands of these indi­rect chan­nel part­ners, the man­u­fac­tur­er has mod­i­fied the prod­uct pack­ag­ing, prod­uct doc­u­men­ta­tion, and the cus­tomer ser­vice department’s staffing and role. This has impli­ca­tions for the finan­cial mod­el of the man­u­fac­tur­er.

I men­tion all these, hope­ful­ly relat­able, exam­ples to impart on you that choos­ing an indi­rect sales or dis­tri­b­u­tion chan­nel impacts… every­thing. It is not always just anoth­er way to sell a prod­uct. Those who embrace the chan­nel’s pecu­liar­i­ties tend to achieve high­er sales through the chan­nel and have a com­pet­i­tive advan­tage. Some prod­ucts are more (indi­rect sales) chan­nel-friend­ly com­pared to oth­ers. Some com­pa­nies are the same way.

Now let’s look at some indi­rect chan­nel options for gen­er­at­ing SaaS sales.

Reseller Chan­nel

The sim­plest exam­ple of an online reseller chan­nel for a SaaS prod­uct is the Apple or Android app store. The cus­tomer makes either a one-time pur­chase or a sub­scrip­tion pur­chase of the app in an app store. I’m an iPhone user, so I buy my apps from the Apple App Store. When I do, my cred­it card is charged and the cred­it card receipt shows “Apple App Store” (or some­thing along those lines). If Apple charges me $100 for the sub­scrip­tion, the SaaS com­pa­ny gets a per­cent­age of the sale.

One of the big advan­tages of using a reseller chan­nel is access to cus­tomers. P&G wants its prod­uct in Wal­mart because tens of mil­lions of shop­pers walk through Wal­mart every week. It offers incred­i­ble access to cus­tomers. Con­sumer SaaS com­pa­nies want to be in the app store because mil­lions of prospec­tive app buy­ers are look­ing through the app store each week and spend­ing mon­ey. There’s a say­ing that goes: Why would some­one rob a bank? Answer: Because that’s where the mon­ey is. Why use a reseller chan­nel strat­e­gy? Because that’s where an awful lot of cus­tomers are.

Two of the big con­cerns with using a reseller chan­nel are: 1) poten­tial­ly hav­ing restrict­ed access to the cus­tomer after the sale; and 2) the cus­tomer per­ceiv­ing a rela­tion­ship with the retail­er, as opposed to the com­pa­ny that pro­duces the prod­uct.

I prob­a­bly have 100 apps on my phone. I own a bunch of apps from Google, Drop­box, Ever­note. I per­ceive myself as a cus­tomer of these com­pa­nies. For the oth­er 90 or so mis­cel­la­neous apps, I have no idea which com­pa­ny made that prod­uct. I have an advanced cal­cu­la­tor app that I use that can cal­cu­late square roots. I have no idea who made that app. I have a com­pass app that pro­vides GPS coor­di­nates that I use when I’m vol­un­teer­ing on search and res­cue mis­sions. I have no idea who made that app.

When your cus­tomer doesn’t have or doesn’t per­ceive a rela­tion­ship with your com­pa­ny, you do not ben­e­fit from the halo effect of a pos­i­tive user expe­ri­ence. I love my com­pass app because it gives me GPS coor­di­nates in the pre­ferred for­mat used by my search and res­cue unit. I would cer­tain­ly trust the app devel­op­er enough to look at their oth­er apps. The prob­lem is, I have no idea who that devel­op­er is. In my mind, it wasn’t the app devel­op­er that solved my prob­lem. It was the app store that solved my prob­lem.

In addi­tion, the app devel­op­er doesn’t have the means to mar­ket to me. The devel­op­er can’t edu­cate me on the company’s oth­er apps. At most, I can do an app pur­chase to upgrade the app. This lim­its the app developer’s access to me as a cus­tomer. This is inten­tion­al on the part of the reseller. The reseller wants “account con­trol.”

This is one major trade­off of using a reseller chan­nel. You see this trade­off at play between phys­i­cal goods man­u­fac­tur­ers and Ama­zon. The man­u­fac­tur­er doesn’t have the customer’s name or address (unless they are drop ship­ping to the cus­tomer). They don’t have the customer’s email address. They can’t con­duct email mar­ket­ing cam­paigns after the sale. Ama­zon has all the sales data… and if your prod­uct sells real­ly well, Ama­zon will cre­ate a house-brand­ed ver­sion of the prod­uct to com­pete with yours. So why both­er with this chan­nel? Because… Ama­zon has a ridicu­lous num­ber of cus­tomers.

At this point, if a prod­uct isn’t avail­able on Ama­zon, 90% of the time, I assume the prod­uct doesn’t exist.

One final point: In the reseller mod­el, the com­pa­ny and brand name of the prod­uct being sold via the reseller is pre­sent­ed to the cus­tomer. Whether the cus­tomer pays atten­tion to it is a dif­fer­ent mat­ter.

OEM Chan­nel (Embed Your Prod­uct inside Some­one Else’s Prod­uct)

Anoth­er kind of indi­rect dis­tri­b­u­tion chan­nel is the OEM chan­nel. OEM stands for orig­i­nal equip­ment man­u­fac­tur­er. This term is a throw­back to the hard­ware indus­try. The clas­sic exam­ple of an OEM chan­nel is what both Intel and Microsoft did in sell­ing micro­proces­sors and Win­dows oper­at­ing sys­tems to per­son­al com­put­er (PC) man­u­fac­tur­ers like Dell. Dur­ing the height of the PC era, a com­put­er wasn’t con­sid­ered a good com­put­er unless it had “Intel Inside.” Sim­i­lar­ly, dur­ing that era, near­ly every per­son­al com­put­er was pre­in­stalled with Microsoft Win­dows.

In this case, Dell would embed Intel chips and Microsoft’s OS into its prod­ucts and sell the com­bined bun­dle for a “solu­tion” price. Intel and Microsoft were “com­po­nent” man­u­fac­tur­ers where­as Dell man­u­fac­tured the final equip­ment solu­tion that the cus­tomer actu­al­ly used.

In an OEM sit­u­a­tion, the prod­uct being sold by Intel or Microsoft is either embed­ded with­in or bun­dled with oth­er solu­tion com­po­nents. The com­po­nent man­u­fac­tur­er doesn’t actu­al­ly have a rela­tion­ship with or even know the end cus­tomer. Bil­lions of indi­vid­u­als use Intel prod­ucts and Intel doesn’t know the name of a sin­gle one of those end users. They only have rela­tion­ships with the Dells of the world. Dell has the cus­tomer rela­tion­ship.

Microsoft had the same issue, but it com­pen­sat­ed for this strate­gic vul­ner­a­bil­i­ty by hav­ing new Dell cus­tomers “reg­is­ter” their licensed copy of Win­dows direct­ly with Microsoft. So, Microsoft found a way in the post-sales envi­ron­ment to build a direct rela­tion­ship with the actu­al user of their prod­uct. This would lat­er allow them to tran­si­tion the cus­tomer to direct eCom­merce sales chan­nels for Win­dows upgrades and to sell oth­er relat­ed SaaS offer­ings.

The SaaS indus­try is anal­o­gous to Dell. Cloud infra­struc­ture providers like Ama­zon Web Ser­vices (AWS) and Microsoft Azure are “com­po­nent man­u­fac­tur­ers” that embed their offer­ings with­in the prod­ucts of SaaS com­pa­nies. So, infra­struc­ture as a ser­vice (IaaS) relies exten­sive­ly on an OEM-like strat­e­gy in sell­ing through SaaS com­pa­nies to the indi­vid­u­als who use their infra­struc­ture.

Most Net­flix sub­scribers have no idea that much of the Net­flix expe­ri­ence is actu­al­ly pro­vid­ed by Ama­zon Web Ser­vices.

To ful­ly grasp when an OEM strat­e­gy makes sense, it’s impor­tant to go back to Geof­frey Moore’s con­cept of the “whole prod­uct” vs. what I term “your prod­uct.” Your prod­uct is what you sell to cus­tomers. The whole prod­uct is every­thing the cus­tomer needs, includ­ing your prod­uct, to get the out­come they want.

For exam­ple, you might sell a break­through SaaS prod­uct. In your world, the app is your prod­uct. From the customer’s point of view, your prod­uct is incom­plete. The cus­tomer needs employ­ees who know how to use your prod­uct. Your prod­uct needs doc­u­men­ta­tion and train­ing so that exist­ing staff can learn the sys­tem. Or, it needs con­sul­tants who know your prod­uct and can help employ­ees imple­ment it. If it’s an enter­prise client, they may need a 24/7 help desk in case they have prob­lems. As one For­tune 500 CIO men­tioned to me, “We can’t buy your prod­uct even though we actu­al­ly think it is the best prod­uct out there. You aren’t suable enough for us. Your com­pa­ny is too small. We like our sup­pli­ers to be big, well-known com­pa­nies with a lot of mon­ey so that, if we are real­ly unhap­py, we have the means to sue you or threat­en to do so as means for you to take our tech­ni­cal sup­port tick­ets seri­ous­ly.”

Oh… that was an eye-open­ing com­ment for me when I was very ear­ly in my career in prod­uct man­age­ment. For this For­tune 500 com­pa­ny, being suable was a whole-prod­uct require­ment. Being easy to sue was clear­ly not on my prod­uct roadmap. This is the dif­fer­ence between your prod­uct and the whole prod­uct.

In sit­u­a­tions where some oth­er com­pa­ny in the ecosys­tem pro­vides a greater crit­i­cal mass of the whole prod­uct, it can make sense to con­sid­er an OEM-type chan­nel SaaS sales strat­e­gy.

For exam­ple, let’s say your com­pa­ny pro­vides sales tax cal­cu­la­tion soft­ware for the thou­sands of local gov­ern­ment juris­dic­tions that charge sales tax. This is a nec­es­sary part of any eCom­merce solu­tion. In this case, it would make sense to embed your sales tax cal­cu­la­tor soft­ware ser­vice with­in oth­er providers’ eCom­merce shop­ping cart SaaS offer­ings.

The same might be true for a site-spe­cif­ic web search ser­vice or a whitelist­ed email deliv­ery ser­vice.

While SaaS offer­ings like this arguably cross into the def­i­n­i­tion of IaaS, the key idea here is to con­sid­er if your prod­uct is tru­ly a stand­alone prod­uct or adds more val­ue to the end user by being embed­ded with­in some­one else’s SaaS solu­tion.

Sell with Ser­vices Part­ners (Sell Side-by-Side with a Ser­vice Provider’s “Bill­able Hours” Ser­vices Offer­ing)

Anoth­er form of a qua­si-indi­rect sales chan­nel is to sell your SaaS offer­ing along­side a part­ner. The clas­sic exam­ple of this mod­el is sell­ing enter­prise SaaS offer­ings side-by-side with an infor­ma­tion tech­nol­o­gy con­sult­ing firm that will be doing the imple­men­ta­tion, ser­vice, and inte­gra­tion work. Per­haps the For­tune 500 com­pa­ny buys a $1 mil­lion ACV SaaS prod­uct and then spends $2 mil­lion in con­sult­ing ser­vices to inte­grate the SaaS appli­ca­tion with its entire back-end infra­struc­ture.

From the cus­tomers’ stand­point, it is risky to buy the SaaS prod­uct with­out the guar­an­tee that there will be some­one skilled enough and avail­able to help imple­ment it. Sim­i­lar­ly, it makes no sense to spend $2 mil­lion to imple­ment a soft­ware ser­vice if you don’t even have a sub­scrip­tion to the soft­ware in ques­tion.

For a vari­ety of prac­ti­cal, finan­cial, and legal rea­sons, it makes sense to make the pur­chase deci­sion and agree­ment exe­cu­tion process with the SaaS com­pa­ny and the sys­tem inte­gra­tor con­cur­rent­ly. One is not use­ful with­out the oth­er.

Because of the reduced risk to cus­tomers in a con­cur­rent buy­ing process, SaaS com­pa­nies and sys­tem inte­gra­tors have col­lab­o­rat­ed in going to mar­ket (e.g., coor­di­nat­ing their mar­ket­ing and sales efforts) to pro­pose a com­bined “solu­tion set.” In this case, a solu­tion set equates to Geof­frey Moore’s whole prod­uct, or at least a greater per­cent­age of it.

Some­times, a Glob­al 2000 com­pa­ny will pre­fer to buy the soft­ware direct­ly from the SaaS provider. In this sce­nario, the cus­tomer is hedg­ing their bets. If the sys­tem inte­gra­tor does a poor job on the imple­men­ta­tion for some rea­son, the Glob­al 2000 com­pa­ny has direct access to the SaaS prod­uct. In a worst-case sce­nario, the cus­tomer can replace the sys­tem inte­gra­tor with­out los­ing any work progress that has been made to date.

Sell­ing with ser­vices is only a qua­si-indi­rect sales chan­nel. It has ele­ments of a direct rela­tion­ship with the cus­tomer. It also has ele­ments of mak­ing sure that your prod­uct, mar­ket­ing, sales, and cus­tomer sup­port efforts are “part­ner-friend­ly.”

Sell through Ser­vices Part­ners (Embed Your Prod­uct inside Some­one Else’s “Bill­able Hours” Ser­vices Offer­ing)

Anoth­er vari­a­tion of lever­ag­ing ser­vices part­ners is to embed your SaaS offer­ing inside a ser­vices partner’s busi­ness ser­vices offer­ing. A sim­ple exam­ple of this is how Quick­Books Online sells its ser­vice to cer­ti­fied pub­lic accoun­tants (CPAs). In some cas­es, the CPA’s client couldn’t care less about which gen­er­al ledger sys­tem is used to pre­pare finan­cial state­ments and tax returns. What the client wants is to be able to pick up the phone and call the CPA. In this case, the CPA may pre­fer hav­ing her clients’ books all on Quick­Books Online. The CPA firm might buy 100 Quick­Books Online sub­scrip­tions for its 100 account­ing clients. In this case, there is no direct billing or legal rela­tion­ship between the SaaS com­pa­ny and the CPA’s client. They are real­ly sell­ing 100 sub­scrip­tions direct­ly to the CPA firm. On the oth­er end of the rela­tion­ship chain, the price of the SaaS offer­ing is embed­ded with­in the CPA’s ser­vice fees. The client nev­er sees an invoice and may not even know that Quick­Books is being used on their behalf.

In this sit­u­a­tion, the SaaS prod­uct is embed­ded with­in a total “busi­ness process out­sourc­ing ser­vices” agree­ment. A busi­ness process out­sourc­ing ser­vices agree­ment involves tak­ing an entire busi­ness func­tion, such as account­ing, and out­sourc­ing it to an out­side ser­vice provider. In this con­text, the “ser­vice provider” pro­vides human labor and exper­tise-based ser­vices (not soft­ware).

Sell­ing through ser­vices part­ners is sim­i­lar to the OEM chan­nel in that you’re embed­ding your SaaS prod­uct with­in the solu­tion that anoth­er com­pa­ny sells to its cus­tomers. In the case of OEM, the part­ner sells a tech­nol­o­gy prod­uct or ser­vice. In the case of sell­ing through ser­vices part­ners, what’s being sold is basi­cal­ly some vari­a­tion of bill­able hours.

How to Choose Your SaaS Sales Chan­nel

Pick­ing the right sales chan­nel at a par­tic­u­lar point in time in a company’s life­cy­cle is sub­ject to many board-meet­ing debates. There is no uni­ver­sal, always true guide­line. As much as I hate to say it, it depends.

What I can do is share what it depends on:

• How much cus­tomer feed­back do you need? Do you already have a proven min­i­mum viable prod­uct (MVP) that you know cus­tomers want to buy? (Indi­rect SaaS sales chan­nels aren’t ide­al for get­ting direct mar­ket feed­back. If you sell via an eCom­merce chan­nel, you can track your entire sales fun­nel and track con­ver­sion rates. You can use pop-up chat box­es to engage with prospec­tive cus­tomers and learn more about the buyer’s jour­ney. Direct sales chan­nels tend to be the best for learn­ing.)
• What’s the life-time val­ue of a cus­tomer (LTV)? The high­er the LTV, the more options you have to uti­lize more expen­sive and more effec­tive sales chan­nels. The low­er the LTV, the more you’re boxed into cer­tain chan­nels, such as eCom­merce or tele­phone-based sales.
• What is the cus­tomer acqui­si­tion cost (CAC) on the cur­rent chan­nel strat­e­gy? This helps you fig­ure out your LTV/CAC ratio and how close you are to the point of dimin­ish­ing returns on your cur­rent acqui­si­tion process.
• What seg­ment of the mar­ket are you tar­get­ing? What oth­er orga­ni­za­tions in the ecosys­tem already have access to your ide­al cus­tomer? If you’re sell­ing to con­sumers, you can for­get a field sales force. If you’re sell­ing to For­tune 500 com­pa­nies with sev­en-fig­ure ACVs, you can for­get an eCom­merce chan­nel. If the big tech­nol­o­gy con­sult­ing firms, in aggre­gate, have 100% access to your entire total address­able mar­ket (TAM), you have to take a very hard look at lever­ag­ing those pre-exist­ing rela­tion­ships rather than mak­ing the enor­mous invest­ment to build your own direct chan­nel.
• Which part of the prod­uct life­cy­cle is your prod­uct in? If you’re in a mature prod­uct cat­e­go­ry where cus­tomers know the prod­uct cat­e­go­ry and know they need it, you have more choic­es. If you’re in an emerg­ing mar­ket where there’s a lot of mar­ket edu­ca­tion that needs to be done to “cre­ate the mar­ket,” it’s hard to get a part­ner to take a major risk on a prod­uct cat­e­go­ry that hasn’t yet been proven viable. Part­ners are great for ful­fill­ing relent­less “active” mar­ket demand. Direct chan­nels are bet­ter for fig­ur­ing out what a mar­ket wants and how to unlock the “latent demand” poten­tial that exists but hasn’t yet been accessed by any­one suc­cess­ful­ly.