The Reseller Channel: How and Why to Use It

With all the talk about MSPs, referral partners, influencer channels, and dozens of other channel motions, we sometimes forget that where it all started (with resellers) is still an extremely viable route to market. The reseller channel is alive and well, and it’s a vital way for businesses to expand their reach and profitability. 

There is no blanket approach in channel sales, says West McDonald, Founder of GoWest.ai. Every vendor has a different go-to-market strategy, and they all sell and provision their products and services differently. To McDonald, there’s a great deal of similarity between channel and the animal world: both need to be adaptable and flexible. 

“The natural world is full of examples of accomplishing the same end through different means,” he says. “All animals need oxygen to survive, right? But some get it through lungs, others through gills, and yet others through absorption through the skin. Which way is best? Depending on the situation, they are all the best.”

In essence, the VAR world thrives on adaptability and diversity. Customization and bundling of solutions are the keys to success.

Unleashing the revenue potential of resale

In the diverse ecosystem of channel sales, the art of reselling has evolved but the foundational elements remain. Whether it’s tangible hardware or cloud-based software, reselling channels present unique opportunities for growth. Let’s explore the traditional practice of hardware resale, with its upfront investments and physical inventory, and see how it compares to the modern approach of SaaS resale, which offers flexibility and recurring revenue in a digital landscape.

Hardware resale: Traditional roots with modern relevance

Hardware resale remains a cornerstone of channel sales, stemming from a simple yet robust business model. In this traditional approach, resellers act as intermediaries who purchase physical products (servers, storage, networking equipment, etc.) from manufacturers or distributors. They then add value through additional services, expertise, or bundled software, and sell the complete package to end-users, typically at a markup. This markup represents their profit margin, compensating for the inventory risk, sales efforts, and added value.

Unlike SaaS models, hardware resale requires managing physical inventory, which can include challenges such as storage costs, product lifecycle management, and logistics. The capital investment and risks are higher due to the need for upfront purchases and the potential for unsold stock. However, the tangible nature of hardware often facilitates a straightforward value proposition and a one-time, larger revenue spike per sale.

SaaS resale: Flexibility and recurring revenue

In a SaaS world, resale offers a distinct set of opportunities propelled by the continued growth of the cloud services market. Tech giants are reaping substantial revenue rewards from their reseller partnerships, underscoring the significance of this channel.

Global SaaS spending has grown rapidly, with Gartner reporting $195.2 billion in end-user spending in 2023 alone. That growth has only continued, making this channel increasingly attractive for resellers.

Offering a SaaS reseller program gives your company the opportunity to diversify your income streams with attractive profit margins. In this program, resellers acquire products at wholesale rates and then market them with markups similar to a traditional reseller, but SaaS programs also provide comprehensive resources and training, simplifying the entry process into this expanding market.

SaaS reselling stands out for its flexibility. Without physical inventory to manage, resellers can scale quickly, onboard new customers with minimal friction, and avoid the capital constraints of traditional hardware distribution.

Adding to the appeal is the recurring revenue model. Partners count on consistent income streams generated through monthly or annual subscriptions, establishing a reliable source of revenue. The vast majority of SaaS companies recognize the significant contribution of reseller partners to revenue growth.

Empowering your reseller channel for success

To harness the full potential of your reseller channels, consider the following strategies:

• Select the right partners: Not every reseller is right for your business. Identify partners who complement your offerings and possess the market access and trust required to represent your brand effectively. Recruitment strategies should align with your brand’s values and evaluate potential partners based on their reputation, industry expertise, and commitment to the partnership.
• Grasp partner needs: Define clear compensation and referral structures to avoid misunderstandings. Enhance your value by creating tiered partnership models with greater rewards for top performers. Understand your reseller partners’ unique challenges and tailor your partner program to address them effectively.
• Empower your partners: Equip your resellers with the knowledge and resources they need to excel. Offer comprehensive training programs and targeted marketing materials, especially for higher-value products. Informed partners drive more sales, so be sure they are well-versed in your product’s features, benefits, and unique selling points. Offer MDF (marketing development funds) to help offset marketing costs, and provide sales and technical support to assist with closing deals and customer service. 
• Incentivize performance: Offer discounts, bonuses, or other rewards to drive sales. Include milestone incentives (training courses completed, certifications earned, years in your program) as well as revenue goals.
• Maintain open communication: Establish clear expectations and adapt to your reseller partners’ preferred methods. Regular communication sustains mindshare and gathers invaluable feedback, strengthening your partnership. Implement a partner satisfaction plan that includes regular check-ins, quarterly business reviews, and peer-to-peer discussions.
• Avoid conflicts of interest: Ensure your reseller channel partners don’t offer competing products or services. Collaborate with partners to identify cross-selling opportunities and co-marketing initiatives that mutually benefit both parties.
• Track your results: Measurement matters. Implement regular reporting and adjust as needed. Strong data helps you increase engagement with top-performing resellers and identify how to activate those who are underperforming.

The two-tier distribution model

The two-tier distribution model is a staple in the reseller channel, acting as a strategic framework that manufacturers and vendors utilize to extend their reach and streamline the distribution of their products. This model involves two distinct layers: the manufacturer and the distributor at the first tier, and the reseller at the second tier. The integration of this model into the reseller channel is a balancing act between efficiency, reach, and control.

Manufacturer to distributor: The first tier

At the heart of the first tier is the manufacturer or vendor who creates the product. Instead of selling directly to resellers or end-users, the manufacturer partners with distributors. These distributors are selected for their logistical capabilities, market reach, and value-added services. They purchase products in bulk, benefiting from economies of scale, and take on the inventory risk that manufacturers are keen to avoid. Distributors are the linchpin in this model, providing a buffer that absorbs market fluctuations and demand variability.

The advantages for manufacturers are manifold:

• Focus: Manufacturers can concentrate on product development and brand building, leaving logistics, storage, and broad market coverage to their partners.
• Risk mitigation: Distributors absorb inventory risk and demand variability.
• Extended services: Distributors often provide after-sales support and technical services, enhancing product appeal to resellers and end-users alike.

Distributor to reseller: The second tier

The second tier is where resellers come into play. They obtain products from distributors but are closer to the end-user market, with the insights and relationships needed to effectively sell and customize solutions. Resellers serve as the face of the product and brand, providing personalized service, implementation support, and often their own complementary offerings.

Resellers depend on distributors for timely delivery of products, marketing support, and sometimes credit facilities. Distributors, in turn, depend on resellers to push products into diverse markets, translating the products’ features into benefits that meet specific customer needs. This synergy is essential, as distributors generally do not have the bandwidth to understand the nuances of every end-user requirement, while resellers lack the capability to efficiently handle logistics at scale.

Navigating the two-tier model

Navigating the two-tier model requires manufacturers to carefully select distributors that align with their strategic goals and can provide the necessary support to resellers. Similarly, resellers must choose distributors that offer competitive prices, reliable delivery, and additional support services that can help them succeed in the market.

A key challenge in this model is maintaining communication and alignment across tiers. Manufacturers must effectively convey their brand message and product information through distributors to resellers. Conversely, resellers need to provide feedback up the chain to inform product development and market strategy.

The model’s place in today’s market

The two-tier distribution model continues to hold significant value. For hardware sales, it remains a vital part of the supply chain, managing the complexities of physical product distribution. In the SaaS world, while the “physical” distribution is non-existent, the model adapts to include distributors as cloud aggregators or brokers, providing a similar bundle of services and support for software products.

This model endures because it offers scalability and efficiency. It allows manufacturers to expand their reach without diluting their focus, and it enables resellers to access a vast array of products and services to meet their customers’ diverse needs.

The bottom line

Leveraging a reseller channel is an opportunity for remarkable business growth, unlocking doors to new markets and recurring revenue streams. By investing in the right partnerships and defining your ideal reseller profile, you can harness the full potential of your brand’s reach.

Nurturing these partnerships is an ongoing journey, but the rewards are worth the effort. A well-managed reseller channel can evolve into a powerful engine for sustained growth.