For this round of our Ask the B2B Expert column, we received a question relating to sales, software and channel partners.
Joining us to guest-answer this question is April Dunford, who has managed marketing and sales teams at six different startups. She has also held executive positions at global companies including IBM, Siebel and Nortel, and consults to startups on metrics-driven marketing and writes a popular blog on Startup Marketing and Sales called RocketWatcher.
First, to the question, submitted via our form here.
Hi B2B News Network,
My question is about b2b sales. We have a software tool that we have been selling direct and through partners. There’s downward pressure on pricing and we are looking at getting rid of our partners and going direct. Margins will improve by 20%. But our channel is 50% of our revenue so how do we do this without losing half our business? Do we go direct to our customers? -A COO in Philadelphia
Now let’s hear from April:
In many cases channel partners can help you reach a category of customers easier than you could directly. Channel partners are also often providing a service that you couldn’t or don’t want to provide (either additional customization or installation services or some form of specialized support for example).
However selling through a partner means that you will have to split your profits. In the case where there is increased pricing pressure in the market, it may make sense to end the relationship with the reselling. Here are three things to think about before you do:
1/ Do you have a realistic plan to scale your customer acquisition to make up for the accounts that are coming in through the partners today? This could include expanding your marketing campaigns, increasing the number of salespeople you have, and increasing your support resources. While it’s true that you can improve your margins by selling direct, cutting the channel partners out will also increase your marketing and sales costs.
2/ Be careful of your existing contractual responsibilities and how the shift will impact existing customers. If your partners have been proving support, those support agreements will remain in place until the end of their term and you will need to plan for a migration after the term ends.
3/ Be aware that your partners may have a strong relationship with the customers that they have sold to and could attempt to sell those customers a competing solution once your relationship has ended. Thinking through how the existing customers will transition their relationship is important in a decision like this one.
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