What is a Channel Partner?
A channel partner is a business that markets products and services for a technology manufacturer or vendor. This technology may comprise hardware, traditional software, Software as a Service (SaaS), or cloud computing solutions.
The channel partner is part of the vendor’s indirect sales force, suggesting that they sell the products and services on account of the vendor, but they are autonomous. They may additionally sell products and services produced by other vendors as well as items they develop themselves.
Different types of channel partners include:
- Original Equipment Manufacturer (OEM): Traditionally, the Original Equipment Manufacturer or OEM was the company that developed a product to be altered, rebranded, and resold, but this has evolved. Today, several OEMs purchase technology products and services, and either:
- rebrand them as their own and resell them exactly as they were developed or
- Add new features or bundle an added product produced by the OEM, then reselling the bundled offering.
- Systems Integrator (SI): A systems integrator is a company that purchases individual hardware and software elements from many different vendors and combines them into one customized solution which satisfies the business needs of its customers.
- Distributor: A distributor is a middleman between two companies – between the manufacturer of a product or service and a channel partner who will resell the product to their end customers. A vendor may wish to sell through a distributor to cut its time to market because the seller already has an organized distribution channel. The distributor may also expand the vendor’s resources by giving training, technical assistance, marketing, and sales support to all of the channel partners.
- Value Added Reseller (VAR): A value-added reseller is a company that buys technology products, adds value by bundling new features or services to the original product, and resells the bundled offering to its customers. The VAR might buy a computer hardware piece and create a specific software application to be sold with it. The VAR might attach value by giving technical support, training, or installation to go along with the product to be sold.
- Managed Service Provider (MSP): A managed service provider is a company that controls, monitors, and manages a company’s IT infrastructure. This may involve remote monitoring of the company’s network to ensure that it is available by employees at all times, management of end-user devices, data security and storage, product installation and upgrades, and more. MSPs are frequently chosen by:
- Small and mid-size businesses that do not own an IT professional on staff and need to off-load this responsibility to a company expert in IT management.
- Larger enterprises need to eliminate the day to day tactical responsibilities from their IT team so they can concentrate on more strategic technology initiatives.
- IT Consultant: An IT consultant provides independent IT advice, network design services, project management, support, and administration to businesses. An IT consultant may provide similar services to those offered by a managed service provider but does not provide the long-term monitoring and management of the client’s network infrastructure
A channel partnership can be a win-win for both the vendor and the partner. By choosing the right group of channel partners, the vendor can get a big bang for their buck. They can increase sales exponentially by gaining access to the partner’s existing customers. Conversely, the channel partner can increase revenue by cross-selling or upselling a new product to its existing customers and by acquiring additional customers interested in the new offering.
The challenge for both the vendor and the potential channel partner is to find the right fit. The 80/20 rule is well known in channel sales. It states that, on average, 20% of a vendor’s partners will generate 80% of the indirect sale channel’s revenue.
Channel Partnership Benefits
Different partner programs offer different benefits to both the vendor and the partner. Here are a few benefits to each that may be achieved depending on the type of partnership implemented.
Benefits of Becoming a Channel Partner
- Provide a Full Suite of Products and Services – Offering products and services from various vendors enables a channel partner to deliver to their customers a diverse product portfolio that meets the customers’ specific business and technology needs.
- Sell Latest Technology – Deliver to clients the latest technology products and services.
- Take Advantage of Additional Expertise and Resources – Channel partners have access to a vendor’s human and financial resources including technical support, product and market training, marketing assistance including MDF (Market Development Funds) or co-op funds, campaign templates, and more.
- Receive Leads – Some vendors continue to market their products and services on their own and then pass the leads they receive onto their channel partners for follow-up.
- Increased Margins – Depending on the amount of product sold, additional discounts and revenue opportunities can be achieved.
- The benefit of an Established Name – Small MSPs, IT consultants, and other companies can benefit from the name recognition and reputation of large vendors—for example, Microsoft, Cisco, Citrix, and others. Utilizing established brands like these in sales and marketing materials conveys to potential customers that the partner has a business relationship with a well-known and respected manufacturer. It lends immediate credibility to the channel partner’s reputation.
Benefits for Manufacturers and Vendors to Have an Indirect Sales Channel
- Quickest Way to Your Target Customer – The quickest way to gain market share is to work with a partner who already has your target customers as their customers. They have spent a great deal of time, and effort building personal relationships with their clients and their recommendations on new products or services carry a great deal of weight with the customer.
- Reduce the Cost of Sales – For all manufacturers, reducing the cost of sales is important, but it is especially important for start-ups and small businesses. Establishing an indirect sales channel rather than employing an in-house sales team can save on employee salaries and benefits and travel costs to visit prospects and the time wasted on unqualified leads that never convert to sales.
- Break into New Markets – Many channel partners have an established presence and reputation in specific market segments. The legal, financial services, and healthcare markets, for example, require knowledge. Channel partners who have a deep understanding of these industry verticals can deliver new customers at a fraction of the time and cost.
- Take Advantage of Additional Expertise and Resources – Channel partners can give smaller vendors the resources they need to succeed. Vendors can use their partner’s team of IT professionals to deliver technical support and training to customers and their marketing team and budget to develop campaigns.