Resellers vs. Channel Partners: What’s the Difference?
When companies want to grow their revenue streams, they can increase their salesforce and expand into new territories, or they can use a sales partner program in which a parent company provides a product or service to be marketed by another company. Depending on the partnership, the program can include resellers, providers, vendors, distributors, or direct-to-customer retailers.
Two types of sales partners are resellers and channel partners. While it may be confusing at first to distinguish between the two, there are some key differences to consider when working reselling and channel strategy into your overall sales ecosystem. Today we’ll look at what sets each of these apart and how to leverage each in growing your business.
What are Channel Partners?
Channel partners become an extension of the parent company’s sales team by becoming an indirect sales force. That is, they earn revenue by promoting and incorporating the parent company’s products or services into their overall sales cycle, and receive incentives for doing so. The parent company will frequently provide marketing, sales, new customer onboarding training, and marketing support for channel partners to use.
How Do Channel Partners Work?
Channel partner programs take a parent company’s product or service and incorporate it into their sales catalog as part of their offering. The parent company maintains the product and service, often providing support.
Premium channel partners grow their profits by working closely with the parent company and making use of sales enablement services and materials such as marketing literature, artwork, integration training, partner portal, direct sales support, and other incentives. Commissions are usually paid to the channel partner for a successful sale—although other compensation structures do exist— and in turn, the parent company gains access to new customer bases through referral partners.
An example of a channel partnership is a computer manufacturer like Dell or HP that sells home computers with a 30-day free trial version of Microsoft Office. After 30 days of use, the use of Microsoft Word, Excel, Powerpoint, etc. becomes limited and the end user must purchase a subscription to the software to continue using it. If the consumer subscribes, the manufacturer may get a commission from Microsoft.
Another example of channel partnership is an affiliate program in which the parent company provides a custom link per partner to promote a specific product. In this case, the affiliate partner encourages their customers or followers to purchase a recommended product using that custom link. In return, they are rewarded with a commission or other benefit. One such example is the Amazon Associates program.
What is a Reseller?
Resellers purchase products from a parent company—often in bulk, at a discounted rate—and resell them to their customers at a higher price.
Value-Added Resellers (VARs) operate in a similar fashion, however they combine the original product with complementary products and services to create some sort of value-added bundle, and sell that bundle to their customers.
How Do Resellers Work?
Resellers’ sales strategies can vary. They may prefer to sell products one at a time (like a corner store selling cans of Coca-Cola, for instance), or may group products together from separate companies to create an enticing bundle.
For example, a reseller might put together a collection of related products from different parent companies, such as selling a digital camera, memory card, Photoshop Lightroom software, a book on shooting digital photos, and the Lightroom for Dummies book and sell it as a “Getting Started with Digital Photography” package. Each individual component retains its own identity in this case, but takes on its own value as part of a bundle.
To do this, the reseller must work with several parent companies—in this example, they may be working with Nikon or Canon, Sandisk memory cards, Adobe software, and Wiley Publishing. (In some cases, the reseller might find a deeply discounted book from Amazon or Barnes and Noble that will serve as a middleman until a direct reseller agreement can be established.)
Ultimately, the reseller negotiates bulk, discounted, or affiliate pricing, so they can still profit when selling the bundle to the end user. They then reach out to retailers and small businesses who can resell the product in their shops, if they don’t have a storefront and customer base of their own.
In addition to traditional reselling, some SaaS companies create white-label products that resellers can market as their own service, but are powered by the parent company.
Channel Partner vs. Reseller: Key Differences
It’s easy to confuse the details of channel partners and resellers, but the two do differ. The primary difference is channel partnership is a two-way relationship, but a reseller partnership leans more one-way. A reseller partner must have the capital to buy products and services from the business. The channel partner primarily needs the ability to convince others to buy the parent company’s product, using marketing materials, sales reps, etc.
The key differences between the two are:
- Relationship with the Parent Company - A reseller may be treated as a one-time customer without any type of contract (even if their purchases are in bulk, and happen frequently), while a channel partner maintains a more structured, ongoing relationship.
- Types of Payment/Commission - A reseller partner’s revenue is based on the discount they receive from the parent company and the mark-up they place on the end product they sell. The channel partner’s revenue is often a commission-based payment based on pre-determined goals, such as new customer trials, sign-ups, or purchases.
- Contract Requirements - While a reseller typically has a minimum volume they must purchase to receive bulk pricing, there doesn’t have to be a contract in place to receive this pricing. Channel partners do usually sign contracts to work with parent companies.
- Purchase Flow - A reseller purchases bulk products for resale, presenting immediate cash flow to the parent company. Channel partners refer or make available your product or service to their customers or followers, but actual purchases happen on the end-customer’s timeline.
- Control - A channel partner will promote and sell your products for you, following your brand guidelines and enabling you to maintain some amount of control over the customer experience. A reseller pretty much has free reign over how they will display your product or use it alongside other products in value-added bundles, resulting in reduced parent company control over the customer experience.
Types of Channel Partners
When building your channel sales program, you’ll want to explore the diverse ways you can get your product to the end customer. In reviewing these options, you’ll want to look at their differences, the industries they best serve, and determine which type of partner is best-suited for your industry.
Original Equipment Manufacturers (OEMs)
Original Equipment Manufacturers (OEM) embed your products into their solutions and sell them to end users. OEMs sell these under their brand. A tech industry example is when IBM releases a new personal computer, but installers load the latest version of Microsoft Windows on it. IBM partners with Microsoft and pays a licensing fee to install its software. Because small businesses and consumers are frequently not fluent in installing their own operating systems and software, both parties benefit.
Managed Service Providers (MSPs)
Managed Service Providers (MSPs) are third-party companies who help small and mid-sized businesses by providing outsourced technical support and remote IT maintenance. They also serve as IT advisors to decision-makers at each company. When their clients consider implementing new software, MSPs provide guidance and opinions to enhance the effectiveness of their clients’ tech stack, and often recommend partner products when possible.
System Integrators (SI) are advisors who serve as end users' consultants. They typically work with ore or more channel partner programs at different companies to gain access to valuable resources they can leverage to serve their clients better. Some managed service providers also offer system integrator-style services.
Value-Added Resellers (VARS)
Value-added resellers (VARs) pair a product or service with one or more complementary offerings. Your product may be the base product that additional value is being added, or it may be the value-added add-on to another product or service offering.
Key Benefits of Channel Partners
The key benefit of including channel partnerships in your growth strategy is that they promote sell your products and services to their clients, efficiently creating a new client base for your company. This has several key benefits, including:
Accelerate Growth & Conversion Rates
Bringing on sales team members and acclimating them to your sales process can be time-consuming and expensive to do time after time. Establishing and managing a solid channel partner program can grow your brand’s reach by working with partners who can influence the buying patterns of your target market and get them to buy from you rather than your competitor. You can create partner programs with some of the businesses you meet at trade shows and feel confident knowing that they’re already serving your target audience with complementary products and services.
Expand to New Markets
Channel partnerships allow you to focus on what you do best, and let partners who already work in your target audience promote your product for you. Going back to our computer manufacturer example, imagine you build low-cost, lightweight laptop computers. Historically, you’ve targeted students as your ideal buyer, and have done well with them. But by working with a series of channel partners in other verticals, you can also reach new markets. For instance, a partnership with the American Association of Retired People (AARP) could connect you with 38 million retirees who need a simple solution for staying connected with friends and family.
Boost and Expand Brand Name Recognition
Establishing brand recognition helps drive any business. In a channel partnership, two brands work together to spread their offerings to new audiences and drive awareness, culminating in more sales. If the parent company has a smaller audience than their partner, they benefit from having their name promoted to an entirely new customer base. And when partners work with a parent company that adds value to their existing offerings, they benefit too with a boosted brand reputation. Either way, both parties win with a boosted awareness and client perception.
Reduce Customer Acquisition Cost
Working with channel partners who already have established their names, built their brand credibility, and developed their own large customer bases means your partners’ promotion will go a long, long way. With customers coming in from your partners, you have to spend less on your own marketing and sales, bringing your CAC down. Meanwhile, it only takes one channel partner program to manage, educate, and enable multiple partners, so with every new partner brought on, your partner program ROI goes up.
How to Manage Your Channel Partners
There’s a whole lot that goes into a good partner program setup, including:
- Determining initiatives and incentives for partners
- Drafting out legal agreements and contracts
- Creating partner training and onboarding programs
- Developing and delivering marketing materials and templates
- Tracking partner referrals, conversions, and sales
- Providing partner and technical support
- Maintaining frequent partner communication
Luckily, the Relevize team has expert-level experience in building out partner strategies, and has put that knowledge and wisdom to work. Our partner relationship management (PRM) platform helps you maximize your partner-generated sales pipeline and channel revenue. With Relevize, you can create a partner portal that houses all partner education, marketing materials, pricing and commission structures, and communication notices. Even more important, with Relevize you gain an effortless dashboard for tracking partners’ successes, their earnings, and the impact they’re generating for your own bottom line.
Request a demo today and see what Relevize can do to grow your channel sales revenue.