Channel Sales 101: What It Is, and the Mistake That Wrecks Most Partner Programs.

Good Morning. The University of Michigan is getting rid of grades for first-semester freshmen. They’ll still pass or fail, but no A’s, B’s, or C’s while they get settled in. At first glance, this seems ridiculous. But then I remember that we do something similar in sales. We just call it ‘being on ramp’. And instead of a semester, you get about three months before things get real… Now, let’s get into today’s Follow Up. (:

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Last week I got an email from a subscriber asking about channel sales (shoutout Sophie).

It’s a fun topic because it’s a strategy used by companies that scale to billions in revenue.

But it’s also messy. Trying to write 800 words on how to do channel sales is sort of like trying to teach someone how to do paid ads in 5 minutes.

It’s nearly impossible, because there’s a million pieces. What is your product? What’s your average deal size? How big is your company? How long has it been around?

Every one of those questions changes things.

So rather than bore you with every tiny detail, in today’s newsletter I’m going to break down the basics you should know about this strategy.

What it is, why companies use channel partners, how most programs are set up, and of course, examples of channel sales done well.

Direct sales is you selling straight to the customer.

Channel sales is you getting someone else to sell for you.

Let’s take Adidas for example. You can buy a pair of shoes straight from adidas.com. That's direct sales.

Or you can grab a pair at Costco, where Adidas isn't running the register or greeting you at the door. Costco gets the shoes from Adidas, then sells them to you.

That makes Costco a channel partner. Adidas runs both sales methods at once. Wholesale made up 60 percent of its net sales in 2024, with the other 40 percent coming from its direct sales.

Now let’s point out the obvious here: the Adidas example is B2C. When you buy the shoes from Costco, you don’t need help ‘implementing’ the shoes, or ‘customizing’ the shoes.

This is where B2B channel sales is different. Channel sales partners in B2B are typically resellers, consultants, or system integrators who provide additional value outside of just selling a software license. More on this in a moment…

Building sales teams gets expensive, fast.

And companies slice up their market a bunch of different ways.

Some go by size: enterprise, mid-market, SMB.
Some go by territory: the US, the UK, individual states, EMEA, APAC.
Some go by industry: government, healthcare, financial services, etc.

There's no one-size-fits-all method to draw the lines. But however a company draws them, hiring, training, and managing a direct rep for every single slice adds up fast, and most companies can't afford to do that everywhere at once.

Channel partners let you expand your sales force without expanding your overhead.

Many partners already have the relationships, reputation, or existing business with the exact customers you're trying to reach. So that head start means they can go sell to those people faster, and often cheaper than you would, starting from zero.

Because let’s not forget… The cost to sell a customer your product is a lot more than just the commission you pay to a sales rep. You have to add in the cost of marketing, onboarding, support, and all the other expenses required to support that customer.

Even when you have to pay an inside sales rep & a channel partner a commission for the same deal (which is common), it can still net out cheaper than managing everything in-house.

It’s not hard to find examples of big channel sales programs. All of the big enterprise SaaS companies have perfected them over the last two decades.

HubSpot and Cisco are two of my favorites.

HubSpot's Solutions Partner Program pays partners a 20 percent revenue share for three years on deals they bring in. They invest a ton in educating & supporting, and assign every partner a dedicated account manager. HubSpot is projecting the partner opportunity around its ecosystem will hit $42 billion by 2030. In other words, you can build a pretty big business yourself by just reselling HubSpot.

Cisco is another one of my favorites, mainly for the sheer size of their operation. A 2019 press release said they had over 62,000 partners, and 85% of their revenue came through the channel. To put this bluntly, they’ve basically built their entire go-to-market on the idea that partners will sell the vast majority of their products.

It’s important to note that the ‘resellers’ in both of these programs are doing a lot more than just selling a software license. They help implement and customize the software in the businesses they sell to. Here’s an example of a HubSpot partner.

Learning everything about setting up a channel sales program could fill up its own 3-month course. So instead, let’s talk about what makes a good program.

David Shepherd, HubSpot's former VP of Channel Sales, says most programs come down to three things: culture, incentives, and support.

Culture means partners watch how you treat them and copy it.

Incentives mean keeping the commission structure simple, with tiers partners can actually understand.

And support means investing in the continued training and success of the partners. Shepherd says this is what most programs fail at.

As we mentioned in the previous section, HubSpot assigns every partner an account manager inside the company, so they have an actual person they can go to when they need help. They also provide free technical support and training sessions built just for partners.

Channel conflict is what happens when your own reps and your partners end up fighting over the same deal. Or when a partner undercuts your own pricing to win business.

To use our Adidas example from before, channel conflict would happen if Costco starts selling the same shoes for way less than adidas.com and their retail store, making Adidas’ own stores compete against one of its partners.

Like most things in business, the way to avoid channel conflict is to create a system. Write down, in plain terms, which accounts belong to partners and which stay direct, so it’s black and white. Then set up a deal registration system where a partner can log the account before they start working it. Once it's registered, nobody else on your team can swoop in and claim it, and vice versa.

What it doesn't solve is the deal where both sides work it together. Say a partner brings you the lead, and your inside rep still has to do a lot of work to close it. Who gets paid?

Jason Lemkin says both. Pay the partner their full referral fee, and pay your rep their full commission too.

It feels expensive (and it is expensive), but if you cut either side out, you’ll have much bigger problems on your hands.

Like a partner who stops sending you deals or a rep who stops working on partner-sourced leads.

Well, that’s a wrap… I hope you learned something today.

And if there’s a topic you want to learn more about, hit reply to this email and tell me!

Today’s newsletter was written by Nic Conley