Sell direct and through resellers

A product that nobody hears about does not sell, however good it is. Engineering firms selling software for the first time usually have two routes to customers. They can sell directly, through their own website, trials and contacts. Or they can sell through others who already have relationships with the right customers, most obviously the resellers of the CAD system the product runs on. Each route costs money and effort in different ways, and the choice shapes how quickly the product reaches the market and how much of each sale the firm keeps.

This chapter compares the routes for the drawing-checking add-in. It measures the direct trial-to-sale funnel, costs direct and reseller sales over three years per customer, describes what makes reseller relationships work and sets out the points that matter in a reseller agreement, including a rule of Australian competition law about resale prices. The failure case is an exclusive agreement that left the office unable to sell its own product for a year.

Selling direct

Direct sales start with people finding the product and trying it. The office’s direct route is simple:

• a product page on its website, with the plain-language price and licence summaries from Chapters 7 and 8;
• a 30-day free trial for up to five seats, requested through a short form;
• the onboarding call and session from Chapter 4 for every trial firm;
• a follow-up at the end of the trial, with an offer to extend it if the firm has not yet used it properly.

People find the product mostly through the office’s existing relationships: clients, peer firms, the CAD user group and professional association events where the office’s engineers present. Short case studies, written with customers’ permission and approval, describe what the add-in found on real projects without disclosing anything confidential.

Figure 1The direct trial funnel in the first year

Trial requests60

Trials installed and used on real drawings42 70% of requests

Firms still using it at the end of the trial30

Firms that bought21 35% of requests, 50% of trials used

Of 60 trial requests, 21 firms bought, about 35%. Half of the firms that actually used the trial on real drawings bought. Most firms that did not buy had never got past installation, usually because the trial request came from a designer who then could not get IT approval. The office changed its trial form to ask who would approve installation and to offer that person the administrator guide immediately.

Marketing to engineers

Engineers distrust marketing, and they are right to. What persuades them is evidence they can check: a demonstration on their own drawings, a colleague at another firm who uses the product, a clear statement of what the product does and does not do. The office’s marketing followed from that:

• Demonstrations on real work. At user group meetings, the office’s engineers ran the add-in live on a drawing volunteered by someone in the audience, with that person’s agreement, and talked through what it found. Nothing persuaded more.
• Case studies with permission. Each case study was written with the customer, approved by them in writing and limited to what they were happy to share. The office never quoted a customer who had not approved the exact words, and never presented an example as a customer’s when it was not.
• Plain claims. The product page described the checks the add-in performs and its limits. It did not promise to eliminate drawing errors, because it cannot, and an engineer who read such a promise would distrust everything else on the page.
• Useful content. Short articles on drawing checking and drafting standards, written by the office’s engineers, brought readers who had the problem the add-in solves, whether or not they bought it.

Australian consumer law prohibits misleading or deceptive conduct in trade, and that includes marketing claims and testimonials. Plain, checkable claims keep a small seller well clear of it, and they also happen to be what engineers respond to.

The CAD vendor’s partner listing

Many CAD vendors list partner products in an online directory or marketplace, sometimes with a testing or certification step. The office’s membership of the vendor’s developer programme, from Chapter 2, included a listing. It brought a modest number of trial requests, mostly from overseas, which led to the office’s first questions about selling outside Australia in Chapter 7. A listing is cheap visibility, and worth having, but it is not a sales channel on its own. Prospects who find the product there still need a trial, onboarding and someone to answer their questions.

Selling through your own clients

The office’s engineering clients were a channel of their own. Several had drafting teams that produced drawings for the office’s projects or reviewed the office’s drawings, and the add-in, configured to the client’s standard, made that exchange smoother for both. The office offered clients a bundle: licences for their drafting team, the configuration service and a short training session, quoted together with an engineering engagement.

These sales were the easiest the office made, because trust already existed. They also carried a risk the office managed deliberately. A client must never feel that buying the add-in is a condition of winning engineering work, or that declining it would count against them. The office kept software quotes separate from engineering proposals, so that each could be accepted or declined on its own merits.

Selling through resellers

CAD resellers sell, train and support the CAD system for their customers. They know which firms use which versions, visit them regularly and are trusted advisers on CAD tools. For a small add-in maker, a reseller offers reach the office could not build quickly.

Resellers expect to earn a margin on what they sell, to have demonstration licences and training for their staff, and to receive marketing material and timely support for their customers. In return they introduce the product, handle quotations and invoicing for their customers, and often provide first-line support.

This is an illustration. The CAD reseller the office worked with proposed a margin of 30% of the price excluding GST on each sale and renewal, with the office providing second-line support, training for the reseller’s application engineers and demonstration licences. Margins in software reselling vary widely by product and market, and this figure is the office’s own example, not a market rate.

Cost each channel over three years

The office compared the two channels for a typical customer: a firm buying 4 seats at A$495 a year, excluding GST, with 85% renewal, as Chapter 5 assumed.

Figure 2Three-year cost of sale per customer, direct and through a reseller

revenue = seats × price × (1 + r + r²) direct cost = first-sale hours × rate + renewal hours × rate × (r + r²) reseller cost = margin × revenue + training and support hours × rate

Customer

4 seats at A$495, renewal r = 0.85

Direct

5.5 h for the first sale, 0.5 h a year for renewals, at A$110 an hour

Reseller

30% of revenue, plus 1.5 h of office time per customer

1. three-year revenue ≈ 1,980 × (1 + 0.85 + 0.7225) ≈ A$5,094
2. direct cost ≈ 605 + 55 × (0.85 + 0.7225) ≈ A$691, about 14% of revenue
3. reseller cost ≈ 0.30 × 5,094 + 165 ≈ A$1,693, about 33% of revenue

Per customer, direct sales cost less over three years: about 14% of revenue against about 33% through the reseller. In the first year alone, direct selling costs about 30.6% of that year’s revenue, because the effort is front-loaded, while the reseller’s cost is a steady share of every year’s revenue.

The comparison per customer is not the whole picture. The reseller brings customers the office would not reach at all, and an extra customer at a 33% cost of sale is still worth far more than no customer. The question is not which channel is cheaper per sale but which combination reaches the most customers at an acceptable cost. The office kept both: direct sales to its own network and firms who find it, and the reseller for the reseller’s customers. Each customer is registered to one channel to avoid conflict.

Make the reseller relationship work

Resellers carry many products, and a small add-in competes for their attention with everything else. The office found that a few things made the difference:

• Training that lets application engineers demonstrate the add-in confidently in 15 minutes during a routine customer visit. A two-hour session and a short demonstration script did more than any brochure.
• Fast second-line support when a reseller’s customer had a problem, so that the reseller’s reputation was never put at risk by the add-in.
• Simple ordering: a price list with the reseller’s price, a quote template and licences issued within a day of an order.
• Regular, short contact: a quarterly call to review registered prospects, sales and support issues.

Avoid channel conflict

When the same product is sold both directly and through a reseller, the two can collide: a firm the reseller has been courting buys direct to save money, or the office quotes a firm the reseller introduced. Left unmanaged, that sours the relationship quickly.

The office used a simple registration rule. When either party first engages a prospect in a meaningful way, a demonstration or a trial, it registers the firm with the other, and the registered party handles that firm for twelve months. Renewals stay with whoever made the first sale. The office’s direct price and the reseller’s recommended price are the same, so neither channel undercuts the other on list price. Disputes, of which there were two in the first year, were settled in the quarterly call against the registration list. Both were settled within minutes, because the list made the facts plain and neither party had to rely on memory or goodwill alone.

What a reseller agreement should cover

The agreement sets the relationship’s rules. The office’s lawyer reviewed the reseller’s standard agreement against the points that mattered to the office:

Figure 3Points the office checked in the reseller agreement

• Do: Non-exclusive appointment, or exclusivity only with sales targets and an end datethe office can still sell direct and appoint others
• Do: Margin, payment terms and who invoices the customerreseller invoices, pays the office within 30 days
• Do: Recommended retail price only; the reseller sets its own resale pricecompetition law limits on minimum resale prices
• Do: Which terms the end customer acceptsthe office's licence terms, not the reseller's (Chapter 8)
• Do: Support split between first and second line, with response timeswritten and measurable
• Do: Warranties each party gives, including the office's ownership warrantybacked by the audit in Chapter 2
• Avoid: Exclusive rights for a long term with no performance conditionsthe failure case below

One point deserves explanation. Australian competition law generally prohibits a supplier from requiring a reseller not to sell below a specified minimum price, a practice called resale price maintenance. A supplier may publish a recommended retail price, provided it is genuinely a recommendation. The office therefore publishes its list price as recommended and leaves the reseller free to set its own price. The ACCC publishes guidance on this for suppliers and resellers.

A failure case: the exclusive deal

This is an illustration. The first reseller the office spoke to was enthusiastic and offered to promote the add-in to all its customers, on condition of exclusive rights to sell it in Australia for three years. Keen to start, and before the lawyer’s review described above became routine, the office signed. The agreement had no sales targets.

After twelve months, the reseller had sold 6 seats. Its application engineers had been trained once, at launch, and the add-in had dropped down their list of priorities. Meanwhile, the office had turned away more than a dozen enquiries from firms that came to it directly, because the agreement required it to refer them to the reseller, which then did not follow up quickly.

The detection came from the twelve-month sales report and the office’s own record of referred enquiries, which showed the gap between demand and sales. The office raised it with the reseller, which agreed, on review, that the arrangement was not working for either party. The agreement was renegotiated as non-exclusive, with the office free to sell direct and appoint others, and the reseller kept a registered-customer arrangement for the firms it had introduced. The lesson the office recorded was that exclusivity is worth granting only in return for commitments: targets, training, a review date and a way out.

How this applies to a small Australian business

In Australia’s relatively small engineering market, a few CAD resellers often serve most of the firms using a given CAD system. A good relationship with them can make a small add-in viable, and a poor agreement can stall it. Start with direct sales to the firms you know, so you learn how the product sells, then bring in resellers on non-exclusive terms with clear support arrangements. Keep your own licence terms as the ones customers accept, whoever sells to them, because the obligations under the Australian Consumer Law and the promises about support are yours.

Exercise: what the reseller adds

The reseller estimates it can bring 15 new customer firms a year that the office would not otherwise reach, each the typical 4-seat customer. The office estimates that, without the reseller, it would win 20 firms a year directly, and with the reseller, the same 20 directly plus the reseller’s 15. Using the three-year figures in this chapter, what is the three-year contribution, after cost of sale, from one year’s intake of new customers in each case?

Worked answer. Without the reseller: 20 × (5,094 − 691) = 20 × 4,403 ≈ A$88,060. With the reseller: the same direct A$88,060, plus 15 × (5,094 − 1,693) = 15 × 3,401 ≈ A$51,015, a total of about A$139,075. The reseller’s customers cost more per sale but add about A$51,000 of contribution over three years from each year’s intake. That is well worth having, provided the office can support 35 new firms a year rather than 20. Chapter 10 checks whether it can.