The Law of Attach Rates, And Why Partners Usually Can’t Really Move the Needle For You — Directly
To get all the best SaaStr content delivered directly to your inbox weekly, subscribe for free?here.
I want to spend a little time on some learnings about Strategic Partners in SaaS. ?First, let me be clear — to make it in SaaS, you’re probably going to need to achieve Strategic Partners of some sort to achieve real success. ?Because it takes a Village. ?And because your partners will likely, through integrations in particular, make your product better and strong. ?And because all together, as a group, your partners probably will have a material impact on your revenue
But if you’re just getting going, or even if you are just past First Traction, and you are hoping / assuming some Magic Partner is going to lift your business dramatically and generate/create a ton of new business for you on its/their own — it’s tough. ?That’s pretty unlikely.
Because of the Law of Attach Rates.
This is a lesson I first learned early on in the days of Adobe Sign / EchoSign. ?I met with the VP of Marketing of a medium/large SaaS company, with 100,000+ VSB customers, that then went on to be acquired for nine figures. ?At this point, this prospective partner company had already been going for 5 or 6 years, and the team was a bit tired, and the VP of Marketing probably a bit jaded, and she just cut to the chase.
“Look,” she said. ?“We could integrate you into our product, and a year or two ago we might have. ?It’s probably a B+/A- integration. ?Our users would like it, appreciate it, but we’d do just fine without it. ?So it’s not really worth our time”.
Bummer, I thought.
“Here’s the thing,” she went on. ?“Neither of us can really make any money off it. ?The best attach rates of one product to another are maybe 2% in my experience. ?So since this is a B+/A- affinity, let’s say 1% best case. ?So maybe of our 100k customers, we’d eventually — after time — get 1,000 paying customers. ?Even if we split the money 50/50 … that’s only $100k each a ?year. ?That doesn’t even pay for one engineer.”
Yikes.
And she was right. ?One small or medium partner can’t move the needle. ?And now let’s do the math for a Large Potential Partner. ?Let’s take the biggest SaaS company of them all – Salesforce.
Let’s do the math on Salesforce:
Now $6m in ACV is a great business after 2-3 years, don’t get me wrong. ?But if that’s it — then alone, it’s not enough to build something big. ?And it will take years, and a ton of work, and most importantly, a really great attach, to build that up.
And believe it or not, this attach rate really is a close-to-best-case scenario.??The truth is, of the 10,000+ applications on the Salesforce AppExchange, my guess is less than 1 percent even have > 1000 Salesforce customers. ?I’m pretty confident of that, based on how you used to be able to force rank AppExchange apps on # of installs.? We see this also now on the Shopify platform as well.
领英推荐
So if most of us can’t really make it on Salesforce and Shopify alone — can you make it anywhere?
Well, you can. ?First, I’ve taken a few shortcuts. ?Your ACV may be much higher on a partner platform in certain cases which makes the platform give you a boost (for reasons we’ll discuss in the next post) — though in general the higher the ACV, the fewer the # of customers. ?Second, imagine you had several of these partners … then it starts to get more interesting. ?Third, sometimes, rarely, there’s a Super Attach. ?Where you fill a big hole in a partner’s platform. ?But even then, the attach rate might be 2%-3%. ?Fourth, if the denominator is truly epic, sometimes even a relatively small attach rate can still work wonders. ?See what happened when Adobe Sign integration launched in Adobe Reader and you can see in the image to the right/just above — the new user acquisition rate literally tripled overnight. ?But that’s an outlier — Reader is on 1 billion devices, and Adobe Sign is the only web service fully integrated into it. ?And finally, most importantly, there are a lot of Indirect benefits from Strategic Partners. ?You can grow a lot of revenue out of a Strategic Partner’s platform, even if directly they don’t generate an epic number of leads for you. ?We’ll talk about all of these in the next post on the topic
>> But the simple point is — in SaaS, rare outliers aside — one seemingly great strategic partner simply cannot, alone, Move the Needle. ?At least not for more than a handful of vendors. ?It’s nothing personal. ?It’s just The Law of Attach Rates.
And finally, remember that even the handful of partners with high attach rate on the Big Platforms mostly had to earn the customers themselves. ?Generally, only a relatively small percent of the “joint” customers come from the platform itself.
This doesn’t mean don’t do the integration, and don’t list on the platforms. ?Do that. ?It’s tablestakes today. ?And if you have even a little traction on a platform, invest on the people side. ?Hire someone, and later a team, to manage those relationships. ?They matter. ?It’s just, they usually aren’t magic on their own.
Understand this Law, how it works, and how it applies to your product, and you’ll know how to think about the direct revenue side of strategic partnerships.
Hey SaaStr Insiders,
If you missed last month’s EPIC SaaStr Annual - don’t panic!
We’re already counting down the days until?SaaStr Annual 2024.
It’ll be the?10th(!) SaaStr Annual, so count on it being?the?largest Annual yet. We’ll be back at the San Mateo County Events Center, September 10-12, 2024 for the biggest SaaS-only community event of the year.
Join 13,000 fellow SaaS Founders, Investors and Execs!
Now’s your chance to take advantage of our?Insider flash sale?and save $50 on each ticket if you order them before Tuesday, October 31st!
CEO at Partnership Leaders | Helping partnership and business leaders navigate their careers through a private network, education, research and support
1 年Looking forward to the next post on this topic Jason M. Lemkin
Global Leader - Channel Sales, Partnerships, and Alliances | Partnership Development & Certification | GTM Strategy | Ecosystem Development l Channel, ISV, CSP, GSI, SI, VAR, MSP, OEM
1 年This is a great article with a ton of extremely helpful metrics and thoughts. I would almost go as far as to say: the overall attach rate is low because we don't listen to our customers and which technology stacks they are using and thus we cannot cater to that. Also: don't mix up 'channel attachrate' in your CRM with the way you are looking at this. Those are two very different metrics! IMO there are several challenges or approaches to getting it right: 1) What does your GTM model look like and which vendors are strategic to your customers' success - that should be your most important ISV partner. You can't be everything to everybody. 2) integration costs time, money, and resources - be smart about your investments 3) Back to the technology stack: I have a strong suspicion that it also depends on what your business model is: if you're in ingestion, data management, data governance, data warehousing - I doubt the numbers would hold true (but I don't know!) ... my net net take away from this article is that we need to be intentional about our integrations (hence the term 'Strategic Alliances')
Co-Founder & Frigg Lead Developer at Left Hook
1 年This kind of begs the question of what strategy it implies. If 1% attach rate, then 100 partners? Build 100 integrations if you want to get to double your current customer base? The other question I have, for clarity Jason M. Lemkin… is that 1% attach rate true for both sides of the partnership, or just the big fish? Wouldn’t a 1% attach rate from a bigger fish mean I get a much larger % of my own customer base?
B2B Marketing | Product Marketing Leader
1 年Where's the top graphic from?
I win markets through engineering. Product-led growth, data, and partnerships.
1 年A good mantra is that the only reason we do partnerships is because the customer needs the partners to buy from us. That's actually a good mantra for the general case. The only reason we do anything is because the customer needs whatever we're doing to buy from us. But in partnerships, there's often a Hail Mary idea the partner's job is to sell our product and save our company. But of course, the partner's job is to sell their own product or service. However, if you do create things of value, absolutely work with a partner to promote it. The partner marketing will continue if the customer is buying more from both companies due to the combined value. This is clearer with tech partners. But with service companies, it's the same. It just comes down to whose labour and expertise is needed to deliver the solution into the customer's business? If it isn't self-service, then the customer may need to hire someone on staff. That's a higher bar to entry than hiring an implementation contractor.