How Many Channel Partners Are Out There?

By Jay McBain_2

This is one of the most common questions I get. Without a census of any type it is difficult to drill down to the right answer, as the numbers tend to be fluid.

Here is what we know today:

Using dozens of data sources, we can start from the top down and try to get into the right area code. The global IT industry is forecasted to be $3.828 trillion dollars (yes, with a "t") in 2015, according to Gartner Group.

North America represents about 25 percent of the world in both spend and number of IT providers. The simple breakdown is $240 billion hardware, $230 billion services, $190 billion software and $340 billion telecom.

The largest consumers of IT by industry vertical include health care, professional services, retail, construction and accommodation. About 7 in 10 businesses used some type of IT provider in 2014, according to CompTIA.

Ok, let's drill into the North American channel numbers:

The North American Industry Classification System recognizes 333,965 companies that are channel-oriented. Of this, 208,463 are self-employed or sole proprietors. There could be thousands of additional companies mislabeled as well that have influence on IT purchases by business.

Remember, any of these numbers can be multiplied by four to get an estimate of global numbers.

The Channel Company, which publishes CRN, has an extensive channel database, collected for more than 30 years with a full-time staff to keep it updated and clean. It reports a total population of 170,000 North American partners, with its "ChannelBase" database capturing additional information on 150,000 of them.

CompTIA, the world's largest IT association, uses a research approach, sourcing data from the U.S. Bureau of Labor Statistics, BEA – Bureau of Economic Analysis, Bureau of the Census, Department of Commerce, TECNA, EMSI, Hoovers and IDC, as well as its own membership and communities. CompTIA reports a North American channel population of 125,502 firms.

CompTIA further segments the channel data by employee size:

160 large channel firms (500+ employees)
1,388 medium channel firms (100-499 employees)
13,680 small channel firms (10-99 employees)
110,274 micro channel firms (1-9 employees)

125,502 Total

CRN every year lists the VAR 500, or the top 500 channel partners in North America, ranked by revenue. In 2014, the magic number was $20 million in revenue to make the cut.

CDN Magazine in Canada also does a Top 100 List and the magic number in Canada is just over $5 million to make it into the top 100.

As a side note, I wrote in a previous blog how to get the revenue of any partner by just using Linkedin and some industry average multiples. Very powerful in building a recruitment strategy,

A third data point on size of channel came from my friend Rauline Ochs, who leads the IPED Research, Consulting & Training arm of The Channel Company. She reported in summer of 2014 a number around 160,000 (and declining) since 2008.

With the three data points above, we can conclude confidently that the North American channel likely numbers about 160,000.

The important number, however, is how many of them are "real" partners.

In 2008, Chris Anderson wrote the book, "The Long Tail." For those of us that have been in the channel for a while, we could have sworn this book was about our industry!

If you cut out part-time consultants, people between jobs, artificial tax-break companies and other phenomenon, the numbers get dramatically smaller.

For example, Microsoft has unofficially reported its North American channel numbers at around 100,000. This doesn't do a good job of cutting out the non-producers, as the barrier to entry is low for that program.

Looking at other large vendors doesn't help because of the 12 different types of channel partners selling unique solutions across dozens of industries. For example, big players including HP, Dell, IBM, Lenovo and Cisco, on average, have about 15,000 partners each in North America.

One good way to zero in on "real" partners is to look at distribution. Companies such as Ingram, Tech Data, Synnex, Avnet, Arrow, ScanSource and BlueStar have tens of thousands of partners buying through them every day and direct ship to end customers 80 percent of the time. This gives distributors an excellent source of big data about who the partners are and what types of end user customers they are selling to.

I just attended a conference where the president of a top distributor mentioned 60,000 unique partners in the United States. I have two issues with this number: Some partners are dedicated to one distributor, thus understating the overall number, and it includes everyone including the small partner who only bought one printer cable.

Interestingly, that same distributor president said his company's data showed 18,000 companies that have bought four different types of solutions from them in a year (think PCs, backup software, security devices, networking, etc).

About five years ago, when I was working at Lenovo, I added all of the distributor sales then de-duped by partner and came up with 75,000 unique partners selling all brands. Unless you are literally 100 percent services or cloud, I figured it would be very difficult to avoid buying a cable or software license over the course of a year.

Another completely different way to look at the number of "real" partners is financially. In the end, people have to make a buck to be committed to something long term. Actually, more than a buck, all employees at partner firms need to pay for a mortgage and get a decent wage for their geography. The average is about $50,000 when you include technical, sales, marketing and owner/principals.

According to CompTIA, the average North American partner has eight employees. So the math would be 8 x $50,000 = $400,000 in salaries. Add in overhead and a partner would need to clear about $500,000 in revenue after cost of goods sold (COGS). So with partner margins somewhere in the 10 percent to 20 percent range, the average VAR type partner is likely selling more than $3 million per year.

Services-led partners work on different economics as the COGS is mostly salary.

So, the million-dollar question, then, is where does the Mendoza Line sit in the North America channel? At what point in the list of 160,000 partners does it not make sense to cross that line to get a good ROI?

After analyzing all of the sources of data, along with getting additional color from some of industry's rock stars, this is my best guess:

There are 25,000 "real" channel partner firms.

As a vendor, this doesn't mean that your recruiting target should be 25,000; it is simply the target addressable market (TAM) for North America. Remember that the top 10 vendors in the region only carry about half that many and their products are pervasive across every end customer.

Once you have determined your needs for increased geographic coverage, additional skill capabilities, sales capacity, brand commitment and solution integrations, the right number may be much lower than you first thought.

There are very successful vendors selling millions of dollars through this channel with fewer than 100 partners. Depending on your solution, determining the delicate balance between quantity and quality of partners is much more important than chasing any of the big numbers above.

And don't forget about influencers and connectors—the right connection at the right time could tip a large deal in your favor. There are more than 200,000 people in the channel who may not be a typical reseller VAR, but a consultant who holds the right sway over the deal you want to win.

How do you win the hearts and minds of these self-employed consultants en masse? The answer is by taking advantage of communities, which I started writing about in 2010.

Final thought: This blog will be out of date once it has published. About 15,000 partners will go out of business or be acquired this year. Plus, 10,000 new companies will be formed this year and may look and act much different than you are used to (or your program is geared toward).

The channel is a living, fluid thing. The moment we think we have it all figured out is the moment we should step down into retirement.

Jay McBain is co-founder and CMO of ChannelEyes, a mobile platform designed to change the way vendors communicate, educate and engage with their VARs and channels.