Sales Strategies in K12 EdTech: Direct vs. Indirect Sales
- How EdTech founders and CEOs should evaluate direct vs. indirect sales strategies
- The M&A implications of each sales strategy
Making a software sale in the K12 sector is notoriously difficult. The challenge comes as a result of:
- Tight education budgets
- A highly fragmented market for EdTech software
- Users (teachers, administrators, etc.) often having minimal influence on purchasing decisions
- A sales process driven primarily by pre-existing relationships
- Short buying windows (roughly 50% of EdTech purchases happen between June and August)
As a consequence of the above challenges, an unfortunate reality in EdTech is that customers don’t always purchase the best product. A mediocre product with a great sales strategy can do well while a great product with a mediocre sales strategy goes unpurchased and unused.
Having represented 15+ companies in the education sector, we’ve observed the tactics successful EdTech companies with great products use to market their products in K12. While a sales strategy is multifaceted, a key consideration EdTech founders and CEOs should consider is how they will pursue direct vs. indirect sales.
A Direct vs. Indirect Sales Strategy
The difference between a direct and an indirect sales strategy is who interfaces with the end customer.
With a direct sales strategy, you build your own sales force in an effort to start conversations and build your own relationships. This strategy involves a lot of inside sales and content generation to answer the million-dollar question among K12 software buyers: How does your product improve learning outcomes?
For companies that run successful direct sales programs, they enjoy higher margins because they don’t divide unit economics with a partner. They also tend to have better retention due to direct relationships with buyers.
This approach, however, comes at a cost一specifically, the cost for a sales rep to go out knocking doors (virtually or in person) trying to kick off conversations. The cost of personnel adds up, but if that personnel is efficient and profitable, then the company yields the benefit of a scalable direct sales strategy that is hard to replicate.
Direct Sales: Pros and Cons
|Higher margins||Higher cost|
|Direct relationships||Hard to build|
|Greater control of messaging|
|Hard to replicate|
An indirect sales strategy involves working through a channel partner/distributor to capitalize on the sales network the partner already built. These partners often have products/services of their own they market to K12 buyers and will bundle in products from third-party software providers in exchange for a portion of the sale.
The primary benefit of working through a channel partner is rapid access to a broad customer base. For up-and-coming EdTech companies with great products, this strategy could result in a quick growth opportunity.
The main detraction of a channel strategy is that software providers often have limited visibility and control into how their products are marketed by the channel partner. In many cases, a channel partner will market software alongside competing products, which has the effect of commoditizing instead of differentiating a product.
While a channel partner may be willing to work with you to properly position and sell your product, doing so may create an unexpected investment of resources on your part.
In addition, sharing the revenue from a sale with a channel partner means lower margins for you as a software provider.
Indirect Sales: Pros and Cons
|Immediate access to a broad customer base||Lower margins|
|Large and fast growth opportunity||Limited visibility and control over the sales process|
|Commoditization of your product|
|Unexpected costs to manage partnerships|
Depth vs. Breadth
In effect, a direct sales strategy is about depth: you’ll have deeper margins and deeper relationships, but you’ll need deeper pockets to afford an inside sales and content generation team.
An indirect sales strategy, on the other hand, is about breadth: channel partners present a broad opportunity with a broad TAM. But the breadth comes at the expense of depth, meaning limited visibility into the sales process, shallow relationships with buyers, and highly concentrated revenue streams from a few partners.
In order to counterbalance the downsides of each strategy, EdTech founders and CEOs should consider the place of each strategy in their organization.
GoGuardian: Employing Both Direct and Indirect Sales Strategies
GoGuardian is a great example of an EdTech company who recognized the opportunities in each strategy and acted accordingly. As a result of their strategy, they were able to reach $1M in revenue in a matter of five months from startup.
For their direct sales strategy, GoGuardian offers a free trial (including implementation) of their content filtering & monitoring software for classroom devices. Not only do they sell directly to schools and districts, but also teachers, who often are their primary end users. As evidenced by the testimonials on their site, this strategy has worked well for them:
We had a demo and we gave [GoGuardian] to our teachers and they fell in love with it within minutes, then when the demo was up... they almost revolted and they said, "Whatever you do, don’t take away GoGuardian."
For indirect sales, GoGuardian partners with most major K12 partners to include their software preloaded on student devices sold to schools/districts. The net effect of these two strategies has resulted in GoGuardian growing expeditiously.
Key Considerations for Each Strategy
Throughout your company’s lifecycle and as your sales strategy evolves, you should consider the requirements and implications of each strategy.
Direct Sales: Entry Points and Learning Outcomes
With direct sales, you have several entry points to market your product: the teacher, the school, or the district. In general, the larger the entity you sell to, the more likely your product is to stick but also the more difficult to make the sale.
Budgets are limited at all levels, but especially at the teacher level where individual software budgets are almost certainly non-existent. You can, however, still market at this level, as evidenced by EdTech companies GoGuardian and Pear Deck. Both companies provide a freemium product with basic functionality that is teacher-friendly and easy to set up. As teachers derive value from the product, GoGuardian and Pear Deck market paid features to add value for individual teachers and across the school.
Regardless of the entry point, you should be prepared to discuss how your product improves learning outcomes for students. Proprietary research and content are important for passing the message up the chain and across decision-makers in order to get budget approval from the school or district’s technology director.
Indirect Sales: Partner Categories, Channel Teams, and Incentivization
Channel partners fall under three categories: hardware, software, and publisher. Because software is often bundled with other products in these categories, you will want to consider which types of partner make the most sense for you.
For example, if you provide an online textbook reader, then you might consider working with a major publisher to distribute your software along with digital versions of their textbooks. Or, as with GoGuardian, you could have a free version of your software preloaded on Chromebooks for student or teacher use.
Because channel partners often sell products that compete with yours, you should consider dedicating a team to managing the relationship with the partner. This team will be responsible for communicating to the channel partner core features to emphasize when marketing the software (as well as lucrative pricing that would benefit selling your product vs. a competitor’s).
When initiating a relationship with a channel partner, you should seek answers to the following questions:
- Will the software provider interface with the customer or will the channel partner manage that relationship completely, both at the time of the initial sale and at renewal time?
- Who will service the software (including onboarding/implementation and customer support)?
- Will the channel partner bill the customer on the software provider’s behalf?
As you have these discussions with channel partners, make sure your incentives are aligned with the partner. Partners want to feel a sense of loyalty to their channel and therefore will influence other decisions you may make (such as coordinating pricing between direct and indirect channels).
The M&A Implications of a Direct vs. Indirect Sales Strategy
Your sales strategy will impact your M&A and capital raise opportunities when the time comes to make a partial/complete exit or raise growth equity.
As a general rule, buyers and investors like to see:
- A diverse revenue base. Too much concentration of revenue in any one customer (or through any one channel partner) may spook buyers since it only takes one relationship to sour for the company’s revenue streams to suffer.
- Attractive revenue growth. Revenue growth rates are strongly correlated to valuation multiples, so consider how your growth prospects might look by employing a direct vs. an indirect approach.
- Transparency and predictability of revenue. Having clear visibility into revenue data and how future growth is coming is critical for helping buyers feel comfortable with a purchase. While with direct sales you will have full transparency and predictability, the same isn’t the case with indirect sales. With your indirect sales, you should work with your partner as early as possible to glean insight into the new sales pipeline.
Your Sales Strategy Will Evolve
Depending on the stage of your business, one strategy may make more sense than the other. For example, you may start by working with a channel partner as you build out your direct sales team and program.
As your company evolves, consider the role of both strategies throughout your lifecycle, repeatedly evaluating the benefits and detractions of each.