Khaled Azar 
You pulled a list of your biggest customers, checked that no single one of them is too large, and decided your revenue is nicely spread out. A buyer is going to ask a different question. Not who pays you. Who brought them.
Fortinet has to tell the SEC who its big distributors are. In its 2025 annual report, 3 of them each brought in more than 10% of revenue, and the largest brought in 28%. Between them those 3 companies account for 55% of everything Fortinet sells. Public companies are required to publish that. You are not, and that is exactly why a buyer goes looking for yours.
The risk is simple. Too much of your money arrives through one reseller, one app marketplace, or one agency. Buyers price that the same way they price having too few customers, because underneath it is the same problem. Somebody else owns the relationship, and they can walk off with it.
By the end of this post you will be able to score every channel you sell through on 4 questions, turn those scores into a dollar figure of revenue at risk, and know which fixes you can actually finish in the year before you go to market.
The concentration you check, and the channel concentration you miss
One list looks clean. The other has never been made.
Here is a pattern I see repeatedly in diligence on partner-led software companies. The founder arrives prepared, customer table clean, no account over 6%, churn under control. Then the buyer’s analyst asks for new bookings by acquisition source for the last eight quarters. It takes two weeks to produce, because the answer lives in three systems that disagree. When it lands, more than half of new ARR traces back to a single app marketplace listing.
Nothing about the business changed that week. The price did. The growth engine turned out to be a door owned by somebody else, and that somebody else never signed anything promising to keep it open. Our guide to how buyers price customer concentration at the 10, 20, and 30 percent thresholds covers the version everyone checks. This one surfaces later, which makes it cost more.
What buyers are actually pricing when they ask about channel partners
A buyer paying four times ARR is not buying last year’s revenue. They are buying the right to keep collecting it after you are gone. So they price every party standing between your product and your customer, because each one holds an option you do not control: reprice you, redirect the customer to a competitor, or decline to renew and keep the account.
Two terms first, since the industry uses them loosely. A distributor buys from you and resells to other resellers, so the end customer sits two steps from your contract. A value-added reseller, or VAR, bundles your product with their own services and usually owns the customer relationship. Either way, somebody else holds the pen at renewal.
Fortinet’s fiscal 2025 annual report discloses that a single distributor accounted for 28% of total revenue, with the next two at 15% and 12%. Six distributors held 67% of net accounts receivable. Source: Fortinet Form 10-K, filed February 25, 2026.
Now compare Qualys. Its fiscal 2025 annual report says 49% of revenue came through channel partners, up from 46% and 43% in the prior two years, and that no single customer or channel partner exceeded 10% of revenue. Both companies are channel-led. Only one of them has a partner who can decide its next twelve months.
The Renewal Control Test: scoring each channel
Four questions, asked once per channel.
Since buyers price control of the renewal rather than the source of the revenue, measure control directly. For every channel carrying more than 10% of ARR, answer four yes or no questions. Each is a lock. Each yes means you hold the key.
1. Identity. Do you hold the end customer’s name, contact, and billing relationship directly, without asking the partner? If the partner is the only party who knows who uses your software, you cannot keep them when the partner walks.
2. Price. Do you set what the end customer pays, and is the partner’s cut fixed by a contract you negotiated? Founders assume they hold this lock more often than they do.
3. Renewal. Who executes the renewal order? Qualys describes its own model plainly: the channel partner engages the customer to execute the renewal, with the Qualys sales team assisting. That is deliberate and disclosed. If yours happened by accident, that is a different situation.
4. Assignment. Does the partner agreement survive a sale of your company without the partner’s consent? Many do not. Consent rights hand a partner a seat at your closing table, the same mechanic covered in our guide to contracts that need the other side’s permission before they transfer to a buyer.
Count the yes answers. That is the channel’s control score, zero to four.
The price lock deserves evidence, because platform economics move without asking you. Atlassian’s developer documentation sets the partner share of Marketplace revenue at 84% for Forge apps and 80% for Connect apps as of April 1, 2026, then trims Forge to 83% and Connect to 75% on October 1, 2026. A Connect publisher keeps five points less of every dollar six months later, by a decision made somewhere else. Shopify runs the other way, taking 0% on a developer’s first $1,000,000 of lifetime app revenue and 15% above it, plus a 2.9% processing fee. Better terms. Still not your terms.
| Channel type | Locks you usually hold | Locks usually open | Typical score |
|---|---|---|---|
| Direct sales | Identity, price, renewal, assignment | None | 4 of 4 |
| Implementation agency | Identity, price, renewal | Assignment | 3 of 4 |
| Value-added reseller | Identity, price | Renewal, assignment | 2 of 4 |
| Distributor, two-tier | Price, in some agreements | Identity, renewal, assignment | 1 of 4 |
| App marketplace | Rarely any | All four | 0 of 4 |
A partner carrying 40% of ARR at four locks held is a sales channel. A partner carrying 15% at zero locks held is a dependency, and the second one is what shows up in deal structure.
Turning your channel score into a valuation number
Treat every open lock as a quarter of that channel’s revenue you cannot fully promise a buyer. That weights the locks equally, which is a simplification worth naming: renewal and assignment bite hardest, because those are the two a partner can act on the week you sign. What follows uses round numbers.
Take a vertical SaaS company at $4,000,000 of ARR, no customer above 5%. Direct sales carries $1,600,000 and scores four of four, so nothing is exposed there.
One app marketplace carries $1,600,000 and scores zero of four. All four locks open, so the whole $1,600,000 is exposed.
One reseller carries $800,000 and scores two of four. You know the customers and set the price, but the reseller runs renewals and the agreement needs consent to transfer. Two open locks means half, so $400,000 is exposed.
Add them. $1,600,000 plus $400,000 is $2,000,000. Half the business sits behind locks the founder does not hold, in a company whose customer concentration table looked spotless.
The plain rule matters more than the arithmetic: once roughly a third of your ARR sits behind open locks, buyers stop treating your revenue as diversified demand and start treating it as one acquisition channel with customers attached.
The consequence is rarely a lower headline multiple. Buyers carve instead. The exposed slice moves into an earn-out, which is simply part of the price paid later and only if the business hits agreed targets, or a holdback, which is money the buyer keeps in reserve for a year or two after closing, or a lower multiple on that portion alone. It is the same sorting logic behind why buyers value some recurring revenue more highly than other recurring revenue.
The fix list, in priority order
Twelve months is enough for three of these. Not for all four.
Identity, starting today. Get end customer records into your own systems for every partner-sourced account: company, contact, seats, usage, renewal date. Where the agreement blocks it, ask for a data-sharing amendment at the next renewal. Target 90% of partner-sourced ARR identified before you go to market.
Attribution, within 60 days. Pick one system as the source of truth for acquisition channel, tag every deal for the trailing eight quarters, and reconcile against billing. Taking two weeks to answer the bookings-by-source question is itself a finding.
Assignment, at the next contract cycle. Read every partner agreement for the assignment clause and the termination notice period. Ask for assignment on notice rather than consent, and push notice to 12 months. Partners agree more often than founders expect, because it costs them nothing today.
Mix, only if there is time. Moving revenue between channels takes 18 to 24 months and shows up as slower growth in the exact period a buyer examines. Under a year, do not try. A well-evidenced 40% channel beats a poorly documented 25% channel every time.
Three of the four fixes are documentation and contract work, not growth work. That makes channel concentration one of the cheapest exit risks to reduce and one of the most expensive to ignore.
The evidence a buyer will ask you for
Have these ready before the first management meeting. The broader sequence lives in our 12-item checklist of what to fix before going to market.
- Bookings by acquisition channel, eight quarters, one system. A climbing share reads very differently from a flat one.
- Every partner agreement, assignment and termination clauses flagged. Buyers read these anyway.
- End customer roster for partner-sourced revenue. Proof you own the relationship, not just the revenue line.
- Retention split by channel. If partner-sourced cohorts retain better, that is a pricing argument in your favor, and almost nobody presents it.
- Margin per channel after partner share and discounts, including what it becomes at the platform’s next announced rate.
Frequently Asked Questions
What percentage of revenue through one channel partner is too much?
There is no single threshold, because share matters less than control. Score the four locks first, then look at the share. A large channel you fully control is a strength, and a small one you control nothing about is a diligence problem.
Does channel partner revenue get a lower valuation multiple than direct revenue?
Not automatically. A company can run half its revenue through partners and still price well, provided no single partner is large enough to move the business on its own. The discount attaches to dependence on one partner, not to the use of partners.
Can I fix channel concentration in the year before selling?
You can fix most of it. Capturing end customer identity, building single-source attribution, and renegotiating assignment clauses are documentation and contract projects, and all three fit inside twelve months. Only the revenue mix itself takes longer.
What happens to my reseller agreements when the company is sold?
It depends on the assignment clause in each agreement. If assignment requires the partner’s consent, that partner effectively gets a vote at your closing, and some will use it to renegotiate. If assignment is permitted on notice, the contracts transfer with the business. Read every one before you sign a letter of intent, the non-binding document that sets your headline terms before diligence starts.
Next Steps
Not sure how a buyer would score your channels? We will run the Renewal Control Test against your actual revenue mix and show you which locks are open before a buyer finds them.