The Margin Squeeze: Why SaaS Resellers Are Struggling to Stay Profitable
- LMSPortals
- 1 day ago
- 5 min read
Introduction: The Pressure Cooker of Modern SaaS
SaaS reselling was once a lucrative niche. Acting as a middleman between software vendors and end users, resellers added value through consulting, support, and integration. But that model is showing serious strain. Profit margins are shrinking, customer expectations are rising, and competition is intensifying. What was once a dependable revenue stream is now a balancing act on a knife’s edge.
What Is a SaaS Reseller?
A SaaS reseller is a business that buys access to software as a service (SaaS) platforms—think CRM tools, marketing software, collaboration suites—and resells them to end customers, typically bundled with services like onboarding, customization, or ongoing tech support. These resellers aren’t the software creators; they’re the connectors, often playing a crucial role in adoption for small and mid-sized businesses that lack in-house IT expertise.
The Traditional Appeal: Low Overhead, Recurring Revenue
SaaS reselling has always attracted entrepreneurs and IT consultants for a few good reasons:
Low upfront investment compared to building proprietary software.
Recurring revenue from monthly or annual subscriptions.
Opportunities to upsell value-added services like training, customization, and troubleshooting.
This made it a lean business model with predictable income. But several industry shifts have eroded these advantages.
Shrinking Margins from Vendor Pricing Changes
The biggest and most direct hit to profitability comes from the vendors themselves. As more software providers shift toward direct-to-customer models, they reduce discounts for resellers. Some eliminate them entirely. Cloud giants like Microsoft, Google, and Salesforce increasingly prioritize their own sales channels or large-scale partners over smaller resellers.
Two major trends stand out:
Tiered pricing is becoming stricter. Small resellers struggle to hit volume quotas needed for meaningful discounts.
Vendors are moving toward self-serve models, reducing the need for intermediary involvement.
This forces resellers to charge more for the same product, but customers can often get it cheaper by going straight to the source.
Vendor Lock-In and Reduced Flexibility
Many SaaS companies now enforce tighter terms on their reseller programs. Resellers are often required to sign exclusivity agreements or face stiff penalties for switching vendors. This limits their ability to pivot or offer the best solutions for their clients.
Additionally, backend access and administrative tools have been restricted. Resellers have less control over account management, customer data, and service customization, diminishing their ability to add value.
Commoditization of SaaS Products
Software that was once considered cutting-edge is now a commodity. CRM, project management, helpdesk tools—they’re all widely available with similar features. When customers see little difference between products, price becomes the deciding factor.
That leaves resellers in a race to the bottom. Without differentiation or exclusive offerings, it's hard to justify markups or service fees. Even white-labeling strategies are less effective as customers become more software-savvy.
Rising Customer Expectations
Customers are more informed than ever. They compare tools, read reviews, and expect near-instant support. They want tailored solutions, not just software access. Resellers must invest more time into customization, training, and troubleshooting, often without a proportionate increase in revenue.
A client who pays $20/month for a SaaS tool might expect:
Free onboarding
Customized templates or workflows
Same-day support
Integration with multiple platforms
That level of service takes time and expertise, which eats into already thin margins.
Increased Competition and Platform Disintermediation
Barriers to entry for SaaS reselling are low. New entrants flood the space with aggressive pricing and promises of white-glove service. Meanwhile, the platforms themselves are undercutting resellers by going direct.
Some are even disintermediating their partners by launching marketplaces or freemium plans that bypass resellers entirely. Vendors like HubSpot and Notion offer low-cost or free versions with in-app upgrade options, leaving little room for third-party intervention.
Operational Overhead Is Rising
Managing multiple SaaS products, tracking renewals, handling support tickets, and maintaining customer relationships require infrastructure. Resellers often cobble together tools to run their operations—CRM systems, billing platforms, analytics dashboards—but this patchwork approach creates complexity.
To remain competitive, resellers must now invest in automation, customer success tools, and specialized staff. That raises costs and erodes the simplicity that once made SaaS reselling attractive.
The Shift to Usage-Based Pricing
Usage-based pricing is growing, especially in infrastructure, API, and data services. This model aligns price with consumption but makes it harder for resellers to predict revenue. It also complicates billing and customer education. Resellers must now explain complex pricing structures and manage client usage to avoid bill shock.
While some see this as a way to upsell, the inconsistency often deters customers who prefer flat, predictable fees.
Regulatory and Compliance Burdens
As data privacy regulations expand (GDPR, CCPA, etc.), resellers must ensure that the software they provide—and how they handle customer data—meets compliance standards. This adds legal risk and potential liability, especially when resellers act as data processors.
Smaller resellers may lack the legal expertise or technical resources to manage these obligations effectively, making them less attractive to enterprise clients.
What Can Resellers Do to Stay Profitable?
Despite the challenges, SaaS reselling isn’t dead. But survival depends on adaptation. Here are several strategies that can help:
1. Specialize by Niche or Industry
Resellers that focus on a specific vertical—like healthcare, law, or education—can offer tailored solutions that justify higher prices. Domain expertise adds value that generic competitors can’t match.
2. Bundle High-Margin Services
Instead of competing on software prices, resellers should bundle consulting, onboarding, training, and support. Position the SaaS product as one piece of a larger transformation.
3. Build Proprietary Tools or Add-ons
Developing lightweight tools or integrations on top of existing platforms can create proprietary value. This makes it harder for clients to switch and easier to justify premium pricing.
4. Choose Partners Wisely
Work with vendors that offer true channel support, flexible margins, co-marketing funds, and account management tools. Avoid those that treat resellers as temporary middlemen.
5. Automate and Streamline
Invest in automation tools to reduce operational overhead. Subscription billing, ticketing systems, and usage tracking should be efficient and scalable.
6. Prioritize Customer Success
Long-term profitability depends on retention. Build systems for regular check-ins, proactive support, and outcome-driven consulting. Satisfied clients don’t churn.
Summary: Adapt or Exit
The golden era of easy SaaS reselling is over. Profitability now requires creativity, operational discipline, and a relentless focus on value-added services. For those willing to adapt, opportunities still exist—especially in underserved niches or complex verticals. But for resellers clinging to the old model of simple markups and minimal involvement, the margin squeeze will only get tighter.
SaaS isn’t going away. But the way it’s sold is evolving fast. The resellers who survive will be those who evolve even faster.
About LMS Portals
At LMS Portals, we provide our clients and partners with a mobile-responsive, SaaS-based, multi-tenant learning management system that allows you to launch a dedicated training environment (a portal) for each of your unique audiences.
The system includes built-in, SCORM-compliant rapid course development software that provides a drag and drop engine to enable most anyone to build engaging courses quickly and easily.
We also offer a complete library of ready-made courses, covering most every aspect of corporate training and employee development.
If you choose to, you can create Learning Paths to deliver courses in a logical progression and add structure to your training program. The system also supports Virtual Instructor-Led Training (VILT) and provides tools for social learning.
Together, these features make LMS Portals the ideal SaaS-based eLearning platform for our clients and our Reseller partners.
Contact us today to get started or visit our Partner Program pages
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