Choose the distribution channel that matches user behaviour

Xero reaches small businesses directly and through accountants, and its annual report shows how churn and payback differ by route. A five-question method for choosing your channels.

Many marketing plans pick channels by habit: the ones the team knows, the ones competitors use or the ones with the best-looking dashboards.

A better starting point is how your buyers actually behave when they look for, choose and use a product like yours. Xero, the New Zealand-founded accounting software company, shows why.

Two routes to the same customer

Xero’s annual report for the year to 31 March 2026, filed with the Australian Securities Exchange, describes two kinds of customer relationship.

Some small businesses work directly with Xero. Others use Xero through their accountant or bookkeeper. The report says Xero engages with direct customers through digital channels, and works closely with accountant and bookkeeper partners through events and regional roadshows.

This reflects how small businesses buy accounting software. Many rely on an adviser to recommend a system. Others choose for themselves online.

What each route looks like in the numbers

The annual report gives an unusually clear view of the trade-offs. Xero reported 4.92 million customers at year end, up 11%. Amounts below are in New Zealand dollars.

Average monthly churn rose from 1.03% to 1.14%. The report attributes this to increased use of the direct channel and a larger contribution from international markets, both of which it says have structurally higher churn but higher average revenue per customer.

The segment table shows the contrast. In Australia and New Zealand, where Xero is long established, churn was 0.85% and lifetime value was 10.7 times the cost of acquisition.

In international markets, churn was 1.48% and the ratio was 3.5. Customer acquisition costs took 17.2 months of revenue to recover, compared with 9.8 months in Australia and New Zealand.

Different markets, different behaviour

Xero’s channel choices differ by market. In the US, the annual report says growth reflected strong performance marketing in the direct channel. The US added 58,000 net new customers, excluding customers from the acquired payments company Melio.

In the UK, the report links growth to Xero Simple, a product introduced to support accountants and bookkeepers ahead of Making Tax Digital for Income Tax. Xero’s results announcement says operating revenue grew 31% to $2.8 billion for the year.

The lesson is not that partners beat direct sales, or the reverse. Xero uses both, and chooses emphasis based on how customers in each market make decisions.

How to choose your channel

Use a five-question method. It is our framework, informed by Xero’s disclosures rather than taken from them.

1. Who influences the decision?

List everyone who shapes the purchase: advisers, consultants, IT teams, procurement, peers. If a trusted adviser usually recommends the product, a partner channel deserves priority.

2. Where do buyers start looking?

Ask recent customers how they first found options. Search, colleagues, industry events, marketplaces and AI assistants each suggest different investments.

3. How long do customers stay through each route?

Compare churn or renewal rates by channel. Xero’s report shows that a cheaper or faster channel can bring customers who leave sooner.

4. What does each customer cost and return?

Calculate acquisition cost, months to recover it and lifetime value by channel. Xero reports these by segment; you can do the same with a spreadsheet.

5. What does the channel need from you?

Partners need training, tools and a reason to recommend you. Direct channels need content, onboarding and support. Count those costs honestly.

What a partner channel needs from you

If your buyers rely on advisers, the partner channel only works when advisers find it easy and rewarding to recommend you. Xero’s annual report shows the kind of investment involved.

It describes events such as Xerocon and regional roadshows for accountants and bookkeepers. It also describes products built for partners, such as Xero Simple, designed to help UK accountants and bookkeepers prepare clients for Making Tax Digital.

The lesson for a smaller firm is to treat partners as a market in their own right. Ask what problem your product solves for the adviser, not only for the end customer. Then give them training, material they can use with clients and a clear person to call.

Build a simple channel scorecard

Put each candidate channel in a row. Add columns for influence on the decision, share of recent customers who started there, retention, acquisition cost and the support the channel needs.

Score each from 1 to 5, then discuss the top two with sales and finance. Avoid weighting the scores so heavily that the spreadsheet makes the decision for you.

A worked example

Hypothetical: a Portuguese HR software firm sells to companies with 50 to 500 staff. Interviews show that most buyers ask their payroll bureau for advice before choosing.

Its paid search campaigns bring in sign-ups, but those customers cancel at twice the rate of those referred by bureaus. The firm moves budget into a payroll partner programme with training and co-branded material.

It keeps search running for the self-directed buyers who prefer it, with a clearer onboarding path. The figures and names in this example are illustrative.

Warning signs you have the wrong channel

High volume, poor retention. Lots of sign-ups who leave quickly often means the channel attracts people the product does not suit.

Long sales cycles despite strong interest. Buyers may need an adviser’s approval you are not reaching.

Partners who sign up but do not sell. They may lack training, incentives or confidence in your product.

Report by channel, not in total

Leadership should see acquisition cost, retention and lifetime value by channel, not just a blended figure. Xero’s segment disclosures show how much a total can hide.

Review the mix twice a year. Customer behaviour shifts as markets mature, regulations change and new discovery tools such as AI assistants appear.