“What partner owners really cared about was what their business risk and the bottom line looked like…”
It’s surprising how many channel people we talk to that do not have a clear understanding of how their partners make money selling their products. If they do, they quite often don’t incorporate all the factors affecting partner profitability into their programs.
When we talk with our clients about the importance of a strong economic value proposition to support their recruiting and re-recruiting efforts, they report many of the same challenges:
I’ve been there! Right after, “where are the sales?”, more cumbersome questions arise: Was it really worth it? Why are only a few resellers bringing in new business? What is wrong with them?
Communicating a compelling economic value proposition to partner owners and execs in simple terms that show how they’re going to make money with your product line has never been more important than it is today. The complexity of total offers–products plus services to deliver complete solutions–makes such messaging critical to get mindshare and wallet share from those partners. More than just messaging to partners at the deal level, you must paint a picture of how they are going to be successful in the short term and over the long haul, which is often the next 2-3 years in today’s changing world.
We have often been asked to benchmark companies’ total rewards packages against a market basket of industry companies. This starts with a look at discounts, rebates, special incentives, deal registration incentives, and market development funds compared to best practices and industry norms.
We found that business owners and the partner execs seemed not to care about the up-front factors as much as they should. Of course, discounts, rebates, and incentives are important, but over time they all tend to settle to a competitive norm, so there isn’t a lot of differentiation between vendors. What partner owners really cared about was what their business risk and the bottom line looked like–how much they had to invest to get into the business, how much it took to ramp up to be in the business, and their operational costs to make it a sustainable and growing part of their company. In other words, what they really cared about was what they kept, not just the top line or gross margins.
This led us to additional research into the fundamental economics around the partner relationship, across a number of different markets. We found examples where the deal-level economics were really strong; the top-line revenue was there, and margins were good, but the vendors didn’t have a solid program or ability to execute, which made it very difficult to do business with those companies. We found that partners of those firms would tend to sit back, let the vendor do all the work, and be happy with the more modest margins that came from merely ‘fulfilling.’
Vendors can have great products, great technologies, customers that love them, and partners that say all the right things. Customer pull-through can mask a lot of issues, so vendors must address two key areas to do more deals, faster:
Effectiveness in these two related areas will combine to drive more opportunities, get to yes (or no) faster, and allow the partner to do more overall transactions at an effective cost of sales, which when it comes down to it, is what partners want out of their vendors.
Vendor program elements and investments need to be designed to support the economic value proposition for targeted high-potential partners. To build effective programs you must:
Through these steps, vendors can show current underperforming and high-potential new partners how their investment in and commitment to the vendor will yield increasing revenue and profits. Vendors who adopt the ‘Show Them the Money’ approach attract and retain more top partners and will actively outperform their competition.
(This content was originally presented by Kevin Rhone, Practice Director and Senior Strategic Consultant at Enterprise Strategy Group, as part of a Lightning Round presentation on the “Top 9 Things Channel Chiefs Must Do in 2018 to Transcend the Performance of Their Channel.” To watch the entire presentation featuring a host of top channel strategists, CLICK HERE. This blog post originally appeared on ESG Blogs, March 7, 2018)