Am I Giving the Right Margin To the Channel?

Margin, as defined as the difference between buy price and sell price, is probably not the right question. The right question takes into account the partner’s entire economic model; “Do I offer my partner a profitable business proposition?” is a better question. Partner profitability is dependent on quite a number of factors and to understand the margin question you need to look at each of the following:

  1. How do partners make money with respect to your products/services?

    In the technology market, resellers are getting squeezed and products are maturing and commoditizing. Software is going SaaS, with a very different revenue model. As one “born in the cloud” partner manager once told me, “If they ask, ‘How much margin will I make?’ then I know they are not the right partners. In this scenario, his partners made money in selling application development and management services and his SaaS offer enabled partners to make more profit at less risk on application development. His SaaS offer was essentially a pass through for the channel partner. He was selling a razor; his partners were selling razor blades. Are you the razor or the razor blade…or some of both?
  2. How do your channel programs impact profitability?

    Your channel programs are probably a mix of cost offsets, incentive discounts and rebates. All have an impact on partner profitability. If structured appropriately they will motivate partners to make the right investments in your business, build loyalty and drive revenue.
  3. Cost offsets are programs such as market development funds

    Partners are typically reimbursed for expenses they incur in promoting your products. Training and certification, whether they are provided at no cost or are reimbursed upon completion, are offsets to investments partners need to make to be successful. One partner once told me that they reported the dollar amount of “free training” to their management as a benefit of a partner relationship since it had tangible impact on their business.

    Other programs provide incremental margin through incentives and discounts. Deal registration is among the most common and generally provides additional discount and some competitive protection resulting in enhanced margins. Other incentives are often paid on the back end of the sale. These are more difficult to flow to the street and generally reward partner investment in the business. They can contribute greatly to partner profitability for this reason. Volume rebate is one of the most common but vendors also offer rebates for reaching customer satisfaction goals, sales within authorized territories, or other performance criteria.

  4. Is there value in your brand and reputation that enables partners to sell more or command a premium?

    Having a strong brand is part of the channel economic model. Partners sell what customers want. Cisco resellers have been beneficiaries of a strong and powerful brand. When I’ve spoken to Cisco partners in years past, they say they partner with Cisco because that’s what their customers ask for. These same partners often partnered with Cisco competitors that treated them better offered better incentives and marketing programs, and while they appreciated that #2 tried harder, at the end of day, they sold what their customers wanted.

This post by Norma Watenpaugh, Founding Principal, Phoenix CG, was recently published in our new eBook,The Top 10 Things Making Channel Chiefs into Insomniacs, and What to do About It. In creating this guide for Channel Chiefs, we tapped our network of top channel strategists to provide thoughtful, meaty, practical advice on Chiefs' key questions about the market today. Click here to down full eBook for recommendations that will help you transform your channel operations, accelerate your indirect sales — and sleep peacefully.

Comments are closed