11. July 2016
Understanding if you have the right number of channel partners can be a tricky question – and it’s just as important to ask if you have the right type of partners. You may have thousands of partners but they may not be productive for you or they may not have the right skills. Plus, assuming they are the right partners with the right skills, there is still a possibility of too much of a good thing. Here are some questions to ask yourself:
Am I over-distributed? If you have too many resellers you may see the destructive results of hyper-competition in the market. This can quickly break down into a street price war that erodes partner profitability and commoditizes your brand value. Some vendors take a very Darwinian view and let the survivors prevail, but that can have serious downsides. Partners who compete only on price rarely have the resources to invest in technical skills, customer service, or demand generation. Meanwhile your brand may now be positioned as the low-cost and low-quality offer. Is this the business you are in?
Am I under-distributed? Customers who might want your products and services never have a fair opportunity to buy what you have to offer because you are not on the radar. It will also put you in the position of having to do all the market development, demand generation and services delivery yourself, straining your resources and ultimately impacting customer experience and, again your brand.?
How does distribution vary by market, industry, and geography? Ahhh, here’s a clue to solving the distribution question: rarely do you have an even distribution of partners across market segments. The right number of channel partners is dependent on the demand in any particular segment and how many partners with the right capabilities are needed to service that demand. Having the right tools to analyze your channel capacity is key. For example, can you profile your channel coverage for partners with banking expertise and managed services capability in London, New York, and Zurich? When you can break down the distribution into more granular segments, it’s easier to get a handle on the right number of partners.
How does driving engagement change the picture? Many channel programs suffer from the 80/20 rule. Their top 20 percent of partners drive 80 percent of revenue. What is more productive: partners who sell more or more partners who sell? By creating a strong engagement experience for your partners, you can motivate more revenue generating activities, not just from your top partners, but from partners already in your channel. There is a cost to recruiting and onboarding new partners, so unless your current partners are not the right fit for you, then showing a bit more TLC to your “next 20 percent” is likely to have much better ROI.
Doing the Math There are many ways to “calculate” channel capacity. The right way depends on what capabilities your partners are bringing to the customer value proposition. A calculation for online retailers would be very different than for a product requiring a significant service component. For one SaaS client, we determined that there was approximately a one to one ratio of subscription dollar revenue to implementation services. Without the services component, customers would not be able to implement their SaaS offer or at the very least retention would be in jeopardy. Services was the bottleneck in the business.
Extrapolating from that, if a sales region determined they had the demand to sell $100M in new subscriptions, they needed the channel to be able to deliver $100M in services. At an average professional services rate of $200/ hr and 1000 hrs year utilization/per professional, they would need 500 consultants. Most of their channel partners were small operations and so they guestimated each had on average 5 consultants who could be trained and certified to provide the necessary services. So in this area they needed 100 skilled, active, and engaged channel partners. The qualifiers are important in this equation. If your channel mimics the 80/20 rule, you may realistically need to recruit, on-board and activate 500 partners to truly achieve the service capacity needed to support your business (See Graphic).
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.