Top 10 Things Making Channel Chiefs Into Insomniacs
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Top 10 Things Making Channel Chiefs into Insomniacs And What to do About It It is said that if you have nothing to worry about at 3 in the morning, you are truly at peace. Our market intel says that’s rarely the case for today’s channel chiefs. We know the pressures are intense to stay on top of a rising number of business dynamics that are causing chiefs like you to redefine insomnia, as you search for solutions to take on today’s market challenges and win. In this eBook, we’ve asked some of the top channel industry experts to take on the key issues channel chiefs are facing. With decades of cumulative channel experience working with and for companies like Dell, EMC, Fortinet, Sun Microsystems, HP and Extreme Networks, these channel veterans have provided insights and recommendations that will help you put these issues to bed, transform your channel operations, accelerate your indirect sales – and sleep peacefully. Read on for their answers. pg 2 The Top 10 Questions Causing Channel Chief Insomnia Or a dose of reality 1. Am I giving the right margin to the channel? Or a dose of reality 2. Do I have the right number of channel partners? 3. Does deal registration work/make sense for me (protect margin for partners)? 4. Is my channel effectively closing leads on their own, or am I still spending my resources on closing channel deals? 5. Are my demand gen efforts impactful and do they work? 6. Am I getting ROI on my MDF investments? 7. How loyal are my partners, and how do I know? 8. How is “cloud” changing the game in my channel? 9. Do I have the analytical tools needed to gain insight into my channel performance? 10. Am I recognizing and incentivizing the appropriate partner behaviors? pg 3 1. 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: Continued » Norma Watenpaugh, Founding Principal, Phoenix CG pg 4 1a. 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? 1b. 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. Continued » pg 5 1c. 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. 1d. 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. pg 6 2. Do I Have the Right Number of Channel Partners? 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: Continued » Norma Watenpaugh, Founding Principal, Phoenix CG pg 7 2a. Are you 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? 2b. Are you 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. Continued » pg 8 2c. 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. 2d. 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. Many channel programs suffer from the 80/20 rule. Their top 20 percent of partners drive 80 percent of revenue. *Praeto principle, known as the 80/20 rule. pg 9 Doing the Math There are many ways to “calculate” channel capacity. The right way depends Doing the Math on what capabilities your partners are bringing to the customer value Desired Revenue Level $100M subscription proposition. A calculation for online retailers would be very different than for i.e., quota a product requiring a significant service component. For one SaaS client, we Service Ratio 1:1 $100M services determined that there was approximately a one to one ratio of subscription Service Rate $200/hr Utilization/Consultants 1000hr/year dollar revenue to implementation services. Without the services component, Consultants Needed $100M/($200/hr customers would not be able to implement their SaaS offer or at the very least *1000hr/yr)= 500 consultants retention would be in jeopardy. Services was the bottleneck in the business. Avg # Consultants/Partner 5 Number of Active Partners 500 consultants/5 per Extrapolating from that, if a sales region determined they had the demand partner =100 partners to sell $100M in new subscriptions, they needed the channel to be able to Apply 80/20 rule Potentially 500 partners 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.