The success of a channel partner should be measured by the outcomes achieved for the investment made. In other words, did you get what you paid for or more? If not, how do you restructure partner compensation in order to do so? Throwing money — in the form of deal margin — at partners in the hopes of driving the right behavior is the wrong approach. Pay must be tied to results, just as you would for direct sales professionals you employ.
Many new channel programs result in less than favorable results. Often the problem boils down to badly designed partners compensation plans or — worse yet — having no formal plan at all. Whether paying too much for too little or paying too little and asking for too much, getting the fit right is critical to a long-term profitable partnership.
See if you recognize yourself in any of these scenarios:
- Your reseller agreements outnumber the incremental deals you’ve done with these same “partners”
- A financial review of your partner program shows it would have been cheaper to simply hire more direct sales people
- Poorly structured agreements mean your “best” channel partners have gamed the plan, generating more margin for themselves than for you
- With no annual renewal targets in place, you’re burdened with a stack of multi-year agreements for partners that never generated a single new deal
So what results should you pay your partners for?
First, it should be a realistic reflection of the efforts your partner will undertake in order to drive more revenue for both parties. Specifically, this means marketing activities, sales efforts, and potentially services and delivery. This could mean webinars, direct marketing, email marketing – whatever means of demand generation they currently utilize and can extend to promote your joint offering. If it’s a natural fit for how they currently market, doesn’t require they step too far out of their comfort zone and gets them to the targets you’ve both set, you’re off to a good start.
Ultimately, most partnerships are about revenue and generating more of it. As such, setting realistic revenue targets are what matter most in designing the right partner compensation plans. Whether it’s units, dollars, profit margin or some combination, revenue-related targets are the focal point of partner compensation. Tying discounts to performance over the right period (i.e. trailing quarter, year-over-year) is equally important. If a potential partner isn’t prepared to dig into the details of how to structure the right revenue targets, you should reconsider whether you’re ready to partner with them.
In addition to marketing and sales, in some categories, particularly enterprise software, influencers and implementers are key to successful sales growth. This includes specialized consulting firms or systems integrators who could span a continuum from recommendation to proof-of-concept to full deployment. A successful POC can make or break large enterprise-wide deployments, and so are worth incenting a partner to get to this stage. Likewise, in larger, more complex deals, getting the deployment right means the difference between a one-shot deal and a renewal at the end of the term. If you’re in the enterprise software business, recognizing and rewarding these specific activities makes good business sense.
Maintenance & Renewals
Marketing activities, revenue targets and deployments are the three primary areas of influence and measurement in a sales-focused partner agreement for software companies. It may also make sense to reward your partners for driving activities such as maintenance and renewals. As Software-as-a-Service becomes the dominant delivery model, the meaning and importance of term, maintenance and renewal begins to shift (along with most everything else), but for on-premise software vendors, maintenance remains a significant source of revenue.
When developing your channel partner program, these are four key components to consider as you look to build partnerships that pay for performance. In future posts, we’ll look at the mechanics of a sound partner agreement such as term, renewal, and reporting requirements, as well as specific examples.