Channel Incentive Program ROI
The Channel Mechanics team recently hosted a webinar “Incentive Models for the Changing Partner Ecosystem“. During an audience poll, I noted that one of the major concerns identified by vendors in relation to channel incentive programs, was that of program ROI.
But with today’s richly functional incentive management software, it is more cost effective than ever to launch programs that can scale easily, map progress and provide partner visibility along the way. Channel Mechanics even has an excellent white paper on this very aspect.
So why is ROI on Channel Incentive Programs still such a challenge?
Effective Channel Incentive Program Design is still the responsibility of the vendor. To help vendors get the greatest return – measured in partner participation, partner achievement and partner satisfaction – I’ve put together the following seven “market proven” rules of thumb when it comes to designing your Channel Incentive Program. If an incentive program fails, it can often be traced to one or more of these seven factors.
7 Rules to Improve ROI on Channel Incentive Programs
1. Go with the Flow
Practice the Zen art of channel partner incentive design and motivate partners to do more of what they already know how to do, well. Partners have created their core business models to optimize their strengths and market position. Factors such as customer size, verticals, geography, portfolio design, type, level of value-add and margin expectation result in staffing, sales processes and training levels that cannot be easily changed. Problems arise when vendors expect the incentive program to change the basic business model. That’s simply expecting too much from an incentive program.
2. Align the Financial Reward to your Channel Partner’s Cost of Sale
The chart below can help to frame channel incentive program design when your goal is to focus your partner on a new offer or on new accounts. The two axes are “product” and “customer,” and the end-points of each axis are “new” and “existing.” “X” is the cost of selling an existing product to an existing customer. The matrix gives a picture of your partner’s cost when they leave the comfortable “X” box. For example, we see that selling a new product or service to a new customer can cost up to 12 times the cost of selling an existing product or service to an existing customer. If this position is where you want your partners to focus, the financial incentive must recognize the significant cost increase.
3. Set Targets based on how much Partner “Capacity” you have to work with
Within a partner’s current business structure, there is only so much sales capacity. As you model the expected financial impact of your sales incentive program, you’ll want to understand how much of that capacity is reasonably “available” to you. This is a function of two factors:
- Current Partner Sales Productivity Vs Industry Average. For example, say the industry average sales productivity for a partner’s salesperson is pegged at $300K. And your partner’s salespeople are averaging $250K, then there is some capacity that might be available. If, however, your partners are exceeding the average, it is very unlikely that they can grow sales beyond what they’re doing today, without incurring the cost of additional staff. Therefore your channel Incentive program will loose it’s effectiveness.
- Your Current Share of Partner Capacity. This is a simple assessment of your share position. For example, if your share is 10%, you probably have room to grow. But at 40%, your strategy may become more defensive in efforts to maintain your share position.
4. Create Partner-Specific Achievement Targets
Channel Incentives lose their power quickly if one small group of partners always wins the trip or receives the highest recognition. The most effective channel incentive programs create a level playing field that allows each partner to compete against its own past performance.
5. Alight Incentives to your Product’s Role in the Partner’s Business
Not all products play the same role in your partners’ business. When designing channel incentive programs, the vendor’s job is to understand that role in order to maximize program return.
- Primary Products: These define the channel partner’s business. The entire economics of the business are designed around them. The partner HAS to succeed with these offers or it will be out of business. SPIF’s on these type of offers often get criticized as a waste of money. This can be true if the incentive compensates for sales volume alone. But they can be useful when the vendor wants to focus the partner on a specific type of sale (ex. new customer acquisition, cross-selling or up-selling) for strategic reasons.
- Secondary Products: These are sold as complementary to primary products to increase the value of the sale. They offer great opportunities for incentives, including SPIF’s.
- Tertiary Products: These are “bought, not sold”. That is, they get little/no sales effort. The partner carries them as a convenience. Conventional channel incentive programs typically don’t work well here. The funds would be better spent on creating customer demand and securing good placement on partner web sites.
6. Set Expectations on Program Participation based on your Importance to your Channel Partner’s Business
In this case, importance is expressed as a percent of the partner’s total sales. The chart below offers some guidelines:
7. Remember to Communicate Channel Incentive Programs to all Stakeholders
Communication of new channel incentive programs should be early and often to all stakeholders. After all, if a channel partner doesn’t know about the incentive program, how can it influence their behavior. And by all stakeholders we mean the direct sales force too! Software such as the Channel Mechanics platform has tools to help tremendously here, allowing both you and your channel partners to communicate the full process. Thereby seeing ongoing participation, progress and making program corrections in real time, when needed.
To learn more on how market leading vendors automate and manage their channel Incentive programs, contact Channel Mechanics today and start measuring your Program ROI immediately.