Kamran Qamar » partner (indirect) channel

Communicating Expectations

Kamran — Mon, 09 Nov 2009 00:17:03 +0000

After deciding on how to track the performance of your partners, next step is to set clear expectations and communicate it to them. Expectations or targets should be realistic for the channel, particularly for new partners.

Most partners take nine to twelve and in some case eighteen months to achieve target levels of sales and profitability this is because there is a learning curve involved in understanding the product and how to sell it. Therefore asking a nascent partner to perform at the level of established partners is a recipe for disaster. As a general rule of thumb, new partner usually perform at half the productivity of established partners and cost almost double of established partners. So if you are using industry benchmarks to setup the expectation, discount the figures by fifty percent. After setting goals, these expectation should e communicated to partners, better still it should be the part of your policy document.

It is important to connect this performance data with partner incentive program. Partners should clearly understand what the incentives are for meeting or exceeding these targets and what are the consequences of not achieving the service level agreements. This is a very potent tool to control partner behavior.

Partners’ Scorecard

Kamran — Mon, 09 Nov 2009 00:01:42 +0000

So far I have been sharing the best practices to empower your partners. This relationship is not a one-way street. Your partners should also hold up their end of the bargain. But what it is? Many indirect channels fail precisely because vendors forget to articulate their expectations in clear terms. There are two issues: 1) what to measure, and 2) what to expect. This section will address it.

Partner Scorecard

Since different partners may be employed to play different roles in a sales cycle, it is important to assess their performance based on the role that they are playing. If a partner is playing multiple roles, its performance should be measured independently within each role. This methodology provides a consistent framework that you can use to compare different partners in a channel. The table below documents some of the key measurements for each role in the sales cycle. This should be the starting point for developing your own measurement system.

Task	Metrics	Comments
Lead generation and qualification	Number of sales / leads % of qualified leads % of qualified leads that resulted in proposal or sale	More leads are, of course, better than fewer leads. However, these leads should be good leads. The second metric is the measure of the effectiveness of the lead generation process. Whereas, the last metric ensures the quality of overall process.
Bidding and Proposing	Percentage of proposals that results in closed deals Average deal size	The primary measure of the success of bidding-and-proposing channel is the percentage of proposal that they win. Adding average deal size in the mix ensures that channel is effective at putting together winning proposals for larger, more desirable transactions.
Negotiation and sale closure	Sales Revenue Average Deal Size Average Discount	Sales revenue is the ultimate measure of this task, however adding average deal size or average discount ensure that channels are ‘holding its price’
Fulfillment	Post sale customer satisfaction Average ship-time Response time	Metric to measure the effectiveness of channel responsible for fulfillment varies from industry to industry. Given metrics are common among world class companies.
Customer care and support	Customer Satisfaction Rating Likelihood to repurchase Loss rate Customer retention rate	Channels tasked with long-term customer care and support must be measured on how effectively they build and sustain long-term relationships. Customer Satisfaction Rating is good but not practical, measure like loss rate (i.e. percentage of customer defecting to competitors and therefore lost after an initial sale), and Customer Retention rate, as a measure of sales to existing customers versus new customers, are more accurate.

When properly conceived, partner scorecards can help you simplify key business decisions such as: where to invest, what programs to keep or create, where to recruit, where to “disengage” from unprofitable partners, and how and where to staff. A more comprehensive approach in building the partner scorecard is to use the Balance Scorecard methodology.

Developed in early 1990 by Robert S. Kaplan and David Norton, the Balance Scorecard provides a strategic tool for converting strategy into actionable elements. It is a holistic approach that measures results in a cause-and-effect relationship from different perspectives. For partner programs these perspectives could be:

Sales Performance: with respect to sales process
Partner Reach: Which markets and customers a partner can reach and how effectively
Selling and Marketing Capabilities: How well is the partner’s organization able to perform sales and marketing tasks. This is slightly different from sales performance data. Sales performance measures like revenue numbers which is a lagging indicator. Whereas, capabilities are leading indicators.
Selling and Marketing Capacity: A partner may have good selling capabilities but they could be short-staffed. This means they are already performing at their full capacity and wouldn’t have time to push your products.
Partner Financial Conditions: One solution to the capacity issue is to increase it buy hiring more resources. Do your partners have enough financial grounds to do that? Similarly, if you require your partners to stock minimum level of inventories, this perspective give an insight into their credit worthiness and realistic estimate of how much product they can move.
Commitment Level: It doesn’t matter, how financially strong a partner is, or how strong and capable their sale force is, if there is no commitment from a partner to sell your products. This is one perspective that should always be on top of the list.

This whole encompassing, holistic approach of scorecarding partners’ performance provides the basic framework to monitor and manage partners’. If you have many partners, this tool could also be used for segmenting partners in high performing, mediocre, and low performing categories. This segmentation allows businesses to prioritize their resources for maximum performance.

Okay, now you have a scorecard to track the performance of your partners. But it is useless, unless you share with your partners your expectation and field data, so that they can improve. The last step "Communicate and Manage" explain this process in detail.

Build partner support infrastructure

Kamran — Sun, 08 Nov 2009 23:37:17 +0000

After successfully recruiting preferred channel partners, the next step is to educate and develop their staff—sales, marketing and technical—to sell, market, and support the manufacturer’s products more effectively. For example, if partners are selling a product that is mature and advanced in its lifecycle or one that has become a commodity, then a manufacturer must, at the very, least impart a basic product knowledge and feature differentiators. If, however, the product is earlier in its lifecycle or you require partners to assist you in developing the market, then you should offer them much more. Either way, you have to initiate marketing support, training, and sales and technical support programs for your partners to be successful. Let’s see what these programs entail.

Marketing Support
The only reason an intermediary will join your partner program is to make money! If they are not making money, they will quit. Everything and anything that you could do to help them sell will help you retainer great partners and will eventually improve your top line.

At the very minimum, marketing support for a partner channel involves all of the traditional techniques for generating demand i.e., effective branding, aggressive advertising, unique promotions, etc. In addition, partners should be provided with their own tools to generate demand on their own level. This may include:
- Marketing Kit
  Giving partners a standard marketing kit filled with well-tested messages, facts, and sale pitches will improve their selling productivity. A typical marketing kit may contain product factsheets, presentations, a customized website, email campaign material, sales letters, etc.
- Demonstrators
  As a basic rule, customers want to see, touch, feel, and understand a product before buying. Partners that have a product to demonstrate will be more effective in selling it. Giving demonstrator / sample products for free could be a good tool to increase their selling productivity.
- Advertising Allowances (Co-op, MDF, SPIF)
  Supporting partners in their advertising is an effective way to ensure that they make more sales. The allowance could be in hard cash or could be the part of compensation commission.
- Co-branding
  Allowing partners to use your logo and other trademarks and mentioning these partners in your own advertisements will add credibility and prestige to your marketing message and will draw more customers.
- Generate demand and be seen to do it
  Creating sales promotions, and running through partners will help them move more products.
Product and Sales Training
Would you hire a salesperson and throw her out in the marketplace without first educating her on your products and, more importantly, on how to sell them? Of course not! The same logic applies to partners. Since most partners are small organizations with a less experienced sales force, they should be provided with detailed product training so they can demonstrate the product and effectively close a sale.

This training could be provided in a face-to-face setting or through online tools like video conferencing, web chat, etc. This kind of training is a good investment for two reasons: 1) it will help increase the partner sales volume, and 2) enhance the partner relationship, who view training as a manufacturer's commitment towards building their business.

This training should include:
- Product feature training
- Seminar focused on customer need analysis
- Scenarios in which partners can refine and test their pitches to sell the product to different customers
Sales and Technical Support
It is a costly mistake to assume that a partner will take a shipment of a product and move it into the hands of its customers without any direct selling assistance. Many partners need support in closing the deal and in solving customers' technical problems. Offering a sales assistance program along with back-end technical support not only increases the productivity of partners, it also improves the relationship and makes you the partner of choice!

Technology advances in collaboration tools like web conferencing and VoIP, and in learning management tools, provide easy and economic ways to offer back-end support. Another way to offer the same level of technical support at low-cost is outsourced call centers. No matter what tools you use, providing sales assistance and technical support will boost your channel partners.

Channel partners are just an extension of your sales force. The productivity of your partner channels is really in your hands. The closer the relationship you build and the more comprehensive marketing tools and assistance you provide, the better the results you will achieve.

The game doesn't end here, after providing all the right tools to sell, you need to keep track of the progress of your partner. That's where a scorecard become handy. Next section describe the process to build a scorecard for partners' performance management.

Build a strong partner base

Kamran — Sun, 08 Nov 2009 23:34:38 +0000

An indirect sales channel is as good as the partners that make it. If there are quality partners committed to a manufacturer’s products or services, the channel will perform well. Otherwise, it will tank. Therefore, it is extremely important to recruit the right channel partners.

Obviously, there is no set rule to judge the quality of a partner, however, the general practice is to follow a traditional funnel model. This means enrolling a large number of partners in the starter program/partnership level—a category that requires very little commitment both from the partner and vendor—and then move them up the ladder based on their performance or after they have achieved a certain accreditation. For example, the easiest way to become a Microsoft partner is to sign-up as a "Registered Partner" and then move up the ladder to become a Certified partner and a Gold Certified partner, after accumulating certain points and attaining accreditation in the form of Microsoft certification. This process allows a manufacturer to build a strong partner base, segment partners based on their performance and dedicate its limited resources on the right partners.

No matter what technique you use to build a strong partner base, the starting point is to recruit the right partners. You can use following list of criteria to build your business specific partner evaluation checklist:

Partner Evaluation Checklist:

General management:
- Overall management quality and stability
- Years in business
- Reputation in the marketplace
- Competitor relationships

Financial strength
- Revenue growth
- Profitability
- Net worth
- Payment/credit history
Technical capability and resources
- Size and quality of the sales force
- Service/support capabilities and systems
- Advertising and marketing budget
- Experience in related products

Market performance
- Customer retention
- Key account development
- Market share
- Customer satisfaction
- Pricing stability (vs. discounting)

In order to build a strong partner base, it is vital to get rid of partners with low productivity. This will save your precious resources and improve the overall productivity index. Therefore, it is a good practice to pull the plug on the under-performing partners or degrade them to lower partnership levels. You will, however, need a way to judge the performance of a partner that we will discussed in detail later.

Here, I want to emphasize that the performance of an indirect partner channel is highly dependent on the quality of its partner. Good recruiting, combined with ongoing channel pruning ensures that every partner in the channel represents a worthwhile investment of time, energy, and money. Another way to improve the performance of partner network is to establish a comprehensive partner support network. Next section "Build partner support infrastructure" introduces you to the detailed involved in the process.

Partner Selection and Enablement

Kamran — Sun, 08 Nov 2009 23:09:38 +0000

Now that you have an attractive program ready, you can start selecting partners. However, simply recruiting partners is not the end of the game. To get the desired results, a manufacturer has to invest in building partners' capabilities. Therefore, the second step in the process is to build a strong partner base, enabled for high performance.

Following are the four key activities that you need to perform:

Let's see each of these activities in detail, starting with Building a strong partner base.

Building the Management Team

Kamran — Sun, 08 Nov 2009 22:47:25 +0000

The purpose of the indirect (partner) sales channel is to achieve certain revenue targets and increase market share. It makes sense to assign responsibility for building indirect channels to the person responsible for meeting those targets. It is so obvious that most businesses ignore this fact. Businesses delegate the channel-building task to someone low in the food chain and wonder why their initiatives aren't working. It is, therefore, critical to assign a single owner to this task, usually a VP or director of sales.

The initiative owner will also need a dedicated team for channel recruitment, partner engagement, sales and support training, etc. How big or how small should the team be? It depends upon the scope of the channel and the role it will play in the sales cycle. Let’s answer these two questions.

Defining the Role of an Indirect (partner) Channel

Kamran — Sun, 08 Nov 2009 22:47:03 +0000

You cannot build a strong indirect (partner) channel if you don’t know what it will do for your business. Therefore, it is critical to create clear business objectives and define the role an indirect channel will play in achieving them.

Basically, an indirect channel can play four roles, though they are not mutually exclusive. They are:

Lead generation – An indirect channel like Amazon.com’s Associate program could be used to generate business leads that other channels can close and service. iBank, for example, is a good lead generator for lending institutes.

Lead-generation partners are appropriate for businesses who are perfectly capable of performing all the tasks in a sales processes, yet want to build a larger lead stream than can be serviced with in-house resources.
Selling – Manufacturing reps, brokers, wholesalers, retailers, online marketplaces, etc. are all examples of selling partners.

Selling partners are suitable for a business that cannot afford a large enough sales force, or cannot reach enough customers in dispersed markets to capture available sales opportunities on its own.
Service/Support – Examples of service/support partners include authorized service and support centers for Sony televisions and BMW cars; towing partners of AAA; aggregators and/or implementers of software solutions such as Accenture; and outsourced customer service call centers.

Service/support partners are suitable for businesses with complex products that require maintenance or support programs to mitigate customers’ risks.
Proxy – Proxy partners perform all the tasks in the sales cycle e.g., a McDonald's franchisor, Liberty Tax Service, InterContinental Hotels, KMart, which is a licensor of Martha Stewart's Everyday houseware line, etc.

Proxy partners are suitable when the business objective is fast market share growth with little or no investment.

Some businesses hire one partner for a typical role e.g, Amazon's Associate program is only used to generate leads, while others set up different partners for every role. For example, a company might have "master distributors" to cover a geographic territory; local distributors working through the master distributors to move products within those regions; aggregators to combine these products into solutions; and an authorized service center to support customers after the final sale. The auto industry is a good example of such an elaborate partner network. Then there are companies that seek a single indirect channel that can generate leads of its own, sell products to them, and provide post-sales service and support. Best Buy, for example, generates its own leads to sell HP computers, and offers maintenance and support services after the purchase.

When it comes to designing a partner network, or assigning roles to different partners, there are many possible combinations. The key is to make sure that each type of partner has a role that makes sense in the broader context of the sales process, and that the whole system of multiple channels works together seamlessly to create loyal, repeat customers.

Build the management team
Define the role of the channel partners
Establish the scope of the indirect (partner) channel
Establish the polices under which the indirect (partner) channel will operate

Establishing the Scope of the Indirect (Partner) Channel

Kamran — Sun, 08 Nov 2009 22:46:29 +0000

Now that we know what types of partners are needed to accomplish our business objectives, the next challenge is to determine how many partners we need. For example, how many partners would you need to meet your target revenue of $37 million from a given market? Or, how many service partners will you need to support a customer base of $100 million? To answer these questions, a business has to define the overall scope of the channel: the markets in which it will participate, and the size of channel required to capture (or service) that revenue.

I have already discussed how to identify the markets that will be connected by the indirect channels and the revenue projections. Now, let me give you a straightforward way to calculate the channel size:

Channel Size = Total Revenue Opportunity ÷ Realistic Per Partner Sales

The only unknown in this equation is the realistic estimate of per partner sales or the average productivity of a channel partner. This number will greatly influence the size of the channel. For example, a revenue target of $100 million can be achieved by just twenty partners if they’re each contributing $4 million. However, if an individual partner can only generate $1 million in revenue, it’ll take hundred partners to achieve the same revenue target.

So how would you find the average productivity of partners?

If you have existing partners, then simply average their sales. However, if you are building indirect channels from scratch, then you can drive this number through competitor analysis or pull it from industry trends and research periodicals. No matter where the number comes from, don’t forget to discount it heavily because the productivity of a nascent partner will be well below that of an established partner.

Now you can calculate the channel size, by dividing the revenue projections for the channel with the realistic per partner sales.

It is important to point out that in many industries, more emphasis is placed on getting better performance from a smaller, more productive group of partners than on developing a large partner base. Therefore, I will recommend keeping the number of partners low. This will give you enough time to build your partner program on strong base.

Build the management team
Define the role of the channel partners
Establish the scope of the indirect (partner) channel
Establish the polices under which the indirect (partner) channel will operate

Create robust, yet attractive channel policies

Kamran — Sun, 08 Nov 2009 22:45:35 +0000

How will your partners get paid? Can they sell competitors' products? If they are not able to sell some products, will they be able to return the unsold merchandise? These are some questions that channel policies or "terms and conditions" address. Channel policies establish a robust—complete enough, thorough enough, and flexible enough—operating framework to provide clear guidance on the range of circumstances in which partners may find themselves.

Therefore, the key design task with channel policies is to ensure that all the potentially relevant issues are being addressed and considered. Any policy should address issues in four key areas, namely:

General Contractual Issues:

What is the duration of the contract and what are the terms and conditions for its renewal (e.g., three-year, automatic renewal)?
Are partners required to provide any information (e.g., on sales)? What information and how often?
Are you going to audit your partners? What you will inspect (e.g., facilities, books, etc.)? How often?

Sales and Commission-related Issues

What are the markets (e.g., territory-based, product-based, or customer-based) in which a partner can sell?
Can partners sell to anyone and everyone, or there are certain types of accounts (e.g., Fortune 500 companies) that they are not allowed to pursue?
Can partners resell to other distributors (e.g., unauthorized, out-of-territory)?
Can partners sell competitors' products?
Is the partner required to commit to a certain level of sales (or service) resources?
What is the formula for partner payment (e.g., 50 percent of the list price)? What is the schedule of payments?
Are there any incentives apart from commission (e.g., training, marketing and promotional allowances, bonuses, etc.)?
Are partners allowed to discount prices? How much and how often?
Do partners get credit for all sales in their territories or only the ones that they initiate?
Who is responsible for customer billing and debt collection?

Inventory and Facility-related Issues

Are partners required to maintain a certain level of inventory in stock? How much?
Can partners return unsold inventories? Under what circumstances?
Are partners required to use specific interior or exterior designs?
What kind of merchandising is required from partners?

Marketing and Promotion-related Issues

Who is responsible for marketing/lead-generation?
Do partners have to generate their own leads? If yes, what kind of promotional and marketing allowance will they get?
Is there some restriction on how to use a brand name, logo, or other trademark?
Will partners get any sales training and sales assistance?

This is a fairly comprehensive list of issues that should be considered while drafting the channel policy memorandum or contract. While creating the policy, a manufacturer should make sure that it is compelling for a partner. Stating that partners cannot work outside narrow territories, cannot reduce prices, cannot sell to key accounts and cannot return unsold inventories could be thorough but it is hardly compelling for a partner.

Therefore, channel policies should be developed with the goal of high channel acceptance. If partners are asked to build new markets by selling new, complex products, they must be allowed some pricing flexibility. Similarly, if partners are selling a product with a six-month sales cycle, they shouldn’t be asked to report their activities on weekly basis. Or if partners are selling a commodity product in tough competitive markets, they should be offered a liberal return policy.

Now that we know what kind of organizational capabilities are needed to successfully implement a partner (indirect) sales channel, let's move to second step in our framework i.e. channel enablement.

Building Organizational Capabilities

Kamran — Sun, 08 Nov 2009 22:26:35 +0000

Building a high-performance indirect channel requires a strong internal infrastructure. This includes people who will recruit, manage, and enable partners; support tools like sales and marketing initiatives that will empower partners to sell more; and an IT infrastructure to facilitate and promote collaboration among partners and the manufacturer. Therefore, the first order of business is to build this internal infrastructure for establishing a high-performance indirect sales channel. There are four steps:

Let’s look at each step in detail.

Kamran Qamar » partner (indirect) channel

Communicating Expectations

Related:

Partners’ Scorecard

Partner Scorecard

Related:

Build partner support infrastructure

Related:

Build a strong partner base

Partner Evaluation Checklist:

Related:

Partner Selection and Enablement

Related:

Building the Management Team

Related:

Defining the Role of an Indirect (partner) Channel

Related:

Establishing the Scope of the Indirect (Partner) Channel

Related:

Create robust, yet attractive channel policies

Related:

Building Organizational Capabilities

Related: