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.
Related:
- 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