Channel Neutral Compensation is a Business Model Choice

After, ahem, 40 years in the channel, I can’t believe we are still debating this.? Some organizations, new to partnering, still believe that double compensation is an unnecessary waste of effort and money.

Some years ago, OK a lot of years ago, I worked for an organization where compensation was only paid to either the direct sales representative or the partner sales rep. When both were working on a sale, it put the customer in the middle of who got paid. The smart customers soon learned to leverage this to their benefit and would pit the partner against the vendor extracting even more concessions and discounts from both till someone blinked. ?This was of course untenable, but the interim solution was nearly as ineffective. The sales organization came to a compromise. They would negotiate splits based on who had the most influence in a particular sale. This was of course very subjective and hard to prove.? Subsequently sales for both direct and indirect began to flag. Why was that??

The company hired a top-drawer sales consultancy and spent premium dollars to get to the bottom of faltering sales. They conducted an audit of the sales organization, its processes, and policies.? They discovered that the sales reps, both direct and indirect, were spending 50% of their time negotiating splits and justifying the level of effort and influence each was contributing.? Not surprisingly, the consultancy had a simple recommendation to increase selling time by 50%! The company had to face the hard facts and so adopted a channel-neutral compensation plan.? Direct and indirect were compensated fully for every sale where they were involved.? And yes, sales did double the next year.

Ecosystem Accelerators

Since that time, we now have anecdotal evidence that collaborative selling with partners increases business velocity what I call ecosystem accelerators. We have been able to document that for one enterprise software organization deal sizes were 181% bigger, win rates were 40% higher and sales cycles 40% shorter when a partner was involved. Involved…not necessarily a channel resale. These numbers aren’t quirks. As more organizations track these KPIs, the numbers are similar. For example, Braze, a customer engagement platform, reported 188% larger deal size and 2X better closure rates.

Creating channel neutrality in the sales model puts the choice of where and how product/services are acquired back where it belongs – with the customer.? Particularly, as enterprise sales typically involve five to seven partners. There’s enough complexity even when all partners are collaborating. Imagine the chaos if each is also battling an internal comp war among the sales teams. Then ask yourself what would your pipeline look like with bigger deals, better close rates, and accelerated sales cycles?

I’m no compensation expert, so I won’t try to advise on how to construct one. There are to be sure a lot moving parts and considerations to take into account.? I do know that compensation plans do change behavior and not always in predictable ways. If anything, compensation should be focused on ensuring collaboration among all parties to deliver a seamless and compelling customer experience and to realize those ecosystem accelerators.

In summary, channel-neutral compensation is not really about compensation.? It is a choice you must make about your business model.?