Why Channel Programs Flush the Majority of their Budgets

It is estimated that nearly fifty percent of channel budgets are either wasted, or are signficantly underperforming, because of poor partner program design and lack of systems to create partner commitments. In other words, channel programs are effectively gifting major portions of their budgets with little or no performance in return, because of the existance of an architectural flaw across all three major channel budget categories that is leaving billions of dollars on the table. Did we get your attention? 

What channel programs are we referring to?  The three largest channel budgets by far are discounts and rebates, incentives and MDF.  Each of these channel programs have their own unique goals, budget provisions, and performance metrics. But they all share a common design flaw that leads to industry-wide underperformance and lack of measurable outcomes.

Clearly, channel rebates and discounts represent the largest overall percentage of spend. 

Channel Rebates and Discounts Are Considered Table Stakes:

Channel rebates and discounts are typically funded as a modification of gross sales and are technically not considered “expenses.” As a result, finance executives tend to apply less scrutiny to these programs because they are not actively considered a “controllable” expense. They are often referred to as “the cost of doing business in the channel.” But in what other area of business would senior executives consider handing away .5 to 3 percent of gross sales with no ability to tie this program to partner commitment and program performance?  The old “give / get” principle does not seem apply for this basic program.

Channel Incentives Are Significantly Underutilized Because They Are Not Built on Partner Goals:

A huge percentage of channel incentives are never utilized or are earned with little knowledge of their existence. This is because most channel incentives are pushed onto partners without providing them the opportunity to integrate these offers into their business plan. If a given partner is focusing on security in a particular quarter and is provided incentive on networking, the offer by itself may not change the focus of the partner sales team to switch off of their plan.  This lack of a “partner-considered” approach to channel incentive implementation leads to low program participation.

MDF Programs are Misaligned with Partner Types and Their Needs:

A typical vendor’s products and solutions are sold, referred, or serviced through a diverse set of partners. Each of these partner types have their own goals, priorities and go-to-market models.  The one-size-fits-all approach to MDF program design leads to MDF programs that don’t get utilized or generate little return on investment. This is because of a simple lack of alignment of the goals of a partner or partner type and the MDF program designed to support them.

Let’s take a detailed look at each channel program, the cause for under performance, and how vendors / suppliers can improve ROI

How to Transform Channel Rebates & Discounts to Achieve Greater ROI: Move from Automatic to Commitment-Based Payments

For most channel programs, discounts and / or rebates are calculated as a direct percentage of sales. Discounts are typically calculated based on prior year performance. In other words, if a partner achieves a certain revenue level in the prior year, they are eligible for an automatic discount for the following year. And this is repeated each year where an automatic discount is applied to a partner’s invoice based on the prior year’s performance.  

Rebates are typically calculated annually but are occasionally calculated semi-annually or quarterly. These rebates are paid based on partner achievement of a revenue level within the current year. There are of course program differences from vendor to vendor, but the concept is very similar.

How to Get More Performance Out of Your Rebate and Discount Dollar:

Leading channel organizations in 2019 are adjusting their programs to allow for partner business plan-led budget allocation. In other words, these channel programs are working with their partners to build an individual commitment / business plan on what they think they can achieve. They then have added more flexibility into all programs to align and pay based on the achievement of their business plan goals.  This approach allows channel managers, within guidelines, to negotiate discounts and rebates based on the achievement of partner business plan-defined goals.  The ability to bundle all channel programs together in a comprehensive business-plan led design gets all of the “partner oars in the water” pulling the same direction to achieve growth that they would not otherwise achieve

How to Transform Channel Incentives to Achieve Greater ROI: 

The traditional approach to implementing channel incentives is to provide vendor-defined quarterly or semi-annual goals for partners. The priorities and timing are important for the vendor but unfortunately not necessarily for the partner.  This too often leads to partners either ignoring or not focusing on these incentives because they don’t align with their priorities. 

Too often, partner sales executives are heard saying, “I received a check after I sold a deal for an incentive that I had no idea existed.” It is a nice surprise for the partner sales executive, but the result is paying for a deal that the vendor would have received anyway.  The partner representative was not focusing on it or attempting to drive sales based on the availability of this incentive. We have found that this incentive use is the more common versus partners organizing their team to exceed their growth targets leveraging these types of financial incentives. 

How to Turn it Around and Make Channel Incentives Work Harder:  

Let partners drive the incentive program. Leading channel organizations have realized the way to get a disproportionate percentage of their partner’s time and attention is to start programs with an individual partner’s goals. Let channel managers work with their partners to define what is important to them - set growth targets and build programs and funding around these plans.  These same programs are allowing partners to define not only discounts but also incentives and MDF budgets that support individual partner goal achievement.  This end-to-end program alignment with partner goals has an exponential impact on partner commitment level to a vendor’s brand.  Partners realize the power of a highly coordinated / cross-program budget and action plan and are in a much better position to mobilize their entire team to achieve much greater revenue growth than would otherwise be possible. 

How to Fix Channel MDF:

1. Stop anchoring MDF on the transaction. As discussed in earlier blogs, there is a bifurcation happening in most channel programs between transacting partners (resellers, MSPs, etc.) and non-transacting partners (systems integrators, XaaS ecosystem partners, ISV’s, industry-based professional services companies, etc.). Once referred to as the “long tail”, these new partner types heavily influence buyers and play a significant role in their buying journey – both before purchase and after. The B2B buyer’s journey is starting to look like a consumer journey with 68% of the time spent using digital research methods before talking to a person. Most vendors are now acutely aware that influencing this early stage of the journey is critical to improving sales success downstream. Traditional partners are not executing effective co-marketing campaigns to get into the conversation and non-traditional partners who are relevant here do not qualify and/or use MDF to drive visibility and awareness for the vendor.
2. Deploy an ecosystem approach to MDF. Augmenting the current gold/silver/bronze pyramid model with a hyper-specialized segmentation approach will be critical in managing a growing channel in the future. Partners will naturally gravitate around 5 vectors: the line of business buyer they are targeting, the subindustry they have skills in, the geography they cover, the size of customer their solutions are geared to, and the part of the technology stack that they represent. Multiplying these vectors together gives millions of potential partner segments in the ecosystem. Automating the entire partner program to scale recruitment, onboarding, enablement, incentives, co-selling, and co-marketing across these segments will determine vendor competitiveness moving forward. From a co-marketing perspective, the content, messaging, and campaigns will need be enabled for self-service, adaptable to changing markets and tactics, flexible to the partners business model and preferences, and have a layer of predictive analytics to drive scale.
3. Influence the influencers. Without a direct financial link to the transaction, funding MDF for a new generation of non-transacting partners can seem like a daunting task. Channel professionals will need to implement attribution-style metrics to determine ROI of future to, though, and with-partner marketing campaigns. Similar to marketing A/B testing scenarios, vendors will take a subset of partners in the ecosystem and invest capital dollars in deploying search, social, email and syndicated content campaigns in conjunction with partners. The click-by-click results of these campaigns can be co-managed and inflight adjustments can be made. Full campaigns can then be executed with a degree of confidence once the return on investment can be established at a granular level. Influencing brand advocates, alliances, and other types of influencers will become a core part of the partner marketing journey.
4. It is no longer all about you. New partner types understand what is necessary to influence the customer earlier in the journey. They are focused on developing the content and visibility across digital channels that revolves around their own brand. The days of driving around in a white logo-truck, looking like a NASCAR driver, are over. Another leap of faith will be investing MDF dollars in activities and campaigns that do not focus on the vendor themselves. It is understanding that the partner has already built credibility (in the vectors we talked about above) and is likely in a better position to carry the vendor into the customer conversation rather than the other way around. While co-marketing won’t completely move over to the side of the partner’s brand, there will definitely be better balance than there is today.
5. Enter the Third Stage. Over the past few decades, sales and marketing leaders have been transforming themselves into predictable, data-driven business units. The CRM stage started in the 1990s and accelerated quickly a decade later with lower-priced cloud offerings. The marketing automation stage began to grow exponentially around 2008 and has reached critical mass in its first decade. With 75% of world trade flowing indirectly (WTO), the time has come for channels, partnerships, and alliances to be enabled with the same level of passion. The third stage in sales and marketing transformation will be anchored around effective partner management and through-channel marketing automation (TCMA). Enabling partners of all types to leverage vendor content, messaging, branding, and demand generation initiatives in their local markets is critical to driving a winning customer experience. Those brands that can balance their direct and indirect execution while ensuring consistent customer expectations through distributed and localized marketing will have outsized success in the market.
6. After segmenting partners, now rank them on marketing maturity. The first step for a brand is to understand the growing number of partners and influencers, what they are specialized in, their sales and marketing acumen, and how they go to market. There will be experts, do-it-yourself, do-it-for-me, and laggards (do-it-on-behalf-of) that each need to be enabled in different ways. Platforms will need to be flexible, self-service (partner or concierge service), and highly automated to cover the plethora of digital and physical tactics. Channel professionals need to lead their own digital transformations internally. According to Forrester research, only about half of brands have implemented TCMA, with only 17% fully satisfied that they are getting the most from the systems. We believe that there will be significant interest in this third stage over the next few years.

Conclusion on how to Improve Channel Program Revenue Generation and ROI:

Channel programs are simply too “programmatic” and are out of sync with the operational mode of the diverse set of partner’s businesses within your channel ecosystem. Partners make decisions everyday about how to spend their time, how to invest and where to focus. Channel program design needs to be flexible enough to sync with the business operations of a partner.  Channel programs like discounts, rebates, incentives, and MDF that provide the ability to help define and align with a partner’s business goals is much more likely to be adopted and integrated into a partner’s business model. This will lead to much greater adoption and utilization of a vendor’s channel program and have a dramatic impact on revenue and ROI generation.  This does not mean this approach will cost more money but will generate a much greater return on channel funds invested in your program.

About Successful Channels:  

?Successful Channels provides cloud-based, five minute, CRM / PRM integrated partner scorecarding, business planning, marketing planning and QBR tools to manage, motivate and measure partners. These Channel Manager-led tools improve partner commitment levels, partner capabilities, and partner revenue contribution through a more disciplined, measured, and mutually beneficial partnership relationship with their vendors.

About Forrester:

Forrester works with business and technology leaders to develop customer-obsessed strategies that drive growth.