Measure your impact with channel capacity planning
Effective channel management is all about driving customer wins, managing channel sales, and building market coverage. As a channel leader, it is your role to ensure you have the right number of partners, in the right places, to drive the right results. Having a useful partner capacity planning model is a critical tool for making that happen.
What makes channels interesting is it is a discipline that has an element of art and an element of science to it. Your field understands the relationships they have in the market – that is the art side of capacity planning. Your channel management team should bring data to the game that lets you model different scenarios to determine what you need to meet your business objectives – that is the science. When these two things come together, you have a great channel capacity plan
At The Spur Group, we have helped many clients with this exercise, and we’ve distilled the process down into some critical elements. Our goal here is to explain those elements and give you a roadmap of how to apply them to your overall go-to-market strategy to achieve business results that matter.
The goal of capacity planning
Benchmarking partner performance across the ecosystem
In almost every case, a vendor works with different types of partners. It is this combined network of different partner types that makes the ecosystem work. The value of some partners is that they are a sales channel, others provide your customers with invaluable support and services, and some add value to your platform by offering third-party offerings that create additional value. Each has a role, and it is tough to say one group is essential, and the rest aren’t. Your partner capacity plan needs to measure the worth of all partners and let you aggregate into an ecosystem view.
Level-setting across the organization
It isn’t uncommon for different geographic regions and product groups to have wildly different approaches to how many partners they need in any given market. I capacity plan provides a roadmap where all sides can agree on the underlying numbers of how many partners, what their necessary revenue contribution needs to look like, and how many accounts (or customers) they will cover.
Aligning resources to needs
A good capacity plan won’t just tell you where you need to add capacity; it will also guide you around how you should add that capacity. This is an essential input into your partner planning process.
Modeling different growth scenarios
This is one of the most underutilized elements of a partner capacity plan. You can use it to figure out whether the necessary capacity is best gained by adding partners, shifting sales mix to a new channel, or driving growth within your partner base. You can also continue to use it after your planning cycle to help forecast the impacts of your activities and make necessary adjustments to hit your goals better.
The Five C Model
Our experience shows us there are five drivers of capacity. We use a mnemonic and call them the 5Cs. They are the following:
- Contribution - Contribution is a function of the size, frequency, and the number of transactions the partner completes each year. Each partner’s sales velocity is a direct measure of their contribution.
- Consumption – Consumption is how effective is the partner at driving customer usage. If contribution represents revenue, then consumption represents performance at growing a customer’s lifetime value. It recognizes that going deeper within a customer makes you stickier.
- Coverage – Coverage is the number of partners in each segment. A well-functioning partner ecosystem is influenced by the mix of partner types, the number of partners in each segment, and partner attributes such as types of customers served, business models, and solutions offered.
- Capability – Capability is not just knowledge, but the level of activation around strategic products. It recognizes that some dollars are more strategic than others.
- Commitment - Commitment is the level of engagement a partner has around your offerings versus your competition. It is not loyalty per se. It does show the partner is driving or riding your growth trend.
Partner capacity versus partner scoring
If you follow our blog, you will see we use the 5Cs as part of our partner scoring methodology. We often get the question is there a difference between partner scoring and partner capacity planning.
The short answer is yes, they are different:
- Partner scoring calculates the value of a partner at the individual partner level. It is useful in comparing one partner to another, but it is most useful in managing and measuring partner performance.
- Partner capacity planning calculates the value of the ecosystem at the aggregate channel-level. While it also helps you measure and manage partner performance, it does so with a combined, territory approach.
Both are a critical need. We simplify the process by using the same underlying raw data to create a data set that powers both partner scoring and channel capacity planning.
By using one data architecture, you can also use the data for other purposes:
- Create an actionable, data-driven targeting model for recruitment and development
- Ensure a balanced engagement model spans across different partner roles and different performance requirements
- Map the necessary credential program for full ecosystem training and enablement
- Create a predictive model for program investment
- Validate partner business propositions across necessary partner segments
It forms the road map for many channel management activities.
How to build out your capacity plan
Step 1: Calculate your partner scores for each partner
While we are not covering off on the methodology behind how to gather, use, and manage the data behind these drivers here, you can find information on how to do that in a partner scoring whitepaper.
Step 2: Decide your weighting
Your scoring model is customizable. The criteria for how you score partners is based entirely on your business needs, not a catch-all. While measuring the traditional FRY metrics is vital to understanding your channel partners, does it tell you about how much a partner is aligned with your goals and mission?
You can add weight to the factors that best match your strategy. Whether your priorities are capability, selling specific products, gaining market share in other markets, or other factors- you should tailor the model to your needs.
Whatever tool you use to manage your data, make sure you don’t hardcode this weighting. You will want to have the ability to adjust this as part of your validation efforts, but it is where you need to start
Step 3: Classify your partners into tiers
Each category has a set of metrics. Each metric is weighted and combined to provide a category score. Partners should be divided into five tiers:
- Top partners: These partners drive a significant amount of revenue. What differentiates top partners from other high earners is that they are highly engaged and often have individual alliance agreements resulting from strategic alignment.
- Named partners: Named partners generate high revenue but are not as individually engaged as the top partners or demonstrating the same degree of commitment. These partners are usually managed with a 1: less than 15 rep to partner ratio.
- Committed partners: Committed partners may be smaller companies and hold significance in small markets but do not drive significant portions of your revenue. With proper investment and management, they can still be valuable partners. Often, these partners are tele-managed.
- Disengaged partners: These partners are not very engaged or committed. They take a casual approach to selling your products or drive small bits of revenue from luck. Along with the next group, these partners are usually programmatically managed.
- Stragglers: Stragglers are a long tail of partners who do minimal business and don’t engage or participate much. Their companies are on their way out business-wise or are just trying out a channel partnership and aren’t sure if they want to invest further time or resources into it.
Step 4: Validate your groupings
This is where you balance that channel management science with some pragmatic field art. Validate and agree on the rankings with your field. It is essential to keeping everyone aligned.
No two partners are going to be the same even if they fall into the same category that we designed: are you sure those 100 mom-and-pop stores driving $2 million in revenue add less value than the Fortune 500 corporation driving $200 million? You derive value from your partners in different ways that aren’t necessarily based solely on how much revenue they drive. Each partner can be a major contributor to different segments of your partner ecosystem. Examining revenue drivers only ignores the other critical aspects of your ecosystem: some partners are too different from being compared.
With partner scoring, the tiers allow you to see beyond the top partners and the long tail. You can view the results comparable partners achieve in terms of size, market segment, and other criteria you set. This way, channel managers can pinpoint the market value of each partner, the partners who deliver consistent growth and are dependable performers, and which partners are struggling to meet their performance targets.
Step 5: Let the data show your strengths and weaknesses
Conducting meaningful analytics research on channel partners can be costly and time-consuming. It can take weeks, months even, to toil over data looking for answers to executives’ questions. Especially when the questions the executives ask keeps changing. Because of how the 5Cs system is built, an upfront investment drives significant efficiencies and savings later.
By having a comprehensive set of metrics that apply to your entire partner ecosystem, analytics from a variety of perspectives can be performed in a matter of hours rather than weeks. Whether you need to examine incentive spend efficacy, partner commitment strength, or certification impact- these are just a few examples of the easily surfaced insights that are now possible.
Step 6: Target groups or partners for higher impact
Like targeting groups of customers in a marketing campaign, successful organizations seek out tailored channel strategies that target specific markets and segments. But identifying that small core group of channel partners that will deliver a massive impact is frequently difficult, if not impossible, to achieve despite that being the goal.
With PERC scoring, organizations can filter partner lists on various criteria to zero in on that definitive group of partners who can support their strategic initiatives. Dashboards help identify a small subset of partners who are driving revenue to a specific product or market segment significantly. By taking this focused approach, marketers and channel managers can maximize their efforts and generate more momentum with growth initiatives much more quickly and efficiently.
This is of dire importance to organizations looking for mid-market expansion and more durable competitive advantages.
Step 7: Conduct fact-based partner planning
Most account managers have a good sense of what’s going on with their channel partners. They also develop strong working relationships with a regular subset of partners. However, this sometimes leads to a “relationship trap”: the account manager unintentionally develops a blind spot to the partner’s weaknesses if they know them well, and then becomes reluctant and less engaging to work with “unknown” partners.
PERC scoring helps alleviate this blind spot by creating an objective and impartial evaluation of each partner’s performance. This way, discussions and strategy sessions can focus on specific problem areas or the partner’s strengths. This type of objective measurement can also encourage account managers to come out of their relationship shell and pursue new partners with strong potential.
How to use your capacity plan
There are three main uses for your newly developed capacity plan:
- Territory planning
- Investment planning
- Program planning
Territory planning entails goal setting and allocating resources based on geographic boundaries.
By leveraging the set of 4 C scores with examining the specific partners within a given territory, you can determine whether territory performance issues are territory-specific or indicative of a systemic problem with your partner channel.
Determine the needed partner capacity
With the ability to display the entire ecosystems’ performance into a single view, the PERC data engine is invaluable for capacity planning. This tool can help determine projected revenue and identify specific growth drivers. The PERC system can help you develop a capacity plan that relies not just on the addition of new partners but accelerating your existing partners’ growth and developing their capabilities as well.
Analyzing the scores allows you to apply one of four common strategies within a given territory to improve partner contribution. Below is some guidance on when to deploy these four strategies in your territory planning, given the following partner scoring scenarios:
- Grow: A territory shows a relatively low contribution score, and partner sales velocity is underperforming. Focus on growing the partner’s sales in that territory.
- Develop: A territory demonstrates low capability, so you need to build on the capabilities of your current partners.
- Recruit: Coverage scores poorly, which indicates that you need more partners. Recruit more partners to your existing channel or create a new one.
- Prune: Commitment level is low. Prune out the disloyal partners with low potential and focus your resources on the remaining partners.
Growing existing partners can yield results very fast: as little as six months. Be prepared to focus significant resources on growing the ecosystem to deliver on ROI from these partners.
Recruiting new partners, on the other hand, takes far longer. It can be at least a year, if not a year and a half or longer until you see significant traction with a new channel partner. However, it is a reasonably low-cost effort to generate more sales. Finding new partners should be a perpetual strategy or the precursor to building on your strategy down the line. Still, for it to be advantageous, you need to focus on the type and quality of the partners you want instead of merely recruiting as many partners as possible.
Developing partners can also be done quickly, where you need to be ready to invest resources in them. Development takes dedicated resources working closely with a select set of partners, but the market impact may not be immediate. However, it can be a critical long-term maneuver to building a set of trusted partners that will help expand your business.
Pruning disloyal partners can be done relatively quickly and without much effort and have minimal effects on your bottom line. Eliminating partners who are not very committed, and not generating many sales is a good practice to employ over time.
Manage partner account coverage
The second use of capacity planning for territory management is using your model to determine where you need to add or subtract partner account managers (or channel development managers if you use that term). A well-executed capacity model shows you determine the optimal ratio of reps to partner for each partner type. It also gives you a way of measuring the reps’ performance ability to grow each of the “5C” levers. A successful rep should grow the aggregated contribution, consumption, coverage, capability, and capabilities for their assigned territory. If they focus on “managed” partners, perhaps that comes at the single partner level, but for most partner account managers, this comes from maintaining and growing their portfolio of partners.
You have formulated data that points to potential risks and issues at both the partner and territory levels. You also have four basic strategies to address these risks. Now, you must ensure that your channel incentives are driving the right behaviors.
Align incentives to strategic needs
Your incentive budget is frequently one of the largest investment areas in channel organization. Incentives are essential in driving desired partner behaviors as your products and business strategies continue to evolve. However, many organizations have a limited understanding of the actual impact that incentive spend has on revenue goals. The interactive dashboards in the PERC system can show you which groups of partners are getting funding from each incentive program and compare their revenue output to determine the effectiveness of each partner and program.
At The Spur Group, our golden rule regarding incentives is that they should only be used to drive behaviors that partners wouldn’t engage in on their own. Your capacity planning model can help you direct incentive funds in this way.
Nearly all channel incentives fit into one of four primary groups:
- Transaction proficiency - These incentives reward partners based on the mechanics of a deal. Sales of a product or winning a specific customer on a targeted account list are incentivized.
- Capacity development - This type of incentive usually coincides with the launch of a new product. These incentives aim to get a partner ready for a specific solution, such as including offsets for training or rebates for the first deals they make with the new product.
- Demand generation - These incentives reward partner leadership (specifically, finding and closing on opportunities.) Demand generation incentives often accompany a deal registration system and help offset a partner’s cost of sales, such as offering support to partners that run proof of concepts.
- Performance attainment - This type of incentive rewards partners for hitting specific, usually time-sensitive targets such as growing by X percent or selling Y volume on a quarterly or annual basis.
The right channel capacity planning strategy can help you shape your mix of incentives. If one of the 5C’s scores poorly at a territory level, it means you need to stimulate that kind of behavior through better incentives. Conversely, if a critical area scores well, then save your money.
Manage your ROI
Most channel leaders are rightfully asked whether they know whether their incentives drive a result or merely reflect a trend that would otherwise have occurred. This is an understandable question given the overall size of channel incentives as a budget line-item and the financial implications of making the wrong bet.
A best practice is setting a “5C” goal for each of your incentive programs. Plan to grow a contribution, consumption, coverage, capability, and capabilities measure for the incentive program. You can then weigh the cost of the incentive versus the value gained from moving the bar. Seek agreement with your controller or other finance partners around that measure before your rollout the program. Now you have a formulaic business outcome for every channel incentive investment. You effectively shift the measure of success from a “spend” to a “growth” program.
While this is discussed here in the context of channel incentives and partner investments, you can use the same ROI approach to measure program effectiveness.
Inevitably what level partners earn in your program will differ from their scored performance levels. You will have “platinum” partners that only earn four or three stars. Likewise, you will have five-star performers that are not at your top partner level. Partner scoring can help you diagnose where to make improvements to increase this alignment.
Test different approaches
If your partner program isn’t evolving, it’s likely you’re haven’t adapted to changing markets yet. While frequent changes to your program are problematic, you must evolve to survive despite the challenges that come with planning and quantitatively measuring these necessary changes. PERC’s ability to identify groups of similar partners helps organizations run pilot programs and compare them to control groups. Even small changes can be A/B tested to fine-tune the details and maximize the impact and efficacy.
Perhaps more importantly, you can track participating versus non-participating partners to benchmark the impact of your programs. If there is not a significant delta, kill the program and reinvest in another part of the business
Shift resources for greater impact
The pillars of your ecosystem are the partners who are both predictable and loyal to your company. By investing enough resources in these partners, you build a more stable and reliable ecosystem. Knowing where to allocate fewer resources is just as important: account managers tend to make more instinct and emotion-based decisions on how long they have had an established relationship with a partner and ignore if they are in decline. By establishing a set of benchmarks that measure loyalty and predictability, hidden gems can be uncovered, and dying fruit can be cut loose.
While your big sellers are essential, they are not the only type of partners that may be star performers. Partner scoring lets you balance out your portfolio with other high types of high performing partners
Look for the weak areas in your ecosystem. Addressing them now will save you millions in the long run. Watch for ongoing potential problems as well since strategy and goals are never static. They shift with your organization’s growth and standing as well as the market. By evaluating your partners with consistent, measurable metrics, you can watch year-over-year changes and discern signs of future problems
With the 5C’s, you have measurable analytics that can help you formulate a broad strategy that will address issues at both the partner and territorial levels. Capacity planning provides a framework that helps you define your strategy, drive engagement, execute your plan, measure your performance, and deliver better results that matter.
It is an essential tool in your channel management quiver that ultimately helps you realize your go-to-market strategy.