Channel partner incentives are often the largest single channel management spend for many channel leaders today and they raise a myriad of challenges.
The first challenge is the pressure from the finance executives to meet cost of sales objectives that limit your ability to invest, even when it seems to make sense. Second is pressure from the product teams to create incentives that help new products expand, scale existing products or keep a legacy product relevant in the market longer. Third is pressure from the field sales organizations who want incentives to drive specific partner behaviors that help them win in the market. Finally, there is pressure from the partners who are always looking for vendors to help them improve their margins or profitability, particularly in highly competitive markets.
Add to that, there is the economic impact of the transition to the cloud that most IT vendors and their partners are faced with as license move from perpetual to subscription to consumption based.
These factors create quite a dilemma for channel leaders. How do you balance the needs of the different stakeholder groups while investing limited resources to areas for the best potential return on your partner programs?
We believe that the best approach is to take a holistic view of channel operations, understand how different incentive structures can support specific goals and to create an environment where key stakeholders can make the best investment choices available.
By strategically distributing channel incentives across the incentive portfolio, organizations can not only increase their reach, frequency, and yield but also drive end customer satisfaction.
Let’s begin with thinking about how most companies think about the partner journey.
The partner journey
The partner journey is the process that each partner goes through as they begin to build their business around vendor solutions, from activation to scaled execution. Below are some initial questions to get you thinking about which behavioral strategies are best for tech companies as you develop your incentive portfolio.
Partner journey steps
Solution Development: Is our product attractive to industry-leading partners?
Practice Development: Do our partners have the resources and technical skills to effectively deploy our solutions?
Pre-Sales: How effectively are we generating demand for our products?
Sales: How well do our partners convert product interest into sales?
Post-Sales: How effective are our partners at driving successful deployments?
Growth/Renewal: How can our partners develop managed solutions to grow their customer install base and drive renewals?
After identifying your focus areas along the partner journey, it’s time to develop your channel incentive strategy.
Common channel incentive structures
There are many different ways to incent partner actions. Below, we discuss the seven most common incentive models. They each are designed to drive specific partner actions or behaviors.
Knowing which behaviors you want to motivate across the partner journey is key in developing an effective portfolio.
Types of channel partner incentives
Solution Development Funds (practice development, pre-sale, sale): Incentivize partners to develop innovative solutions using your product as an underlying component
Fees and Activity-Based Incentives (practice development, pre-sales, sales, post-sales, growth): Reward partners for completing certain strategic goals, such as managing client relationships or driving revenue across small markets
Development Funds (practice development, pre-sale, growth): Co-invest in partner marketing practices to ensure they market and grow your product effectively
Deal Registration (pre-sale): Reward partners who identify potential market opportunities with deal protection and a percentage of the sale should it close
SPIFs (sales performance incentive funds)/rep-level incentives (pre-sale): Reward sellers directly, with cash, for their sales of your product
Rebates (sales): Reward partners with a percentage of each sale to increase their deal margin as more products are sold and create prioritized product promotion
Staffing/Embedded Headcount (any): Embed a full-time employee in a partner’s organization to train and promote your product across the partner’s business
Use a portfolio approach
Putting it all together, you can see that there are many options for an overall channel incentives strategy. We believe that good companies approach partner performance with a portfolio view. Specifically:
Treat your program as a portfolio of investments, not silos of individual programs
Balance investments based on both historical results and future expectations to drive a quantitative ROI
Don’t be afraid to de-invest or cut legacy programs to create investments for new opportunities
Take the next step
Determining the best structure for your channel incentives in this dynamic environment is challenging. This post provides information on incentive strategies for each phase of the partner journey, but you may find that not all of them will apply to your business. Take a look at how you can diagnose the effectiveness of your channel efforts to help you approach a structure for your channel partner incentives.