Partner channel incentives are used to drive behavior—either to establish new behaviors, curb old ones, or shift partners into a new practice. Incentives can also be used to address deficiencies in your business value proposition. The best incentives do both.
Imagine that your company manufactures ice cream. If your product isn’t selling well, you might consider offering a promotion on your brand of ice cream at the grocery store. A customer might purchase your brand rather than a competitor’s because of the reduced price. If your brand of ice cream tastes better than the brand the customer normally buys, they may continue to purchase your product even after the promotion is over. In this case, the incentive was successful; you’ve changed a behavior. However, if your discounted ice cream isn’t any better than other brands (in other words, doesn’t have a strong value proposition), chances are that the customer will try the very next ice cream that goes on sale. There, the incentive failed; the behavior did not change.
"The same principle works for partner channel incentives—your partners will go after the latest incentive temporarily, unless your incentives can establish a behavior that in turn becomes a habit and develops loyal partners."
What is a sales channel incentive?
Channel incentives are business investments that aim to drive partner behavior. True incentives are always performance-based and aim to improve the mix, reach, or yield of your partner base. Incentives are not payment types; so beware of so-called “incentives” functioning as payment. These common incentives may reward an existing habit or be embedded as part of the program. True channel incentives, by contrast, reward partners for changing their behavior, and ideally are not needed after behaviors are established.
Let’s return to our ice cream example. If you as an ice cream manufacturer offer an incentive to an ice cream re-seller, and that re-seller can make more money through your incentives than with your competitors, they’ll be more likely to promote and strategically place your ice cream above others, essentially shifting their behavior. This results in increased demand and revenue for both you and your re-seller.
Types of partner incentives
Rebates are the vanilla ice cream of incentives; they’re something most companies provide. Rebates target specific products at specific moments. They’re strategic, volume-driven promotions that encourage partners to sell more product because they get a percentage of the sale back.
2. Deal registration
Deal registration allows you to see and analyze behavior that constitutes a good sales cycle. It is best used when market momentum isn't in your favor. Deal registration rewards a partner for early identification of opportunity, and then pays the partner a set percentage of every deal registered or closed by that partner. Getting early insight into the sales cycle can help you manage direct and indirect pipeline and drives accountability for those registering the sale. In our ice cream scenario, if you as a re-seller identify potential ice cream customers and register them, you can get paid if that customer ends up buying your ice cream.
3. Staffing/embedded headcount
Embedded headcount helps offset staffing costs by paying for partners to hire certain roles after the partner company achieves a specified metric—training certifications, for example. In the ice cream world, this might involve a reseller taking advantage of your staffing incentive to hire personnel to ensure proper marketing of your product.
4. Fees & activity-based incentives
Activity-based incentives reward partners for taking on activities that you can’t or don’t want to do yourself. You might use an activity-based incentive to pay a partner to manage your contracts with grocery stores that stock your ice cream brand.
5. MDF (marketing development funds) and COOP (cooperative marketing funds)
MDF and COOP funds are marketing-based and are used to develop your brand. COOP is often a percent of a rebate and is typically matched by you, the vendor, in order to achieve marketing goals cooperatively. MDF is given to a partner to drive marketing activities; COOP funds are earned over time. You might use COOP funds to match the investment of your partners attending a conference about how to build a new ice cream marketing strategy, for example. An ice cream reseller might use MDF funds to create fliers for a new brand of ice cream.
7. Solution development fund
Solution development funds sponsor proof-of-concepts or demos when both companies are investing in a given solution. These funds are generally provided in the middle of a sales cycle to solidify an end goal and accelerate the sale. In our ice cream example, you might pay for a certain amount of ice cream to be given away as testers, essentially doing a demo of the quality of your ice cream that will ideally turn into a sale.
8. SPIFs/rep-level incentives
Sales Performance Incentive Funds (SPIFs) are designed to inspire sales teams to promote your products over others with the promise of a reward. These incentives go directly to the actual seller—the person scooping ice cream in an ice cream store, for example.
As mentioned before, many incentives just become payment types, but true incentives are specific performance incentives that drive partner behavior. These incentives are generally targeted toward changing behavior in one of three areas: mix, reach, or yield. Mix refers to the percentage of a partner’s business in given areas. Reach measures the breadth of customers. Yield relates to the size of a given deal. Consider how the incentives above could address one of these areas when developing your incentive program.
Channel incentives can be extremely effective in driving your business when they create a behavior that sticks. Beware, though, of incentives that drive engagement only for the amount of time that the incentive is in effect, or recruit rather than drive positive behavior. These types of incentives don’t create loyalty, and likely will not provide a long-term solution for your business.
How to develop your sales channel incentive program
Answer the following questions to determine which incentives are best for your business:
- What is the level of market momentum for your product?
- Which partners are most likely to support your product?
- How will you show active commitment to the market and your partners?
- How will you structure your product sales and/or delivery to support a channel-driven model?
- How will you use benefits and incentives to drive behavior?
In a future blog, we will examine how to use the answers of these questions to shape your channel. As you may infer, the success of your channel incentive program depends on your business’s alignment with the market. You can tailor your incentive program to take advantage of your existing strengths and compensate for any weaknesses. You can also use incentives to drive partners to do something that is not natural or does not fit well with their business in the short term if your incentives can compensate for the initial changes they may need to make in order to partner with you.
We discussed important aspects of strengthening your business proposition in our latest webinar, “Best Practices to Recruit A Successful Channel Partner,” where you can learn more. If your market momentum, joint alignment, and partner economics are high, you probably don’t need as robust a partner incentives program. If you’re looking to improve in one or more of the above areas, however, consider how you want your partners’ behavior to change and what incentives you can leverage to do so.
All incentives can be used to change partner behavior when used effectively. Knowing the different types of possible incentives and why to use them is half the battle. Stay tuned for more blogs in this series.
How do you want to sell your ice cream? With all that incentives can do and all the types of incentives available, don’t be the guy only offering vanilla.