Determining the True Value of Channel Costs

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You’ve long earmarked time and money in support of channel partners’ reselling efforts. Incentive programs co-developed with them have been in place seemingly in perpetuity, to the extent that you view them as a necessary and beneficial cost of gaining and maintaining market share. They are that, but that’s not the end of the story.

In good times, with regular and increasing profitability, manufacturers are content to introduce a steady succession of demand-driven, new product offerings with supporting channel programs operating side-by-side with existing programs, resulting in a confusing labyrinth that nobody seems to notice or pay much attention to. That is, until the economy begins to tank, with sales and profits in lock step.

Neither is a best-case scenario. While your business operations can, and should, change based on market conditions, product cycles, and competitive pressures, launching channel programs without a clear understanding of their cost or effectiveness is like a game of Russian roulette. To maximize their effectiveness, both individually and as a whole, manufacturers must take close inventory, keeping both themselves and resellers accountable.

Do you know the exact costs and benefits of each of your incentive programs at large and as they relate to every single channel partner? “Kind of” and “sort of” are unacceptable answers to the question. To change your answer to an emphatic “yes,” enlist and empower your CFO or accounting team to conduct a thorough audit, not only of the costs and profitability of your channel programs, but also as they relate to your company’s overall financial performance. The goal isn’t to punish what may or may not be underperforming partners. The problems, if they exist, may be the result of your own company’s sloppy management of channel programs or the sheer existence of too many of them…a variation of the familiar “two’s company, three’s a crowd” dynamic.

Another possibility: too many concurrent incentive programs may equate to excessive reseller discounts, leading to reduced profitability. An internal audit, and a willingness to honestly accept and make changes to your channel programs based on its results, can go a long way toward elevating financial results regardless of overall economic conditions.

Do you really need any or all of these programs?

o MDF/co-op dollars

o Reseller training and certification

o Spiffs

o Rewards based on meeting or exceeding sales quotas

o Geographic- or vertical market-related sales incentives

o Sales leads

You probably either need or benefit from a combination of these and others, but audit or no audit, your gut feeling is that you simply can’t afford to provide all of them and more to each of your partners in support of every one of your product offerings. Don’t trust your gut in making any rash decisions to scale back programs or, in the most extreme of circumstances, cut ties with one or more resellers.

Instead, become a granular micromanager for a day or a week, something akin to the pointy-haired boss of the Dilbert comic strip. Although in your case, you won’t be clueless. For example, determine the specific cost of each of your channel programs for each of your channel partners and the revenue that each has generated. If you haven’t done so already, develop a code of conduct and written performance expectations that each reseller is bound to, if they are to continue participating in and reaping the benefits of your incentive programs.

Be sure to engage your channel partners in each step of the audit and evaluation process. Think about this: even if your program is designed as a sales incentive, is it truly performing like one? Ask yourself whether it is positively impacting your company’s profitability and if it’s exerting a positive effect on your reseller’s business.

If the answers aren’t what you’ve hoped and expected them to be, it’s time to revise and reassess, for the benefit of both your company and your channel partners.

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