Chapter 19 – Channel Partner Programs

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In Chapter 18 we explained what channels are and why so many companies choose to utilize them. In this chapter we focus more specifically on channel partner programs, which are formalized groupings of sales and marketing activities designed to attract and retain channel partners.  Many of the foundational elements of channel partner programs are table stakes for playing the game of channel distribution. Smart companies understand that well executed channel partner programs can  create a competitive advantage.  The financial incentives, materials and tools, and other perks included in a channel program can motivate a partner to sell more of your product than a competitor’s product.

Components of a Channel Partner Program

Although every company has a unique channel program, all partner programs contain several common components. Not every company is in a position to offer all components, and not all channel partners will meet the company’s established criteria for receiving all of the benefits.  A standard strategy for evaluating your program’s components is to examine your competitors’ programs to ensure your program is attractive by comparison.  Below we discuss the most common program components.

Discounts and Margin – Partners buy products at a discount from the supplier and then sell them for as close to the list price as the market will bear.  The difference between their buy price and the sell price is their margin.  Generally speaking, the deeper the discount, the greater the partner’s profit. Margins vary by industry.  They can range from 5% to 30%.

Education and Training – Suppliers want competent partners, and partners want suppliers who can teach them the skills they need to open up new markets.  Training courses conducted by the supplier for the partner’s sales and technical staff are therefore a win-win endeavor, and they are critical for any partner program.  Many companies offer formal certifications for their partners’ employees who have successfully completed a training program.   The partners can use these certificates to market their expertise.

Technical and Sales Support – In addition to training, suppliers should offer support for their partners’ technical and sales staff.  Technical support is designed to assist the partner’s technical staff in installing and configuring the supplier’s products.  Sales support is often oriented toward quoting and ordering.

Sample Products and Demo Equipment – Sample products to show prospective customers, or demo equipment for more complex products like software applications, can help channel partners move the sales cycle along.  Partners are highly appreciative when suppliers provide these assets for free or at deep discounts.

Partner Marketing Funds – In addition to discounts on their products, many companies offer funds to help partners generate demand.  Companies distribute these funds in one of three ways:

• As discretionary grants, known as market development funds (MDF)
• As a percentage of product sold, known as contra revenue funds, or
• As cost sharing, called co-op funds.

We’ll cover partner marketing funds in more detail later in the chapter.

Marketing and Promotion Activities – Many partners are small businesses that have little or no marketing staff.  Therefore, providing marketing programs that promote partners is beneficial to their business.   Some companies provide turnkey marketing collateral to which a partner can append its logo and contact information, thus supplying the partner with professional-looking assets it otherwise might not have been able to produce.  In essence, the partner benefits from the “halo effect” of being co-branded with the supplier.  Suppliers also benefit because their marketing team maintains control over their brand in the market, as well as a better idea of how their partner marketing funds are being spent.

Deal Registration – As we explained in Chapter 18, deal registration, or opportunity registration, is an online process that allows partners to register deals that they discovered and are working directly.  This policy benefits partners by giving them exclusive rights to work opportunities for  a period of time, without the supplier’s direct sales team cherry-picking deals or other channel partners swooping in.  It also gives the supplier greater insight into the partner’s pipeline.

Rebates – Finally, rebates are additional incentives that further increase a partner’s margin.  Companies frequently offer rebates in exchange for a partner’s meeting or exceeding a certain sales goal.   The money is returned (or equivalent payments owed are forgiven) when the target is met.  In other cases they provide rebates for a limited time to promote a designated product.  We examine rebates in detail later in this chapter.

Tiering Partner Programs

Many old channel hands invoke the Pareto principle, better known as the 80-20 rule, when they discuss the top line contributions partners make:  80% of your revenue will be generated by 20% of your partners.  For this reason, most channel programs are tiered, with the most productive partners occupying the highest level, which has the greatest margin, marketing funds and other benefits.  The purpose of tiering is to reward the top 20% of your partners for the business they bring in.  Other partners receive less, depending on their contribution.

Most channel programs have one or two levels; some have as many as three or four.  These are relative levels of importance and benefits within the channel program itself.  (Make certain not to confuse program tiers with the multi-tiered distribution we discussed in the previous chapter.).  As we descend from the upper to the lower levels, both the margin and the partner program benefits decline with each tier.  For example, partner marketing fund accrual will decrease, and deal registration may not be available to the lowest-tier partner.

A common naming scheme for partner tiers is “precious metals”: Gold is the top tier, followed by silver and bronze.  Some companies have a fourth, lowest level for “Registered Partners,” who may sign up just to sell a single deal.  The most significant factor in determining a partner’s level is its revenue contribution.  This contribution can be based on either historical performance or contractual agreement, where partners sign up for a specified level of revenue.  In addition to a revenue commitment, suppliers usually require a certain number of the partner’s sales and technical staff to have completed formalized training and become certified, in order to demonstrate a partner’s investment in the supplier’s business.  Table 1 illustrates typical benefits for a four-level program, with gold partners receiving the highest margin and the most benefits.

Benefit	Gold	Silver	Bronze	Registered
Margin	30%	25%	20%	No
Partner Marketing Funds	Yes	Yes	No	No
Partner Portal	Yes	Yes	Yes	Yes
Online Training	Yes	Yes	Yes	Yes
Certification	Yes	Yes	No	No
Partner Logo	Yes	Yes	Yes	Yes

Table 1: Example partner program overview with four levels

Channel programs should be designed to allow channel partners to “graduate” to the next tier if their revenue can justify it and if they are willing to commit the requisite sales and technical resources.  The opposite is also true – channel sales management may need to downgrade a partner that is not hitting its targets. In some cases partners are “sunsetted” – removed entirely from the program.

Creating and Building a Channel Partner Program

Creating and building a channel involves a great deal of work.  Companies need to locate the best partners on the market (based on the profiling discussed in the last chapter), train them so they are effective, and keep them happy so they stick around and don’t defect to the competition.  A well thought out channel partner program can help accomplish these objectives.  A simple framework that encapsulates these is recruit, ramp, and retain.  Channel partner programs must address all three of these steps, and they must have assets and activites designed for the partners when partners reach  each step.  A function within marketing called channel marketing is often responsible for creating and managing the channel partner program.

Partner recruitment can be conducted directly by the company or by a VAD who performs this task on behalf of the company.  In the latter arrangements,  the VAD selects the VAR from its existing stable of resellers.  Once the partner managers have agreed on a profile of a desired partner, they meet with prospective partners to recruit them into the program.  To expedite this process, suppliers should create a brochure aimed at prospective partners, along with a presentation that they can use during recruitment meetings.  These materials should contain details on market opportunity, business opportunities for the partner — including the margin and any value-added services the partner can expect to sell — and a description of the program’s benefits.

Once the partners are on board, they need to be ramped, meaning brought up to speed or made effective, as quickly as possible. Because partners have businesses to run and are likely selling products from several vendors, training them to be effective will probably take several months or fiscal year quarters more than training a company salesperson.  Training is the most important aspect of ramping.  Partners should receive both sales and technical training.  In-person training is ideal in the beginning phases of a partnership.  After partners have mastered the fundamentals, they can receive follow-up training via online courseware.   Ideally, Sales or Marketing will route a few opportunities to the partners to get them started and to excite them about the business

After the partners are up to speed and have transacted some business, the final step is to retain them.  Retention s often referred to as “channel loyalty,” and companies often incorporate specific channel loyalty activities into their overall channel marketing program. Many companies make the mistake of leaving partners to fend for themselves after they have been ramped, maintaining they have done more than enough and they are paying the partners good money, only to see the relationship sour.  Again, just like salespeople, partners need to be praised and motivated.  Marketing and the partner managers should collaborate to help the partner create demand generation campaigns utilizing the company’s channel-ready assets.  In addition, many supplier companies create partner loyalty programs that award the partners’ sales reps cash or prizes for successfully selling the companies’ products.  They also offer rebates and other financial incentives to top partners with impressive track records to encourage them to do even more.

Funding Channel Partner Marketing

Though channel partners can buy products at discounted rates, vendors still need to invest to help them generate demand:  Recall that we identified three basic models for funding channel marketing activities: market development funds, contra-revenue funds, and co-op funds.  These are distinctive models, but business people commonly confuse them.  Therefore, you must be careful to specify to the partner exactly what kind of funding your company offers.

Market development funds (MDF) are distributed to partners in advance of sales.  Their purpose is to help develop the market or markets a channel partner serves.  To receive MDF, partners are expected to submit a plan that explains how they will utilize these monies, and they must seek approval from the vendor’s channel marketing or sales team.  Vendors typically employ MDF to spur growth efforts in new markets, such as new territories.

In the simplest case, companies allocate MDF funds before a channel partner achieves a steady run rate selling the company’s products.   The key word is develop.  To help partners establish a pipeline, a company makes MDF available for activities such as renting marketing lists, creating direct marketing materials, and running ads.  The funding amount is negotiated between the vendor and partner, with the partner usually providing a simple marketing plan for the vendor to approve.

In contrast to MDF, contra-revenue (contra) funds are distributed to vendors who are already selling the company’s products at a steady clip.  Partners accrue these funds as a percentage of the total revenue they generate by selling these products.  The percentage is usually low single digits — typically 1%-3% — and is tied to the partner program tier. In tiered partner programs, the highest-level partners receive the largest percentage of co-op funds.  This arrangement both rewards the most productive partners and incentivizes them to maintain their status.  It also ensures that the vendor invests its contra funds in partners that have a proven track record and that the vendor feels confident will effectively move its products.

Even though contra funds are automatically accrued, partners need to be held accountable for how they spend these monies.  When a partner wants to redeem/get paid, it submits a request for approval.  To avoid frustration, the partner program should have guidelines in place for acceptable marketing activities and programs. These guidelines are entirely up to the supplier. A company might decide, for example, that purchasing tee shirts or branded tsotchkes is not something they will authorize.  Contra funds also expire after a certain period, typically six months, to limit the supplier’s financial liability. CFOs don’t like unclaimed and growing liabilities on the books.

Finally, companies use co-op (cooperative) funds for shared-cost initiatives such as advertising and direct mail.  In most cases the supplier and the channel partner split the total costs 50-50.  Perhaps the best known co-op program is the Intel Inside advertising co-op program, where Intel assumes some of the advertising costs for PC manufacturers.   In return, the manufacturers agree to include the Intel Inside logo in their print ads and to incorporate a three-second, five-note Intel Inside tone into their television commercials.  Though the distinctions can be a bit blurry, vendors usually allocate co-op funds for activities it prescribes, like including a logo in an ad.  In contrast, it makes MDF funds available for activities proposed by channel partners.

This distinction notwithstanding, partners can utilize MDF, contra, and co-op funds for a variety of activities including events, direct marketing, and promotions.  They can also use these funds to purchase demo equipment, not-for-resale (NFR) software licenses, and, in some cases, necessary training that the vendor does not provide as part of the partner program.

Other Incentives: Rebates and Funded Heads

In addition to co-op funds, MDF, and deal registration margin incentives, companies offer rebates to motivate their partners and create channel loyalty.  A rebate is an amount paid by way of reduction, return, or refund on monies that have already been spent or contributed.  In the specific context of the channel, rebates are monies a supplier returns or refunds to a channel partner after the sale, if the partner has reached certain milestones or targets.  Rebates are in addition to the agreed upon margin a partner receives.

Vendors typically employ rebates to drive certain sales behaviors – typically hitting clearly defined revenue targets.   For example, a Gold partner for Table 1 above would always get a 30% margin on products sold. The supplier might, for example, decide to pay an additional 5% rebate to Gold partners to drive sales of a certain product during the final quarter of its fiscal year to boost revenues. Rebates are usually expressed as percentages, and they are redeemed “on the back end,” in other words, after deals have been sold. In the above example, the partner would receive its 30% margin (the difference between their buy price and the list price) as soon as it is paid by the customer, and receive the 5% after the sale from the supplier.

Companies should structure rebates so that partners need to claim them, as opposed to paying them out automatically.  This system ensures that partners remain engaged, and avoids it situations where checks just show up and confuse partners who inadvertently hit goals (which does happen).  Rebates can be stacked, so that a partner that hits 105% percent of target keeps going to hit a rebate incentive for 110% of target.  Rebates can also be structured to drive other types of behavior, including close rate, product mix, accreditation course score increases – even MDF utilization.

Suppliers will sometimes go so far as to pay the salaries of employees of a VAD, LAR, or VAR.  This arrangement is known as a funded head, and larger resellers and distributors will often seek this benefit from a new supplier.  The benefit for the reseller or distributor, who are very sensitive to their margin, is the obvious cost offset.  The benefit for the supplier is to have someone dedicated to their business inside the partner.  Despite this benefit, however, some suppliers perceive funded heads as an extortionist tactic by their partners, who are already making a good margin.  Whether the competitive and mindshare benefits warrant the cost of a funded head is a business decision that each company needs to make.

Partner Scorecards

Every company measures the total bookings brought in by each channel partner.  However, most companies do not do a good job of measuring the value add of each partner.  This deficiency can create problems down the line, when management is reviewing the costs of supporting the channel – both margin costs and channel partner program costs.  As discussed, many companies exhibit a bias — inherited from the sales team —that the partner is not earning its keep.  Rather, they are essentially taking deals that sales already worked and getting paid simply for creating the quote and sending an invoice.

In reality, there are channel partners who do just this, and they are probably not the ones you want to work with.  Rather, you should pursue channel partners that are actively engaged in your business, investing in it, and finding new opportunities.

So, how do you differentiate the proactive partners from the passive ones?  The answer is to utilize a practice known as partner scoring.  This process scores channel partners on an ongoing basis based on both their skills and their involvement in deals.   Partners can be scored on a number of measurable attributes:

• Total revenue generated
• Number of deals or opportunities originated by the partner
• Number of installations completed
• Number of certified technical staff
• Number of certified sales staff
• Utilization of partner marketing funds

Scoring is usually a combination of automated scoring from the sales automation system and scores entered by the channel account manager (CAM) for that partner.  The particular scale a company uses to score partners is not important.  What is most important is the relative score compared to other channel partners.  For example, a partner that books a lot of business but has a relatively low score may not adding much value in terms of business originated or services provided to customers.  In contrast, another partner might generate a bit less revenue but achieve a higher overall score by training more salespeople and registering more opportunities.  In this case you may want to direct more business or marketing investment to the high-scoring partner and instruct your CAM to find out why your low-scoring but high-bookings customer is not doing more.  Utilizing a good CRM and partner portal will help you achieve a better understanding of exactly what a particular partner is contributing to the sale and how.  Table 2 presents an example of a partner scorecard that a company would use to assess (score) the performance of a value-added reseller of a technical product.

Criteria	Performance	Average Performance	Score (1-5)
Revenue	$17,540,000	$12,500,000	4
Registered opportunities	35	50	2
Installations	120	110	3
Certified Sales Staff	20	15	4
Certified Technical Staff	15	12	4
Marketing Fund Utilization	80%	91%	2

Table 2 – A basic channel scorecard for a value-added reseller

The scorecard lists seven metrics that this supplier uses to track the performance of value-added resellers.  Some suppliers employ more detailed metrics, such as average discount and the amount of value-added services sold.  The best approach is to keep things simple to start and then add metrics as the need arises.  In many cases it is not feasible to get detailed information from channel partners; for example, if there is a distributor between you and a reseller, or if a reseller chooses not to share detailed information about their business.

This scorecard displays the performance of the partner (Column 1), along with the average performances of all of the supplier’s other resellers (Column 2).  The last column lists assessments by the CAM, using an ascending value scale of 1-5.  In this example, although the partner is outperforming the average in revenue, it is underperforming in terms of opportunities it originated, shown as “Registered Opportunities.” This partner also is utilizing only 80% of the available partner marketing funds .  The partner seems to have sufficient certified sales and technical staff, and it is capable when it comes to installations.   Based on this information, the CAM may conclude that this partner needs to generate more of its own demand by spending more partner marketing dollars.  He or she would then discuss this issue with the partner.  Alternatively, seeing their performance compared with their VAR peers could spur this partner into action.

Partner Marketing Plans

Putting in place a joint marketing plan is an effective strategy for aligning channel partners with the supplier.  This effort can comprise a part of a joint business plan, which many channel sales leaders ask their partner managers for anyway.  The plan should not be onerous to the partner, but enough so that there is a clear plan in place.

A good plan should focus on the specific activities needed to drive the business, which typically involve demand generation.  The goal is to determine how many leads and opportunities a partner needs and then recommend appropriate marketing activities.  Demand generation expertise is a value add from the supplier.  A supplier’s channel marketing team may even create a templates for direct marketing, with turnkey programs the channel partners can execute using contra funds or request MDF for.  The effort required will be paid back just in the reduction of crazy ideas and “bad creative” coming back from partners.

Sharing Information: Partner Portals and Communications

Partner portals are Web applications that provide centralized access to information that partners need.  Each supplier has its own partner portal.   A portal should have all of the product information, pricing detail, training, and opportunity management that a partner needs to transact business.  Partner portals are sometimes referred to as partner relationship management (PRM) systems, and they may be built on top of the customer relationship management (CRM) systems that internal salespeople use. Partner portals should contain the following elements:

Detailed product information – Partners should have unfettered access to detailed product information, including configuration options, technical details, and competitive information.

Pricing information – Prices change over time, so the partner portal should contain an up-to-date price list.   Because a partner may sell products from several companies, he or she needs to access each company’s pricing quickly and easily.  Companies may also provide pricing and licensing guidelines and calculators to assist partners with pricing issues.

Special promotions and discounts – The details of special discounts and pricing promotions should be prominently displayed to ensure that the partner’s reps are aware of them.

Links to training – Online training required for certification, or training on new product offerings, should be easy to access and register for.  Companies may also include a schedule for upcoming partner webcasts and regional training events.

Opportunity registration – Partners should be able to enter new opportunities and check on the approval status of their entries directly from the portal.

Links to marketing materials – Any marketing materials that a partner’s sales reps need should be accessible, as well as turnkey marketing collateral and other assets.   Turnkey marketing programs that allow partners to redeem marketing funds in exchange for a program executed by the supplier on the partner’s behalf are becoming increasingly popular.

Links to partner marketing fund information – Partners should be able to access information about their accrued co-op marketing fund balance.  They should also be able to submit requests for reimbursement of approved marketing activities from their funds.

In addition to creating and maintaining portals, companies should engage in regular communications with their channel partners.  These communications typically take the form of a monthly or quarterly newsletter that includes information on new products, promotions and discounts, selling tips, and other useful information.  Going further, most companies are contractually obligated to communicate new product pricing information within a set period before a new product release – usually one to two months.

Channel-ready Collateral and Programs

Companies should provide marketing collateral that partners can co-brand and pass on to their customers.  These materials are commonly called “co-brandable” or “through channel” assets.  Through channel describes an asset, like a data sheet, that a vendor creates and a channel partner passes through to the end prospect.  Assets designed for the channel, like recruiting brochures, are called “to channel” assets.  The most common through channel assets are data sheets, product brochures, and direct mail pieces, but in reality any asset can be made co-brandable.  The simplest method is to provide partners with editable files, including design guidelines, into which they can insert their logo and contact information.   Some companies produce slightly different-looking brochures or mailers for their partners to denote a channel offering or a certified partner, or to give partners a sense of exclusivity.

For smaller partners that do not have a marketing department, or even any marketing staff, providing through channel assets may not be enough.  Some partners may not have staff who are skilled at using the professional design tools needed to add their logo and contact information to a data sheet.  More commonly, partners can handle these basic tasks, but they lack experience in managing demand generation activities.

To address this problem, companies should develop turnkey demand generation assets for their partners.  For example, the company can create a through channel direct mail piece, complete with an offer.  The partner’s only responsibility is to decide who to send the direct mail to.  In the case where the partner also needs a list of contacts, companies may provide the services of a list broker as well.  The most advanced companies allow a partner to select a piece, upload or purchase a list, and have it managed by a bonded mail house – all from the partner portal.  Although these services involve a lot of work, companies that provide them to their partners understand they will be getting a much better return on their partner marketing dollars while providing their partners with better service.  In addition to direct mail pieces, complete kits for webinars or “seminars in a box” are quite common.