The Ultimate Guide to Channel Economics: How To Be The Most Valuable Vendor To Your Partners
We often get asked how a vendor can add value to their partners, stand out to their partners, and get them to commit to a deeper level of engagement. What will give you a competitive edge? Price? Features? Partner Business Managers?
All of these pale in comparison an understanding of channel economics if you rely on partners for your route to market.
Are You Investing in the Right Skills for your Partner Business Managers?
Different companies give this team different titles, but in a nutshell, Partner Business Managers are sales people who work with partners to make sure that both the vendor AND the partner are successful in a relationship.
Some companies invest in product knowledge and technical training for their Partner Business Managers. Other vendors think their Partner Business Managers will differentiate themselves by being the fastest to respond. Others think they will impress their partner by overwhelming them with resources.
Instead, the best place to start is to define what being the most valuable vendor means in the context of a partner relationship. What is the partner seeking out of your relationship? Invest in that instead.
Our experience tells us that partners typically define their best vendors as being trusted and respected collaborators, and having a mutually empathic relationship; one where both parties give and take, both parties invest and commit, and both parties set and celebrate shared goals and successes.
You know you have reached this echelon when your partner asks you questions unrelated to your product. For example, are they discussing acquisitions, expansion strategy, compensation plans, and other board-level topics with you? At this point, your company has moved from being just another vendor to truly being a trusted advisor and strategic partner.
The Best Vendors Invest in Channel Economics
The number one trait that enables you to get to the level of most valuable vendor is the financial acumen of your team.
This is infinitely more important than how quickly they respond to requests, although they do indeed need to be responsive and respectful. It is also more important than how well they know your products, although that also helps.
What really matters is being able to have the discussions about how your solutions impact your partner’s financials. You’ll also notice it has nothing at all to do with your product features or pricing.
When we talk to vendors about channel economics, we often get blank stares. Some of them think this is about the price of their product or about their discount tables. Others think it’s about how much to SPIFF the partners’ sales teams.
But when we talk to partners, they immediately get excited that we are speaking their language.
They want to know that their vendors are empathetic to their economics – top line, bottom line, and cash flow. After all, their priority is running a business, not selling some vendor’s products.
They are looking for vendors who have the financial acumen to dive into the specifics of how much they will need to invest, how soon they will get to break even, what the ROI is on their investment, and the ongoing impact to their top and bottom line. If you don’t have the buy in from the partner executive team based on their economic analysis, nothing else matters.
Let’s break this down.
Partner executives know that picking up a new product line or solution costs them money both in terms of cash outlay and opportunity cost so they need to understand if and how they will make money with your solution. For example, if a partner’s SG&A is higher than the margins on your product, you are set up to fail before you even get started.
Some of the questions they are considering include:
What is the market demand?
What ancillary products does it “drag” – Services? Software? Hardware?
What upsell and cross sell opportunities does your product present?
What is the margin range for the solution and is that enough to cover my cost of sales?
What top line revenue will this deliver?
How will this my bottom line?
What about my mid-line?
What is the time to break-even and to accretive economics?
They will also need to understand the hard costs required, such as:
Training costs – sales, technical
New systems and/or processes
And they will be weighing the soft costs in picking up your product or solution:
Time investment for training (time out of the field) for sales and technical personnel
Impact of picking up your line on their current relationships with other vendors
System and process implications
So how do you answer these questions? You do this by sitting down with the partner executives and discussing each of these points.
These conversations do not require an MBA in finance, but they do require a basic understanding of the financial implications of your solutions on their business. Myriad resources are on the internet, including articles like this one by Rebecca Knight titled How to Improve your Financial Skills (Even if You Hate Numbers).
Answering these questions together ensures that both parties are entering into the relationship with eyes wide open.
Sometimes the result of these discussions is that it does not make sense to sign a partnership agreement or to take on a new product line. Mostly though, it sets the stage for the next step which is to figure out how you can both acknowledge each other’s investments and share ideas about what you can do to defray some of your partner’s costs.
Show Your Channel Economics Expertise by Offsetting Costs for Your Partners
Here are a few ideas on how you can offset some costs for your partners w have seen in practice at various vendors. They result in lowering the barriers to entry for the partner and positioning the vendor as being financially savvy and sensitive.
What joint efforts can you bring to the table? One vendor sets aside $5,000 for every new partner they sign. They ask the partner to match this investment. That way, they are beginning with a $10K marketing campaign designed to generate leads.
Do you know how much it costs your partner to generate a lead? What leads can you provide to the partner? One vendor we’ve worked with provides a few “hot leads” to their partner upon signing which not only gives the partner some early wins, but also acts as an effective way to transfer knowledge by taking them through the sales cycle with a real customer, not a hypothetical one.
What resources can you provide to help the partner? One vendor allocates Systems Engineers to help new partners with their first three sales cycles. Again, they are both helping to close deals while effectively transferring knowledge to the partner’s technical team. You can monetize the value of the resources you bring to bear here.
Can you put a product expert on site at your partner? Several vendors have champion programs whereby they fund a person who sits on-site at the partner. This is the go-to person for sales questions with the goal of sharing expertise and shortening the sales cycles. And this is another chance for you to monetize the value of what you are providing to the partner.
Ease of doing business
How simple are your processes? Sales teams will go to the vendor that makes processes the simplest for them.
If you’re not raising these topics, collaborating on these opportunities, monetizing your investments, and acting like a true financial advisor, then you are missing a huge opportunity and you’re leaving the door wide open for your competition to take the trusted advisor role.
Preparing Your Team for Financial Discussions
Becoming the most valuable vendor to your partners is not only beneficial to them, it also brings you more satisfaction in terms of the level and type of discussions you will now be a part of.
As with most aspects of leadership, you need to lead by making sure your team is well prepared for these meetings. You can sit down with them ahead of time to cover the following:
Is your partner a public company? If so, review the partner’s financials ahead of time.
What leading indicators do you know about the partner - DSO? Working capital?
What else can you find out ahead of the meeting – Cost per lead? Bench utilization?
What is the investment required, break-even point, and ROI for the product or solution you will be discussing?
What options or offers can you bring to the table to offset costs, and how will you monetize them?
The one area which will make the biggest impact toward your becoming your partner’s most valuable vendor is the financial acumen of your team.
There are many resources for gaining channel partner financial skills. Let us know which ones you have found to be especially effective in the comments below.