Are your Channel Incentive Programs Producing any ROI or Increasing Partner Commitment?
The amount of dollars spent on channel discounts and incentives this year is expected to reach a borderline ludicrous sum of money (approximately $70B). This jaw-dropping number is made credible due mainly because of one thing: channel incentive programs work to help increase channel ROI.
But are they producing an increase channel ROI or increase in partner commitment levels as they should?
Vendors that design back-end rebates and rewards for their VARs, distributors, resellers, etc., may be doing so without including one essential ingredient: they are not listening.
Sure, it’s easy to create an incentive when it’s tailored to benefit the needs and objectives of your company exclusively, but perhaps this business model is costing you not only meaningful ROI but also a plethora of opportunity. Parameters that require strict regulations or “partner-irrelevant” goals are two of the best strategies for decreasing partner participation and performance.
Here are some 2 contributing factors in decreasing a manufacturer’s partner performance and solutions to remedy these issues in order to increase channel ROI
Problem #1: Self-interested Based Incentives
Let’s say a specific partner generated the most revenue for your company in the past four years ($3 million) last quarter. So, in order to maintain similar (or better) results for next quarter, your incentive program mandates at least $4 million to be generated in revenue to qualify for $500,000 in MDF (market development funds).
This strategy (for improving partner performance) is likely to discourage participation because you’re essentially penalizing partners that are performing well. Requiring rigid percentage growth over a one-quarter period is often interpreted as exploiting partners’ success, and can easily deter the value they share with your company.
Solutions #1: Include Partners in the Program Building Process
Communicate with partners that are performing well, and allow them to help direct the way you design their incentives. Give partners the opportunity to suggest the type of incentive(s) that will best help them grow and generate more sales internally. Listen to their pain points, weaknesses, roadblocks and realistic parameters for program eligibility. This approach in channel management is drastically underused, which is an unfortunate reality due to the two-way benefits and opportunities it provides both businesses with.
Problem #2: Targeting Exclusively Top-Tier Performers
On the surface, it would seem rewarding your best-performing channel partners with incentives, and neglecting opportunities from level 2 or 3 partners makes sense.
Who would you give an ice cream, Child #1 behaving quietly in the back seat or, child #2 throwing a peanut butter and jelly sandwich outside his window? No question, you’re getting a mint chocolate chip for child #1, with the intent this will inspire child #2 to start behaving.
But this philosophy doesn’t work with your channel network. Opportunities should be balanced in both eligibility and reward. After all, your top-tier performers don’t really need to be motivated any more than they already are. It’s your middle to lower channel partners that need the extra boost.
Solution #2: Equally Distributed Incentives
What are your objectives: Maintain consistent growth in revenue? Enter new marketplaces? Corner a segment of the market? Develop long-lasting partnerships with diverse businesses? Move more units of a specific product? Identify your end-customers?
Whatever the answer may be, motivating all your channel partners equally will give you the best chance at accomplishing your goals. When the top 10% of your partners are producing 80% of your revenue, you put your business at a much higher risk of financial failure. Invest in the development of your partners that are not performing up to your standards; gain a clear understanding of their goals and the types of incentives that will help them achieve those goals; stop playing favorites, as this will only widen the gap between partners performing well and those that don’t.