Are your Channel Incentive Programs Producing any ROI or Increasing Partner Commitment?
The amount of dollars spent on channel incentives this year is expected to reach a borderline ludicrous sum of money (approximately $70B). This jaw-dropping number is mainly because of one thing: channel incentive programs work to help increase channel ROI and increase partner commitment.
But are they producing an increase in channel ROI or an 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 a channel incentive program tailored to only benefit the needs and objectives of your company. However, this business model is costing you not only meaningful ROI but also a plethora of opportunities. Parameters that require strict regulations or “partner-irrelevant” goals are two of the best strategies for decreasing partner commitment, participation, and performance.
Here are some 2 contributing factors in decreasing a manufacturer’s partner commitment 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 and increase partner commitment) is likely to discourage participation. The reason being, you’re essentially penalizing partners that are performing well. Requiring rigid percentage growth over a one-quarter period is basically 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. To increase partner commitment, 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, however, is an underused approach in channel management. This 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 ice cream to?
- child #1 behaving quietly in the back seat; or,
- child #2 throwing a peanut butter and jelly sandwich outside his window?
You’re most likely 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? Increase partner commitment? Enter the 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?
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.