Catching Culprits of Channel Productivity

A basic axiom for driving productivity in the channel sales world is managing and often reducing channel conflict. After all, one of the main purposes of having a partner channel is to obtain new, accretive business that might not otherwise arrive via the direct sales force. When partners compete with the direct sales force for the same customer order, not only is the order not accretive, but winning it may also incur a higher than necessary cost of sales. Furthermore, the channel conflict can create a distraction for both customers and sales management. By contrast, a properly executed indirect channel can do more than drive accretive growth. Effective partners extol the company’s brand and goodwill, expand the company’s offering and value proposition, and even provide key market and customer insights back to the company. Yet most companies are woefully unsatisfied with their channel partners and their channel partner programs [1]. In our experience there are a few common culprits that drain channel productivity. Identify and address these top culprits and your channel productivity is bound to increase.

Culprit #1 – Unclear Channel Strategy

A clearly articulated channel strategy defines which markets each channel (direct and indirect) should address. Markets are either unique to each channel or shared. If shared, then the strategy must also lay out clear rules of engagement and expectations for how the direct and indirect sale forces should work together. As simple as it sounds, we find this type of information is rarely well communicated let alone written down for both the direct and partner personnel to understand. Without this basic communication and reinforcement, siloed organizations will simply work out of self-interest, and this most often results in both channels competing for “low hanging fruit” rather than focusing on predetermined targets. Best practice is for sales leaders to ensure direct and channel sales management work together in the annual planning process. Collaboration in the planning process should extend beyond distributing quotas and territories but should also focus on how direct and indirect teams engage with each other in order to meet their respective goals.

Culprit #2 –The “Ivory Tower” Organization Model

The channel strategy may be well defined and clearly communicated; but if direct sales management and those in charge of partners stick to their own local agendas and goals, conflict is sure to evolve. In surveying our clients, we often find internal channel resources (e.g., channel account managers) rolling up very high (e.g., VP of Channel Sales) into the vendor’s organization before merging with direct sales management. The VPs of direct and indirect channels may be aligned, but the individual sales and partner contributors battle it out deal by deal. To alleviate this, some companies push the management of direct and indirect resources down to the 1st or 2nd line management. This will force management who has access and control to make decisions that are looking out for both sides.

Culprit #3 –Conflicting Incentives between Direct and Partner Programs

Companies need to ensure alignment of incentive plans between the direct sales force and the partner community. However, because the incentives programs are typically designed and approved in separate organizations, conflicts can arise. Here are some examples:

• A direct sales force underbids a partner reseller for products and services that are supposed to be fulfilled through the reseller channel. Root cause – The sales force is not given an incentive for supporting the partner strategy.
• A partner tries to “go it alone” in bringing in a new opportunity when in fact they don’t have the expertise to properly execute the deal. Root cause – The partner incentive program discourages the partner reps from using the vendors resources.
• A partner competes directly against the direct sales force on a given opportunity, perhaps influencing the customer in a product/services direction that is contrary to the company’s best interest. Root cause – The partner incentive program provides special benefits for certain products or services that are not commensurate within the direct sales compensation plan.
• A direct sales person determines the partner they want to work with on a deal regardless of whether or not the partner they have selected is the best equipped for the opportunity. Root cause – Direct sales has no incentive to work with the preferred partners.

All of the above examples have one or more root causes that can only be uncovered by looking at both the direct sales and partner incentives. These two incentive programs should not be developed in silos. At the very least, stakeholders who own direct and indirect incentive program design should be communicating throughout their respective design processes to ensure alignment.

These channel productivity culprits can carry a huge cost to an organization. A recent benchmark in the high tech industry showed companies spending between 8%-20% of revenue on partner channel cost of sales and between 12%-30% for direct cost of sales. Clearly having these significant investments compete is not an ideal situation. In addition to the hard dollars foregone due to lost opportunity, both partner and direct reps and managers lose focus and momentum when they have to deal with channel conflict. Tackling these culprits takes strong leadership along with time and effort. Strong partner programs are not created overnight but take years to build relationships and trust. But the return can be well worth the effort.

Learn more about developing and managing effective channel programs.

[1] A recent survey of 600 Sales and Marketing leaders by the Corporate Executive Board found that only 27% were satisfied with their channel partner relationships. Source: CEB’s Marketing Leadership Council; Annual Sales, Marketing & Communications Summit, 600 attendees (at least ½ with channel sales 20%+ of total revenue)