There are a number of critical components that must be in place to have a real channel strategy and it starts with a financial analysis. This article is a step-by-step overview of creating an actual channel strategy and what is required for ongoing management.
The first question that must be answered is what is the business rationale for creating a partner strategy? The next question is what does the financial model look like for the partner and how will they make money?
The economics of direct versus indirect selling
The dream for many companies is to have an indirect sales model where the product is being sold without any direct sales involvement.
The starting point for deciding on a direct versus an indirect model should be a financial one based on the contribution margin of one versus the other, not just the imagined benefit of having a channel.
In most cases, the profitability of a direct sale goes down as the deal size goes down. In other words, it costs the same to sell a $1,000,000 deal as a $200,000 one. So looking at the range of deal sizes and allocating a cost of sale is the starting point.
Imagine that the prevailing partner margin in your market is 50% and that your cost of a direct sale is $100,000. In this hypothetical example, and using some simple math, a $200,000 sale or less is the break-even point for you to use channel partners.
Below $200,000 goes to the channel, and greater than $200,000 to the direct sales team.
Many companies rely on partner strategies for remote territories since expanding to other countries carries its own overheads and potential cultural barriers. These are factors that might increase the cost of a direct sales model.
Why do channel partners want to carry your product?
If you think it’s because they like the benefits that your product conveys to the end user, you are wrong. Channel partners have to believe they can make a profit selling your product and it’s not their job to figure that out, it’s yours. You need to build the financial model including:
- How suited is your product to their customer profile?;
- Does their sales force have the expertise and skill to sell your product?;
- Do you need to co-sell?;
- What is their investment in training?;
- What is the timeframe to break even?
Next, you need to create the profile of ideal potential partners.
A few shortcuts to finding potential channel partners include asking your customers who they know that sell competing products. Look at your win-loss reports to find out if you have lost deals to a particular potential partner.
Setup partner operations and a handbook before you start recruiting partners
The partner program must be staffed and their first task will be to create a Partner Handbook.
The following is a sample table of contents for a Partner Handbook:
- Partner profile
- Business Model
- Upfront partner investment
- Target revenue
- Drag along revenue
3. Partner Operations
- Training and certification
- Marketing support
- Sales support
- Product support
- Accounting and finance tracking
The next step, before going to market, is to create a Partner Portal.
A Partner Portal is critical to streamlining and scaling your channel
One of the biggest challenges, especially for smaller businesses, is setting up a portal to support channel partners.
Often not much more than shared folders with training and marketing content, a portal can and should do much more including:
- A training system, not just training content;
- A co-marketing program not just a self-service repository for marketing materials;
- A quoting system;
- Pipeline tracking and forecasting functionality;
- Visibility into order history to facilitate upselling opportunities.
Finally, it’s time to start recruiting partners.
Marketing strategies and joint promotions
A great way to develop marketing and promotions that can become scalable is to pick your best partners to develop and test programs. Following are some examples of strategies and promotions that have been successful.
- Co-production of content such as white papers and thought leadership content. Most modern marketing campaigns rely on high-quality, non-sales content to build top-of-the-funnel opportunities. Partners are often invaluable in creating this type of content as they have a very good understanding of the end customer needs in general. They can also provide access to their network of thought leadership and industry influence who will feel more comfortable working with a consortium versus a single vendor.
- Tradeshows are another forum that lend themselves to joint promotions. Some options include cost-sharing booth expenses, mailing lists and social posts.
- Co-marketing, where you share the cost of paid advertising, works as long as the partner is willing to integrate their CRM so that both parties can track campaign success.
Joint selling and OTJ sales training
One of the fastest ways to get a partner to revenue and payback is to co-sell with their team. This ‘On The Job’ training is the best way to learn how to sell new products and reduces the chance of a failed partnership.
Monthly check-ins and annual reviews
And finally, the last and most important ongoing step in a partner strategy is to review sales and overall progress every month to make sure everything is going as planned.
Annual reviews should be employed to do a deeper dive into the relationship where you look for ways to grow the partnership.
Having channel partners is not the same as having a channel strategy.
A successful channel strategy starts with a financial analysis to determine the most profitable sales model for the business.
It’s essential to create a partner program that includes a partner handbook, training, and certification, marketing and sales support, and a partner portal for streamlined and scalable communication.
Recruiting the right partners is crucial, and joint promotions and selling can lead to successful partnerships.
Regular check-ins and annual reviews help ensure the partnership is progressing as planned and identify opportunities for growth.
By following these steps, businesses can create a modern partner strategy that maximizes profits and benefits both the business and its partners.