Determining the true value of channel costs

It has long spent time and money supporting channel partner reselling efforts. Incentive programs co-developed with them have seemingly existed in perpetuity, to the extent that they are viewed as a necessary and beneficial cost of gaining and maintaining market share. They are that, but that is not the end of the story.

In good times, with steady and rising profitability, manufacturers are content to introduce a constant succession of demand-driven new product offerings with supporting channel programs that work alongside existing programs, giving the result is a confusing maze that no one seems to notice. or pay close attention to. That is, until the economy begins to tank, with sales and profits at the same time.

It’s also not the best case scenario. While your business operations can, and should, change based on market conditions, product cycles, and competitive pressures, launching channel programs without a clear understanding of their cost or effectiveness is like a game of Russian roulette. To maximize their effectiveness, both individually and as a whole, manufacturers must take a detailed inventory, holding both themselves and resellers accountable.

Do you know the exact costs and benefits of each of your incentive programs overall and how they relate to each channel partner? “More or less” and “more or less” are unacceptable answers to the question. To change your answer to a resounding “yes”, recruit and train your CFO or accounting team to conduct a comprehensive audit, not only of the costs and profitability of your channel programs, but also in relation to financial performance overview of your company. The goal is not to punish partners who may or may not be underperforming. The problems, if they exist, may be the result of sloppy management of your own company’s channel programs or the mere existence of too many of them…a variation on the familiar “two in company, three in a crowd” dynamic.

Another possibility: Too many concurrent incentive programs can equate to excessive reseller discounts, leading to reduced profitability. An internal audit and the willingness to honestly accept and make changes to your channel’s programs based on their results can go a long way to elevating financial results, regardless of general economic conditions.

Do you really need any or all of these programs?

o MDF/cooperative dollars
o Training and certification of resellers
or splash
o Rewards based on meeting or exceeding sales quotas
o Sales incentives related to vertical or geographic market
or sales opportunities

You probably need or benefit from a combination of these and others, but audit or not, your gut feeling is that you simply can’t afford to provide all of them and more to each of your partners in support of each of your product offerings. Don’t trust your gut when making rash decisions to downsize programs or, in the most extreme circumstances, cut ties with one or more resellers.

Instead, become a granular micromanager for a day or a week, something like the spiky-haired boss from the Dilbert comic strip. Although in your case, you will not be clueless. For example, determine the specific cost of each of your channel programs for each of your channel partners and the revenue each has generated. If you haven’t already done so, develop a written code of conduct and performance expectations that each reseller is obligated to continue to participate in and reap the benefits of your incentive programs.

Be sure to involve your channel partners in every step of the audit and assessment process. Think about it: even if your program is designed as a sales incentive, does it really work like one? Ask yourself if you are positively impacting your company’s profitability and having a positive effect on your reseller’s business.

If the answers aren’t what you hoped and hoped they would be, it’s time to review and re-evaluate them, to the benefit of both your company and your channel partners.

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