Originally published on SuccessfulChannels by CEO/Founder Gary Morris.
Of the approximate $65B in channel funds spent globally, over 60% is spent on incentives and discounts. The question that every CFO is asking is “How can we improve the return we are generating on our channel incentive funds?” Channel incentives is one of the largest spending categories for channel executives but also one of the toughest areas to measure the true return on investment. Generating a better ROI on your channel incentives directly relates to how you can help your reseller / partners plan, model, and commit to profitably grow with the use of these incentive programs. If they share in the work necessary to achieve growth and measure outcomes, your incentive dollars will generate an ROI virtually every time.
Perhaps the best place to start is to reorient how you think about and plan incentives. Traditionally, channel incentives are designed by OEM executives looking to motivate specific partner behaviors or sell individual products, solutions, or penetrating certain market areas. With this approach, only when partner goals and OEM goals align do you maximize your ROI on channel incentives. If incentive programs can be configured to allow reseller / partners to select and set the objectives and develop their own commitment forecast, will you be able to get much greater participation, ownership and ROI.
This new partner-first planning approach for incentive management requires that channel partners get involved earlier in the incentive planning and forecasting process. We have broken this process down into seven methods for improving partner commitments for channel incentive programs.
7 Methods for Improving Channel Incentives ROI in 2015:
1) Help Partners Forecast Incentive-Related Revenue: Require your partners to forecast the revenue impact of incentives that they will be allocated. An online forecasting tool designed to help your partners estimate the impact of an incentive program for generating incremental revenue can simplify the process of developing a reliable impact forecast for per partner incentive investments. Provide a forecast estimation tool to allow partners to build a quick monthly / quarterly / annual impact forecast
Forecast tool: Provide a forecast estimation tool to allow partners to build a quick monthly / quarterly / annual impact forecast
- Partners / resellers like me: Provide example forecasts for modest, average, and accelerated impact estimates based on the experience from other partners that they can use to model their own estimate
- Simulation tool: Provide partners with the ability to model different incentive investments and revenue forecasts to help them develop an estimate that they can believe in
2) Help Resellers Make the Business Case for Accessing Incentives: In addition to helping partners estimate revenues from incentive program investments, provide partners the ability to calculate their own profit forecast. This will help partners visualize how much more successful they will be and generate an ROI for the incentive investment in minutes.
a) Support partner-level incentive program revenue forecasting: Provide an easy-to-use incentive program revenue forecasting tool
b) Help partners estimate their other costs: Help partners estimate their other costs and margins including labor, product & services pricing, and other necessary investments to fulfill the forecast
c) Help partners calculate their own business profitability: Help partners forecast an accurate estimate of their own profitability with the sale of these incentive-supported products and services
d) Help partners “pitch” for more incentive investments: Based on partner forecasts, allow partners to make the ROI case for incremental incentive investments that are accompanied by a partner commitment
3) Pay Extra for Reps and Partners Who Meet Their Commitment Forecast: This new approach gives partners the ability to build their own incentive program by making the business case for investment, accompanied with a partner commitment. If partners are willing to make a commitment, they should be rewarded for meeting this commitment. Everybody wins with this approach and channel executives are able to have their reseller / partners share in the risk & reward of improving incentive ROI.
a) Help partners forecast
b) Have partners commit to revenue estimates based on incentive investment levels
c) Measure partner performance-to-plan
d) Reward plan achievement with cash and other non-cash incentives
4) Pay Extra for Reps Who Help Provide Additional Performance Data: Most channel business models are severely challenged with data and performance tracking abilities. POS systems seldom synchronize, and vendors (OEM’s) are left with little data on which partners or sales reps sold which products or little to no data on which end customer purchased the OEM’s product or services. Building an integrated data system to track and monitor this data is very complex involving multiple systems, staff, and other challenges. Sales representatives armed with the right incentives can help fill a portion of this gap to gather data that you may not have had access to in the past.
a) Design data collection incentives for partner reps to assist in collecting selected data
b) Provide easy-to-use systems to help reps report requested data
c) Provide additional incentives and rewards for reps that comply and provide reporting data
5) Rank Resellers Based on Their Channel Incentives ROI: Now that you are collecting partner incentive ROI data (J applying the steps above), you have the ability to report and rank on partner performance levels and inventive ROI. This allows you to proactively allocate additional monies to partners that are willing to commit and manage ROI, and limit investments on partners that are “incentive performance challenged.”
a) Review quarterly performance-to-plan statistics by partner
b) Review partners who meet and exceed their incentive revenue target
c) Allocate a disproportionate percentage of your funds on the best performing or the most promising partners, based on these two reports
6) Rank Reps and CAM’s Based on Channel Incentive ROI: Now that you are ranking partners based on the incentive ROI they are able to achieve, the next logical step is to rank their individual sales reps and the CAM’s that support them. This is the best way to separate the “wheat from the chaff” and determine which team members are high performers and which ones need additional support and supervision.
a) Rank Individual Reps Incentive ROI: Extend your partner-level tracking to include individual partner reps incentive ROI to help optimize sales performance
b) Rank your CAM’s Incentive ROI: Use the same reporting system to consolidate CAM performance-to-plan across all their assigned partners
7) Allocate Incremental Incentives Based on Overall ROI Achieved: Now that you have deployed this new model of partner commitment-driven channel incentives, you are in a position to allocate spending across your channel network to the highest performing partners, sales reps and channel account managers. They can earn more money based on their performance to plan and have a chance to propose customized incentive programs. For partners that have not had great success, this gives them an opportunity to make a pitch for how they can perform and instill the discipline of pay-for-performance.
a) Pay for Performance: This approach allows the channel chief to generate greater ROI because incentives are only paid based on performance
b) Increased Partner Commitment Levels: A by-product of this partner-centered incentive planning process is greater commitment levels for growth from partner organizations
c) Opportunities for Under-performing Partners to Make Their Case: This approach does not exclude partners that have not performed. It does however instill a discipline that all partners must follow to become eligible for accessing incentive funds
Channel incentives are very important for both channel executives and partners. They play a vital role in incenting the desired partner activities and are a well understood and utilized tool for reseller sales executives to focus their time and attention. Adopting this approach can make the money you have employed today work much harder for you in the future.