In a previous article about Partner Recruitment, we talked about partner profitability, and the need to provide a compelling value proposition for partners to want to sell your product. In today’s economic climate this has never been more valid.
Partners are driven by profit. Not revenue, not discount percentage, not market share; … Profit. And that means they want a vendor who has the right mix of growth and margin, without requiring excessive investment, to make this worthwhile for them to make a commitment.
A vendor who offers a high margin but a very low revenue stream is not attractive, nor is a vendor who has so many partners that margins are eroded. Similarly, a vendor who offers a great profit stream but requires the partner to invest heavily in certifications and equipment may not be compelling if there is not a good return on the investment.
In effect, partners are looking for an IDEAL vendor. That is, a vendor who helps them:
- Increase Revenue
- Decrease Costs
- Enhance Cash Flow
- Leverage Assets
- Minimise Liabilities
For most vendors, the first thought that comes to mind when you mention increasing a partner’s profit is whether or not they give that partner a better discount. But for the owner of the business partner, discount is only one element of the profitability equation.
The IDEAL vendor helps partners in all 5 areas of profitability.
This is the most straightforward of the 5. And it is also the one most vendors talk about. Typically, the vendor’s message to the partner is “if you sell our product, we’ll grow your business and help you win market share”. Unfortunately, there are two problems with this statement:
- Most partners aren’t interested in growth unless it’s profitable growth
- Most partners don’t care about market share
Partners typically love new products that they can sell using their existing skills (ie. don’t require a massive investment in new people or training) or that they can sell as a complement to products they have sold to their exiting customer base (ie. don’t require going out and finding new customers). And if the partner does need to invest in the new technology, they expect a margin that justifies their investment.
So unless the vendor can demonstrate how their products will grow the partners business without a corresponding increase in costs, the message is falling on deaf ears. Which brings us to the next point.
Another approach to increasing the partners’ profit is to reduce their costs. This can mean reducing the costs associated with taking on a new product, or it can mean providing the partner with backup and support that obviates the need for them to have their own resources.
In the first instance (ie. reducing the costs associated with taking on a new product), the vendor may need to reduce/eliminate certification and set-up costs. A simple test is to add up all the costs that are associated with becoming a partner and comparing them to the GP that the partner can expect to make in the first 6 or 12 months. If the costs are higher, then the ROI may not be very compelling.
The second approach (providing the partner with backup and support that obviates the need for them to have their own resources) involves the vendor utilising their resources to supplement a weakness in the partner’s offering. This has perhaps been most obvious in the offerings from the various distributors as a means of differentiating themselves from the competition. (eg. Westcon financing, Ingram TechLink4U, 24/7 Distribution integration services, Annuity Systems keeping track of end-user maintenance renewals). In each instance, the distributor is providing a capability that (in the strictest sense) should be the role of the reseller, but in doing so, they are reducing their partner’s costs and building partner loyalty.
Enhance Cash Flow
The worldwide shortage of credit is slowly starting to be felt in the industry. The increased attention to cash management and cost control has meant that customers will try to hold on to their cash longer and push the boundaries of their credit terms. This of course has ramifications for those partners that aren’t in a position to pay their accounts off with their suppliers and get put on hold.
The result is that we expect to see more creative options from vendors and distributors with regards to financing. Already we’ve seen a number of distributors enhance their credit management offerings, and more vendors staring to talk about Leasing. This environment also presents an opportunity for SaaS & Managed Services offerings as customers look for means to reduce large cash outlays. This of course is a double-edge sword (ie. while it may be good for customer, a low monthly payment will put additional strain on partners who have built a business based on large deals). As such there is a market opportunity for vendors/distributors with the cash reserves to fund a pay-as-you-go model without impacting the partner’s need for immediate payment.
While accountants may think of asset in terms of capital items, a partner’s greatest assets are their people, customers and processes. They have invested heavily in building this up (in many cases at the insistence of a vendor to comply with the partner program) and need to see a return on their investment. This means that partners are more open to considering vendors who can leverage their existing skills rather than require additional investment for the promise of a better return.
More importantly, partners need to feel that their vendor will support or protect their investment. This will be particularly challenging for vendors who, finding their revenue is below target, may be tempted to consider indiscriminately bringing on more partners or taking deals direct. Our experience is that the channel has a long memory, and activities such as this may provide the vendor with short-term revenue, but will have drastic implications when the economy improves as partners who were burned switch alliances to competitive vendors who remained loyal to the channel.
A major consequence of the current economy is an increase in customer aversion to risk. This also means that partners in turn will also become more risk-averse. Therefore partners become more attracted to policies that do not expose them to unnecessary risk. Programs/policies such as Demonstration Stock, Stock Rotation, Price Protection, Warranties, etc are examples of processes that reduce the partner’s risk, and therefore increase the partners overall profitability, and loyalty.
Another behaviour that becomes apparent in times like this is that partners start prospecting much more vigorously. However, they realise that other resellers are also actively prospecting for new business, so they will be keen to ensure that they are not undercut by a “drive-by” reseller. Therefore, vendors should ensure that their deal registration program is effective and encourage partners to leverage it.
In the past, vendors talked about increased revenue and profits as the primary driver for partners to take on their products. However, in these uncertain times, the IDEAL vendors will realise that their messaging must also help the partner understand how they can leverage their assets and minimise their liabilities.
So before you go to recruit new partners, or even when you revisit existing partners, sit down and review your value proposition … is it as valid today as it was last year, or do you need to IDEALise it?
Check out our IDEAL Vendor handy checklist on our Tools page.