In order to both share my perspective and (perhaps more importantly) to elicit constructive feedback and new ways of thinking, I am writing a series of posts giving my perspective on the best practices of Channel Management. These are things that I have learned and have implemented with success in my career. Comments, feedback, disagreements, and additional insights are welcome, if not encouraged.
This is the fifth in a series.
Incentives
Incentives for your channel partner play a crucial role in aligning reseller behavior with your company’s strategic objectives and goals (e.g., increasing sales volume, market growth, margin). Properly constructed incentive programs boost motivation and cooperation between you and your resellers. This is particularly important in competitive markets, where they can foster greater loyalty from channel partners to the vendor.
Several types of funding are used in channel incentive programs:
- Market Development Funds (MDF): These funds are typically offered locally to drive specific campaigns and initiatives. Access to MDF is generally restricted to partners who align with local initiatives, and decisions are often made by channel marketing teams on an ad-hoc basis. MDFs are typically not announced in advance but are negotiated to achieve particular goals. They often require less complete Proof-of-Performance documentation compared to traditional co-op programs.
- Accrual-Based MDF: Earned marketing funds based on a straight percentage of license sales. This is not that common since it is not performance-based.
- Proposal-Based MDF: Funds allocated based on the merits of your partner's proposal and their track record for generating growth.
- Co-op/Proposal-Based MDF: Funds are jointly allocated by your company and your partner based on your partner's proposal and track record.
- Discretionary MDF: Available funds are allocated on an ad-hoc basis.
- Co-Op Funding: Often a percentage of a rebate, co-op funds are typically matched by your company to cooperatively achieve marketing goals. These funds are accrued as a percentage (usually 1%-5%) of past sales performance.
- Bonus Payments (SPIFs/PoC): Sales Performance Incentive Funds (SPIFs) are usually short-term and paid directly by you to your partner’s sales representatives. These incentives target key activities and strategically important behaviors. Proof of Concept (POC) involves additional discretionary funding for upselling and cross-selling opportunities.
- Partner Rebates:
- Performance Rebates: Given to encourage channel partners to meet sales performance targets.
- Special Rebates for Strategic Products: Aim to encourage more marketing for specific products.
- Management By Objective (MBO) Rebates: Provided to encourage key performance behaviors, such as capacity building rebates for certifications.
- End-User Rebates: Rewards offered directly to consumers for purchasing a product. These can be instant discounts at the time of purchase or reimbursed after the transaction through a claiming process.
Structuring MDF Programs
An MDF process typically involves:
- Partner MDF Request Process: Guides your partner in selecting tactics and estimating sales leads and projected revenue from marketing activities.
- MDF Review & Approval Process: Provides you with ranked ROI estimates for partner MDF requests. This helps with prioritizing investments.
- Marketing Program Execution: Your partners and marketing teams focus on achieving the approved plan's goals.
- Marketing ROI Dashboard: An MDF dashboard system shows actual outcomes from each investment to effectively measure performance.
Typically, an MDF program structure includes a 12-month partner business plan, quarterly marketing plans, campaign assessment, campaign modification/approval, and ROI analysis.
How Incentives are Used
Incentive program goals often fall into three categories:
- Business Development: Programs like email campaigns, outcall campaigns, and events aim to increase the number of - and quality of - leads as well as deal wins.
- Market Awareness: Programs involving advertising, social media, blogs, and content syndication focus on increasing views, likes, clicks, impressions, and sales wins.
- Capability Development: Programs like training, demos, and enablement tools focus on improving competency levels, the number of demos, and sales wins.
Incentives can target both pre-sales & post-sales behaviors. Pre-sales behaviors commonly rewarded include:
- lead follow-up,
- lead nurturing,
- lead generation activities,
- vendor SE engagement,
- portal engagement,
- customer event hosting,
- joint business planning,
- participation in marketing programs,
- sales/technical/marketing training,
- deal registration/management, and
- social media participation.
Post-sales behaviors that are incentivized include:
- closed deals,
- net new business,
- sales to priority verticals or solutions,
- cross-selling/upselling existing clients,
- sales growth,
- lead/deal conversion percentages,
- customer satisfaction, and
- overall sales targets.
The ideal mix of incentives depends on various factors:
- Go-to-market strategy,
- Channel strategy and channel segments, and how the program enables your partners' go-to-market strategy,
- Product category and sales process,
- Competitive environment and established industry standards, and
- Geographic scope and local government regulations.
Improving Effectiveness of Incentive Programs
To improve performance, it is important to quantify expected outcomes before investment. It is also crucial to provide partners with confidence that payments will be made with limited administration (red tape) once targets are met.
A significant challenge is aligning incentives with your partners’ priorities. While incentives are designed to motivate behaviors important to your company, your partners may ignore offers that don't align with their own goals. Incentives are embraced when they align with your partner goals.
Incentives are a powerful tool for aligning your partners’ behaviors with your company’s strategic goals. They can also enhance partner loyalty. Again, it is essential to quantify and agree upon goals before making an investment. Increasing reimbursement percentages for strategically important activities while reducing them for less crucial ones can optimize program effectiveness. Finally, ensuring that the payment disbursement procedure is easy and efficient for your partners is vital for their sustained participation and overall success of your channel program.
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