Understanding if you have the right number of channel partners can be a tricky question and one related to having the right partners. You may have thousands of partners but they may not be productive for you or they may not have the right skills. But assuming they are the right partners with the rights skills,there is still a possibility of too much of a good thing. Distribution coverage is too important to be left to chance. Ask yourself these questions:
Are you over-distributed? If you have too many resellers you may see the destructive results of hyper-competition in the market. This can quickly breakdown into a street price war that erodes partner profitability and commoditizes your brand value. Some vendors take a very Darwinian view and let the survivors prevail, but that can have serious downsides. Partners who compete only on price rarely have the resources to invest in technical skills, customer service, or demand generation. Meanwhile your brand may now be positioned as the low-cost and low-quality offer. Is this the business you are in?
Are you under-distributed? Customers who might want your products and services never have a fair opportuntiy to buy what you have to offer because you are not on the radar. And you are in the position of having to do all the market development, demand generation and services delivery yourself, straining your resources and ultimately impacting customer experience and again your brand.
How does distribution vary by market, industry, and geography? Ahhh, here’s a clue to solving the distribution question. Rarely do you have an even distribution of partners across market segments. The right number of channel partners is dependent upon what is the demand in any particular segment and how many partners with the right capabilities are needed to service that demand. Having the right tools to analyze your channel capacity is key. For example, can you profile your channel coverage for partners with banking expertise and managed services capability in London, New York, and Zurich? When you can break down the distribution into more granular segments, it’s easier to get a handle on what is the right number of partners.
How does driving engagement change the picture? Many channel programs reflect the 80/20 rule. Their top 20% of partners drive 80% of revenue. What is more productive: partners who sell more versus more partners who sell? By creating a strong engagement experience for your partners, you can motivate more revenue generating activities, not just from your top partners, but from partners already in your channel. There is a cost to recruiting and onboarding new partners, so unless your current partners are not the right fit for you, then showing a bit more TLC to your “next 20%” is likely to have much better ROI.
Doing the Math
There are many ways to ‘calculate’ channel capacity. The right way depends on what capabilities your partners are bringing to the customer value proposition. A calculation for on-line retailers would be very different than for a product requiring a significant service component. For one SaaS client, we determined that there was approximately a one to one ratio of subscription dollar revenue to implementation services. Without the services component, customers would not be able to implement their SaaS offer or at the very least retention would be in jeopardy. Services was the bottleneck in the business.
Extrapolating from that, if a sales region determined they had the demand to sell $100M in new subscriptions, they needed the channel to be able to deliver $100M in services. At an average professional services rate of $200/hr and 1000 hrs/year utilization/per professional, they would need 500 consultants. Most of their channel partners were small operations and so they guestimated each had on average 5 consultants who could be trained and certified to provide the necessary services. So in this area they needed 100 skilled, active, and engaged channel partners. The qualifiers are important in this equation. If your channel mimics the 80/20 rule, you may realistically need to recruit, on-board and activate 500 partners to truly achieve the service capacity needed to support your business.
Doing the Math
|Desired Revenue Level i.e quota||
|Service Ratio 1:1||
|Ave # Consultants/Partner||
|Number of Active Partners||
500 consultants/5 per partner =100 partners
|Apply 80/20 rule||
Potentially 500 partners
Phoenix Consulting Group and Highland Team have assembled thought pieces from our research, our library, and our associates to bring you a series of twelve bi-weekly missives on the future of the channel and what savvy channel chief are already implementing to not only survive the future but to thrive.
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Stay Tuned as We Bring the Future to You.
Norma and Deborah