- Develop a clear partner program strategy. Aligning channel needs, defining customer segments and rewarding partners are some of the key design elements to consider.
- Have the right compensation plan in place. Design the compensation structure to align with the partner program’s strategic goals.
- Be aware of shifting elements. As the market and partner program evolves, consider adapting compensation to encourage channel managers to innovate and transform the program.
Partner programs are dynamic. As they expand and adapt, their strategic objectives may change, as well. Therefore, it is wise to evolve how you reward your channel managers and other resources who handle those partners.
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Before determining how to compensate your channel program resources, it is first important to consider whether your partner program has a documented strategy foundation to which you can then align a channel manager’s incentive plan.
Five Design Elements
To design a partner program strategically, consider clarifying five key elements.
1) How do partners support or enhance the overall go-to-market (GTM) strategy for the vendor organization? At a high level, a robust channel strategy likely requires:
- Alignment of channel needs and requirements with the internal GTM strategy, not after the fact
- Awareness of channel capabilities and/or limitations to the GTM strategy
- Determination of accountability for the partner program within the vendor organization and ensuring it is at the right level of authority
- Direct and indirect channel motion execution to avoid silos or conflict
2) How will you define partner coverage strategies through customer segmentation?
- Define the customer segments where partners provide the most value.
- Determine for each segment where partners will participate and their primary purpose (e.g., provide scale and lower cost of sale, provide reach, provide value-added services and solution).
3) How will partners contribute across the value chain? A successful partner program should clearly express the intended partner contribution. Examples of partner value chain contribution include:
- Identifying and qualifying new opportunities
- Providing a compelling value proposition, developing and presenting solutions, and persuading/closing the customer
- Supporting order management, financing, aggregating solutions and/or provision services
- Providing support through configuration and installation success
- Delivering service support through additional functionality or training
- Supporting customers with technical expertise and/or facilitating upgrades
4) What are the rules of engagement for how vendor and partner roles work together across the value chain, minimizing channel conflict? You will likely need to clarify:
- Responsibility for each step across the sales process
- Accountability for persuasion in the sales process
- The value the partner brings vs. the value the direct vendor resources
5) How should you incentivize and reward partners? It is important to maximize the return on investment by rewarding the partners for the desired results they are expected to deliver. Typical partner incentives may include finder’s fees, commission, discounts, rebates, market development funds (MDF), certifications, other development funds and training credits.
Five Value Chain Stages
Once you have a clear partner program strategy, the next step is to consider whether you have the right compensation plans in place that incent channel managers to drive partner program success. Design the compensation structure to align with the company’s strategic goals for the partner program, including the channel partners’ expected contribution at various value chain stages.
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For each program evolution stage, the partner program definition of success may be different, and so should the compensation structure for channel managers.
Stage 1: Initial Partner Program Launch
At the onset, a focus on training and enablement of partners is key, and incentive compensation for channel managers should drive these early stage efforts.
Some measures to consider for channel managers at these early stages may include: a) the number of partners recruited and onboarded successfully, or b) the sourced revenue or volume from new program partners.
You might see more long-term incentives layered into a compensation program, including long-term management by objectives (MBO) measures or equity options that reflect the long-term nature of what you are asking the channel manager to focus on today.
A primary item for an incentive program early on is defining what success looks like and aligning measures and targets to that success. You also will likely need to ensure the right crediting rules are in place so it is clear what counts toward that target and that you fairly pay incentives on that contribution.
Stage 2: Growth and Expansion
As the program matures and expands through the growth of partners and business contribution, channel manager compensation should shift toward a more performance-based model. This could involve a more aggressive pay mix (i.e., lower base salary with higher incentive pay at risk) that includes higher potential for incentive pay based on overachieving against targets.
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Similar to an initial partner program launch, measures are typically centered around specific revenue/volume targets or recruitment goals. However, there may be opportunities to layer in alternative measures that align with evolving program priorities. This stage typically includes partner training and enablement targets in the form of the number of certifications.
At this stage, a big challenge is setting clear, achievable targets that motivate channel managers to grow the program in the right way. You may also find channel managers are starting to have bandwidth challenges due to their expanding remit of recruiting new partners, growing existing partner relationships, and gaining accountability for partner training and enablement.
Consider differentiating channel management roles by:
- Strategic resources. Those who influence strategic planning and investment and are accountable for new partner recruitment and partner program growth.
- Execution resources. Those responsible for partner development and sales coordination whose main goal is revenue attainment against planned goals.
- Specialist resources. Those who support the partner business development through functional or technical expertise, as well as owning partner training and enablement in complex sales motions or technical areas.
Stage 3: Maturity and Optimization
When the program is well-established, incentive compensation for channel managers (and other program support roles) should reward partner relationship optimization and maintenance. The program’s strategic goals might shift to a rationalization of partner relationships focusing on the ones deemed most strategic to the business’ growth goals along with the non-strategic partnerships designed for self-service, low-touch processes to cost-effectively cover more.
At this stage, incentive plans for channel manager roles (whether they are “strategic,” “execution” or “specialist” resources) may include additional measures that reward for:
- Partner retention rates (indicating that the program is valuable to the partner organization),
- End-customer satisfaction scores (indicating that the partner is articulating the right value propositions and executing their segment of the value chain appropriately), and/or
- Upselling or cross-selling achievements (indicating partners are sufficiently expanding their sales motions with end customers).
With the differentiation of partner program roles at this stage of the evolution process, these measures should sit within the role that is ultimately responsible for that measure’s success. An example of roles and typical measure options at this stage might include:
1) Strategic resources
- Select new partner recruitment
- Revenue/growth of select strategic partnerships
- Revenue/growth targets for partner program
2) Execution resources
- Revenue/growth for patch of partners
- Partner retention rate
3) Specialist resources
- Partner credential targets (e.g., number of certified professionals within partner organization)
- Expansion of select partner capabilities (upsell/cross-sell)
- End customer satisfaction scores
Stage 4: Renewal and Transformation
As the market and partner program evolves, compensation might need to be adapted to encourage channel managers to innovate and transform the program. This could involve incentives for adopting new sales strategies, entering new markets or integrating new technologies.
Remember Some Key Words
No matter the evolution stage, consider keeping a set of leading practices in mind when designing your channel manager incentive plans. Key words include:
- Simplicity. Keep the compensation structure simple and easy to understand.
- Alignment. Ensure alignment to partner program strategy (including alignment across sales and channel teams) to drive unified goals.
- Measurable and trackable. Design plans that allow performance to be measured and tracked in real time, fostering a culture of transparency and motivation.
- Fairness. Design an incentive structure that is fair and adequately compensates channel managers for their efforts and performance to goals.
- Flexibility. Be prepared to adjust the compensation structure as the program evolves to meet new challenges and opportunities.
A thought-out and thorough compensation plan for channel managers is a dynamic tool that should evolve with the partner program. It can incentivize the right behaviors at each stage, from the launch and growth phases to maturity and transformation, increasing the chance of long-term success and profitability.
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