Pareto's Rule and The Channel

Apply Pareto’s Rule to your Channel - Channel Mechanics

Howard M. Cohen, Technologist  |  

calednar Channel Mechanics5th Jun 2019

Apply Pareto’s Rule to your Channel

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It is not as simple as reading a sales report to determine which of your channel partners you should be paying the most attention to. This discussion on Pareto’s Rule will help you identify those who have the most potential and who will put your limited resources to the best possible use.

 

When economist Vilfredo Pareto made the observation that 80% of Italy’s wealth belonged to only 20% of its population, it’s likely that he never dreamed that this ratio would become a standard by which many business managers moderate their expectations.

Many expect that 80% of their sales come from 20% of their customers and many find that to be remarkably accurate.

Those managing channel partners can safely expect that 20% of their partners will be responsible for 80% of revenue realization. Some refer to this as “Pareto’s Rule” while others simply refer to it as the “80/20” rule.

 

Applying Pareto’s Rule to Your Channel Community

Every channel manager works with some degree of dual priorities. Their compensation and sense of success are increased by revenue production. At the same time, their stated objectives focus on helping channel partners be successful. The two are not necessarily in conflict!

When reading sales reporting for your channel partners, you will likely find that 80% of their revenue production comes from 20% of partners. You are now confronted with a classic choice.

Do you invest your limited time and resources focusing on going with the momentum of those who are already productive, or do you work to raise up the others?

 

Putting your sense of altruism aside, there are different answers to this conundrum for each side of the Pareto Rule equation.  You will likely enjoy healthy return from working with all of the 20% who already generate 80% of your revenue. There’s a reason they’re in that group, and barring any bluebird sales falling into the mix:

It is likely because they are doing things right, and doing the right things.

 

On the 80% side you need to be far more surgical. There will be those among this group who have the potential to improve dramatically if you would only pay more attention to them. Start by recognizing that these partners of potential are the few, not the many. Perhaps 20% of your 80% community.

 

The Challenge

Your challenge is to identify these select few who will be responsive and repay your increased attention with increased results.

 

Characteristics of these potential winners include:

 

      1. Overall, their finances are healthy.
      2. Although you may want to see them increase sales of your product, you find that their mix of products to services is more heavily weighted toward services. This suggests that they have recognized that they cannot expect much margin to come from product sales. Instead, they focus on innovating services based on the products they do sell. The more you can suggest new services attached to your product, the more of your product you enable them to pull through with their service sales.
      3. They successfully sell products and services that are clearly adjacent to yours.
      4. Their senior management participates heavily in sales activities. When the senior management and owners are sales drivers, your opportunity to have them drive your sales is improved. Focus on building their enthusiasm. Enthusiasm from technology leaders may also be valuable, but these executives are often distracted by technical challenges.
      5. Perhaps their vertical markets are well aligned with your products.

These few questions represent just a quick litmus test to see if it’s worth pursuing more deeply. You’ll know you have someone worth developing when they remind you of other partners who are already successful.

 

Include the Importance of Influenced Sales

As you scrutinize your report further, you may note a few partners who you would expect to be in that 20% but are not. It is altogether possible that these partners are not transacting product sales themselves. But rather are obtaining products for their customers through a reseller partner or even a distributor or catalog house. It has been clear for years that some service-first solution providers are influencing significant sales of many products. Many vendors have built separate incentive awards just for influence. This may be the reason that some of your most interested partners do not seem as productive as you would expect.

 

The Hardest Part

If you attempt to pay sufficient attention to all of your partners, you will likely spread yourself too thin to ever benefit any of them. You need to level your partner community, determining how much time you invest with each based on their level. There are some wonderful tools available to help you with this process – download the White Paper: Building the Business Case for Channel Partner Levelling Automation.

 

This levelling will always result in your ignoring or under-serving some partners. As much as you succeed most when you foster excellent personal relationships with your partners, sometimes you must remember that the underlying foundation of the relationship is mutual business success.

 

 

Further Reading

  1. The Top Considerations Before Navigating New Markets
  2. Activating Your Channel’s Long Tail Partners
  3. Why Vendors and Distributors Should Care About Back-End Credits and Rebates
  4. Whitepaper: Building the Business Case for a CIPM Technology Platform

 

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