Incentives Demystified – Part 2

Partner Incentives | Different Types to Consider - Channel Mechanics

Michele Lee, Global Program Manager  |  

calednar Channel Mechanics21st Apr 2020

Partner Incentives | Different Types to Consider

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As a sequel to ‘Incentive Demystified – Part 1’ discussing the point-based Sales Performance Incentive Funds (SPIFs) for partners’ sales and presales, part 2 covers the different types of partner incentives provided to partner organizations.

 

Vendors are becoming more creative with the introduction of new partner incentives to motivate specific behavior. However, the reality is there’s no ‘one size fits all’ approach. Even if the incentive succeeds in driving the targeted partner behavior, many factors need to be taken into consideration for it to be effective. Offering partners an incentive without considering these factors, will result in additional sales expenses. And little or no business gain.

 

The Effectiveness of Different Incentives in delivering targeted business outcomes depends on:

      1. The Partner Types
      2. The Stage of the evolving partner journey that a partner is in – from awareness, consideration, decision and experience to growth
      3. Vendor’s share of wallet with the partner
      4. The sales cycle of the product and services
      5. A Partner’s sales compensation
      6. Partner’s field marketing capability

 

4 Partner Incentives and The Factors Impacting Effectiveness

 

1. Co-Op Funds

Co-op funds are an accrual-based marketing fund allocated to partners to execute demand generation activities. However some vendors do allow their partners to use the fund for sales enablement and even to hire sales resources. The fund accrued is based on the revenue attainment of the partner, typically in the range of 2 to 5 percent and varies according to the partner’s tier-level in the partner program. Partners are expected to submit a quarterly marketing plan for how they plan to use the fund and submit a request for the fund with details of the activity and expected Return on Investment (ROI) before executing the activity.

After executing the activity, the partner claims the fund by providing proof of execution. Co-op funds are valid for a limited period (six or 12 months), after which, the fund expires. The co-op fund percentage, terms, and conditions should all be well stipulated in the contract or within the partner agreement.

 

Co-Op fund is effective in building sales pipeline through partners for:

– Partner Types: all partner types. However, transactional partners have a less vested interest in developing a plan to use the fund to generate a sales pipeline.

– Partner Journey: Partners in the growth stage and beyond, that have had success in winning deals, accrued the fund, and wish to continue to invest in the partnership.

– Vendors’ Share of Wallet: Partners that have a significant part of their business coming from reselling the vendor’s products and services. Thereby, leveraging co-op to build a sustainable sales pipeline.

– Sales Cycle: Products and services with a long and complex sales cycle, that warrant long term business and marketing planning.

– The Way Partner’s Sales are Compensated: Most partners, regardless of how their sales are compensated. If the business relationship manager, who has a strong influence over the partnership, is responsible for the P&L of the vendor’s line of business of which marketing spend is accounted for, co-op fund will be best leveraged to drive demand.

– Partner’s Field Marketing Capability: Partners with an established marketing function that regularly plan to use the fund effectively. In the absence of proper planning of fund utilization, there is a fair chance that the fund will be spent on merchandise or tactical activities just before the fund expires.

 

2. Market Development Fund (MDF)

Market Development Fund (MDF) is a discretionary fund allocated to partners based on the business case submitted by the partner. Consequently, it can complement co-op funds to drive more tactical demand generation activities on a case-by-case basis. Besides demand generation activities, MDF can be used to seed new business opportunities and fund enablement.

 

MDF is effective in generating awareness, demand and new market opps through partners for:

– Partner Types: all partner types. Newly recruited partners that are excited to jump-start the business are likely to leverage MDF effectively to generate awareness and to fund enablement activities. Existing partners that did not accrue enough co-op funds may leverage MDF to fill the gaps.

– Partner Journey: partners in the experience stage where they are begining to engage in a relationship with the vendor.

– Vendors’ Share of Wallet: partners that have just begun the partnership with the vendor and are aspiring to ramp up the business quickly.

– Sales Cycle: both products and services with a long or short sales cycle. The discretionary nature of the fund allows for it’s use in tactical activities yielding quick wins for products and services with a short sales cycle.

– The Way Partner’s Sales are Compensated: almost all partner sales, regardless of how they are being compensated. If the business relationship manager has the goal to establish the line of business within a time frame, MDF is likely to be effectively leveraged.

– Partner’s Field Marketing Capability: all partners, regardless of whether the partners have field marketing capability. This is because the fund’s uses are much broader.

 

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3. Rebates

Rebates are paid to partners that have achieved a pre-determined and agreed target within a stipulated period, with targets depending on the vendor’s channel objectives. These include revenue or unit target, new customers, new market penetration, incremental business, deal registration, attach ratio target, customer retention, specific objective attainment, and many more. Therefore, rebates are very flexible in the sense they can be used to drive different business outcomes. In addition, they can be revised every year to align with the company’s overarching goals. Once a target is met, the partner should receive the rebate within a specific timeframe (e.g. a quarterly payout). The target and timeline should be mutually agreed as part of the business planning process, documented and acknowledged, together with the payment cycle, terms and conditions laid out.

 

Rebates are effective in achieving specific business objectives for:

– Partner Types: all partner types. However, transactional partners that are opportunistic are less likely to gain from these incentives. Therefore having little or no impact on them.

– Partner Journey: partners that are in the experience or growth stage of the partner journey.

– Vendors’ Share of Wallet: all partners regardless of the vendor’s share of wallet.

– Sales Cycle: products and services with a long or short sales cycle, depending on the target and the timeframe defined. If the objective is to fill the revenue gap within a short period, e.g. to meet the revenue target for the fiscal year in the next 6 months, then the incentive will see better results for products and services with a shorter sales cycle.

– The Way Partner’s Sales are Compensated: if the partner’s sales are compensated based on the bottom line. This is because backend rebates from vendors offset the partner company’s cost of sale.

– Partner’s Field Marketing Capability: partners with field marketing that aligns their marketing activities to support the target achievement, e.g. customer acquisition campaign to meet new customers target.

 

4. Solution Development Fund / Big Bet Fund

Solution Development Funds are utilized to fund demos, proofs-of-concept (POCs) and launches. They require both vendor and partner to agree to invest in joint solution development. This is a discretionary fund. It’s allocation to the partner is an outcome of a commitment to joint development, business discussions and planning. Some vendors call it the ‘Big Bet Fund’ when the initiative is transformational in nature, highly complex and even risky.

The fund can be disbursed in full after the activities are completed, or partially when agreed milestone are met. A scope of work detailing the work, end-product, milestones and fund’s payment terms should be drawn up and agreed.

 

Solution Development Funds are effective in activating new businesses for:

– Partner Types: Value-Added Resellers (VARs), Independent Software Vendors (ISVs), platform providers and alliances.

– Partner Journey: partners in the decision stage and beyond. Once partners have selected the vendor’s technology in the decision stage, discussions on joint solution development and funding can begin.

– Vendors’ Share of Wallet: all partners regardless of the vendor’s share of wallet.

– Sales Cycle: products and services with a long and complex development and sales cycle

– The Way Partner’s Sales are Compensated: for partners when the business relationship manager is accountable for the launch and success of the co-developed line of business.

– Partner’s Field Marketing Capability: partners with field marketing that can align their marketing plan to launch, generate awareness and demand for the co-developed solution.

 

 

To conclude, different types of partner incentives drive different outcomes, and each incentive is effective under certain conditions. A Vendor’s partner program should have a mix of incentives awarded to partners based on their program tier.

To maximize the impact of each incentive, vendors should select the best incentives, taking into consideration the factors discussed above.  They must also support partners in utilizing incentives to accelerate business growth. For example, for a newly onboarded partner that has not accrued any co-op, engage with the partner to plan awareness and demand generation campaigns using MDF. Subsequently, if the partner lacks marketing know-how, the vendor should provide the marketing support and resources to make a difference.

 

Further Reading: 

  1. 7 Rules of Thumb to Improve the Effectiveness of Your Channel Incentive Programs
  2. How a Dozen KPIs Best Measure Channel Partner Engagement
  3. Channel Influencers: Five Types to Know and Evaluate
  4. 3 Reasons Your SPIFF Program May Not Be Working
  5. 5 Ways for Vendors to Respond to Covid-19
  6. COVID-19 and The Channel

 

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