While outsourcing has become a steamroller transforming the American workplace, one form of the phenomenon-sales channel partnerships-has been around for quite a while. In many industries, such partnerships are seen as an essential adjunct to in-house sales and an indispensable marketing outreach and customer-service option in their own right.
As channel partnerships develop and become more complex, however, the need to measure their effectiveness becomes crucial. Companies not content with mere incremental revenue are looking for ways to analyze channels, refine them for maximum return and avoid any pitfalls.
"There's a vanilla way to approach the sales channel, to just try to create more demand," said David Treadway, president-CEO of MarketStar, a large sales and marketing outsourcing company that specializes in channel sales. "But you want to make sure you're linking with individual partners with the highest propensity to drive business. What we're all trying to do is help companies be more predictable about that."
Analyze in-house sales first
One key metric, Treadway said, is analyzing the in-house sales effort first. Companies want to determine if they can generate revenue more effectively-and with better margins-by relying on full-time staff. With an intimate level of management engagement, that may make sense, he said.
"But sometimes corporate overhead doesn't transfer to the field, because the cost to put employees out there can be very expensive," Treadway said. "In reaching for a broader market, companies turn to channel partners for a reason-to drive brand recognition, volume and efficiencies they couldn't afford to do otherwise, and do it in a reasonable amount of time."
If the challenge to manufacturers in assessing the channel is tough, consider the challenges faced by the channel itself. According to Sarah J. Gerdes, CEO of consultancy Business Marketing Group, resellers have an average of 250 products to sell; many face hard and soft costs of about $320,000 to add a new product to this mix.
Given that partners have plenty invested in the process, it would be logical to assume they have a vested interest in each product's success. But it's the way that manufacturers handle the relationship that helps ensure this.
"Rate of adoption-how many of the partners said they'd actively support a new product-is essential, as is the number of customers the partner will introduce the product to," Gerdes said. A company will want a metric stated in percentages for this, she said, perhaps an introduction rate of 10% by year one, 20% more by year two and so on.
"Manufacturers have pipelines and timelines and so should the partners," Gerdes said.
"The challenge is how to measure what may be the most important metric-trust," said Ted Dinsmore, president of Conchango, a business development consultancy. Dinsmore said Conchango verifies well-placed trust by comparing partner sales with in-house performance.
"If you try to compare two vendors, you don't see what the other side sees; you only see what they tell you," Dinsmore said. "You can add a partner element into your own CRM or partner relationship management solution and attach a sales metric to it but, when you get the numbers back, compare them to your in-house sales data."
While companies focus on incremental overall sales, the most sophisticated metric remains analyzing which individual partners are performing well or poorly. That means finding ways to assign appropriate sales allocation to individual activity and pinpointing the exact location of the point of sale, be it a distributor, the channel partner itself or a partner's reseller.
Automated channel systems
Using a channel consultancy can help, but it can be labor-intensive, involving multiple surveys and partner contacts. Automated systems, such as MarketStar's PartnerDynamics software, can help manage channel initiatives with a list of daily activities for specific resellers and stores.
In addition, compensation management automation can help eliminate conflicts between staff sales and partners. Sales consultancy Centive, for example, offers its Compel system, which can model expected revenue from both entities and devise compensation levels to inspire performance with a minimum of conflict.
If a manufacturer is big enough, it can enforce (and thus measure) the ultimate pathway to incremental sales, partner loyalty. That seems to be the strategy newly employed by Hewlett-Packard Co., which announced at its HP Partners Conference in Las Vegas in June a renewed recommitment to the channel, but only to those partners that sell a larger number of its products. In other words, HP is attaching the sale of HP monitors and PCs to HP printers, servers and storage.
Observed MarketStar's Treadway, a former HP executive himself, "The company wants to reward those who are advocates of HP by keeping them as partners."