What cropped up most often at Baptie & Company’s Channel Focus event in Miami last month, in almost every session, was the challenge of transforming channel partner communities to support the sale of cloud-based solutions. There were numerous sessions discussing how a vendor can help partners migrate to a model that’s so heavily focused on recurring revenues.
I speak to vendors every day who are looking for ways to enable a smooth transition to the new paradigm. There was no “silver bullet” presented at the conference—most of us are ‘playing it by ear’ to see what works best for our particular company and partners… but here are a few points to consider if your you’re grappling with this.
One of the most common ideas that many vendors are considering is a “hybrid” or transitional business model. This involves making an upfront payment to partners that close cloud deals. Most of the vendors I spoke with are considering a payment for the first 12 or 24 months of a customer contract up front. They follow that with payments for recurring revenue to be paid after that initial term is fulfilled for the lifetime of the customer engagement (similar to agent payments for insurance).
If your business is moving to a cloud-based model, you should also be reviewing your channel incentive programs. In a recurring revenue model, traditional channel programs such as Co-op, MDF, as well as rebates and sales incentives, will need to be evaluated and likely modified. Traditionally, these programs would “pay for performance” once a sale is made, but that model may not work well for the cloud-based transactions of the future.
In a recurring revenue model, lifecycle management and customer retention are the keys to profitability for both the vendor and the partner. Vendors may need to strategically realign their incentives throughout the sales cycle, providing rewards earlier in the sales process for certain activities, as well as ongoing incentives for customer satisfaction programs and activities.
So changes to our partner compensation models are inevitable. As the attendees of this conference confirmed, there will not be a “one size fits all” solution, and this is not a decision to be made hastily.
Keep an eye on how “first movers” in your space have been approaching it.
Study how the telcos, the cable industry, and the insurance businesses incentivize their sales channels. They know a thing or two about recurring revenue!
Discuss your transitional plan with your Partner Advisory Council (if you have one), or at least send out a survey to your channel community for their feedback.
ABOUT THE AUTHOR
Michael Browning, Regional Business Manager at CCI
Michael brings 15+ years of experience in development of channel sales and marketing programs to CCI. His experience includes partner program development, strategic channel planning, and tactical implementation of channel sales, marketing, and enablement programs. His background includes leadership roles at both the reseller and the manufacturer level, bringing first-hand knowledge of best practices and issues from both sides of the channel.