Recruit, Compensate, and Motivate Partners in a Recurring Revenue Model
by Anna Johnson
In a world where customers are moving toward managed services and away from hardware and software purchases, which of your partners will make the transition? What role do vendors play in enabling the channel to make the transition to selling managed services? For those partners that can’t or won’t make the transition, how will you recruit qualified partners to fill the gap?
Channel Management Insights sat down with Craig Schlagbaum, Comcast Business Class Vice President of Indirect Channels, to discuss a new model of recruiting and enabling the channel to take advantage of the opportunity of a recurring revenue service.
The New Model
“The cloud is the magnet pulling VARS and cloud service providers together by developing customer solutions that contain elements of both,” says Schlagbaum. With the cloud offering secure access to technology at an affordable price, the profile of the technology decision maker has changed from the traditional CTO to the CMOs and/or sales executive where their criteria for buying is more around the business solution than a particular technology. “Not only are there new types of decision makers, but a whole new generation of decision makers who only know a world of buying subscription services for mobile devices and the Internet,” says Schlagbaum. “However, while the type of decision maker has changed and the model for delivering the service has changed, vendors have been slow to update their strategy for recruiting, enabling, compensating, and motivating the channel.”
Recruiting Prospective Partners
Schlagbaum said that Gartner Group estimates that one-third of traditional resellers will successfully make the transition to selling recurring services. Another one-third will try and struggle, while the last one-third will simply fail at making the transition. “For some, the pivot to selling recurring services is hard to do, but not impossible,” says Schlagbaum. Even with the most conservative estimates, vendors adding managed services to their offerings can and should expect to recruit new channel partners. “Selling recurring services requires a different skill set than selling technology and fulfillment. Finding partners that understand services as solutions to business problems versus the value of selling technology alone is key,” advises Schlagbaum. But the criterion doesn’t start and stop with solution-based selling. Here are three questions Schlagbaum advises you ask to identify the right partners for your program:
- Are your business goals aligned?
- Are your strategic visions in sync?
- Can the prospective partner sell what you want them to?
If prospective partners can answer yes to all three, then you know there is the potential for a good partnership.
Long gone are the days of just managing multiple SKUs in a warehouse. Instead, partners are being asked to change systems and processes for pricing and ordering based on the new recurring service model. These changes, while seemingly insignificant, are just the tip of the iceberg of what partners have to adapt to under the new model. Vendors who anticipate and proactively address these changes will smooth the transition for their partners as well as enable them to do what they do best — hunt for and close business within their trusted network of customers. “Selling subscription services is one of the greatest challenges for a partner to address because under the old model, partners do more joint selling with the vendor. However, under the new model, the channel needs to learn to sell autonomously,” says Schlagbaum. “Vendors who offer solution-based sales training, as well as marketing and sales materials to enable the channel to sell independently, will realize better traction in the marketplace,” Schlagbaum continues. Here are a few additional ideas to consider. Enable partners in “how to do” key sales functions like:
- Qualifying sales
- Positioning your service correctly
- Quotes and proposals
“Compensation in the recurring model creates a fundamental change for both vendors and partners alike,” says Schlagbaum. In the old model, partners are used to supporting a smaller number of customers, reselling product, and being compensated one time for each deal closed. In the new model, partners are compensated by a recurring margin (white label service) or recurring commission and quite possibly supporting hundreds of customers. This change for the channel can be tricky for vendors to navigate. “Channel partners all have different thresholds for what risks they are willing to take,” says Schlagbaum. To address this challenge, “Create a flexible compensation model that reduces your channel’s risk to loss in monthly revenue that’s associated with the early stages of selling recurring revenue-based services,” advises Schlagbaum. Here are some of the best compensation practices to consider:
- Pay a portion up front and some recurring (total may be less than 100% pure recurring commissions)
- Get partners to create separate P&L for recurring revenue business
- Create a separate cloud sales team inside the company to support partners
Under the new model, partners need to close a certain amount of subscriptions before they become self-sustaining. Vendors need to be sensitive to the upfront costs and time partners need to invest in order to close enough deals to be independent. As a vendor, you can play a critical role by creating programs that motivate partners to get up and running quickly so they can acquire the customers needed to be self-sustaining.
- Invest more money up front in co-op and MDF programs for new partners making the transition
- Develop flexible compensation plans to attract early sales
- Offer marketing and telemarketing service support
- Provide partner-branded marketing and sales collateral
- Create a SPIF based on growing the recurring base from x to y
For a revenue-recurring model to succeed, “Both partners and vendors must recognize this is a different model and it requires a different team and set of skills to drive success,” warns Schlagbaum. The transition to the new model risks partners’ monthly revenue stream, so finding, enabling, compensating, and motivating them requires a different strategy that takes these revenue risks into account. Not all partners will be able to make this pivot, so “don’t be afraid of liberating them,” advises Schlagbaum. For partners and vendors alike, “The opportunities are enormous for those who are prepared to enter this space.”