Good Partners Produce, Great Partners Contribute
Vendors often see positive returns from partners as a good indicator of value. But they need to look at how much partners give back without consuming costly resources.
By Larry Walsh
A common refrain among channel chiefs and their teams is, “We don’t want all the partners. We need the right partners.” And by “right,” they mean solution providers that will produce high volumes of sales and consume the lowest amount of resources in the process.
Who wouldn’t want “the right partners”? The entire purpose of the channel is to extend sales coverage and enhance revenue without incurring cost. Partners get paid only when they sell something, which means that vendors avoid the fixed costs associated with supporting direct-sales organizations.
Channel sales are not guaranteed, though, as no two partners perform equally. Many in the channel cite as gospel the 80/20 rule, which states that 80 percent of a vendor’s indirect revenue flows through 20 percent of the partners – the top performers. In reality, the channel operates on a ratio closer to 90/10, or even 95/5, as most solution providers are either underperforming or not performing at all.
The cold reality of the channel is that all but 2 percent of solution providers are operating above sustenance level. The vast majority of channel partners — be they resellers, managed service providers, or integrators — post revenue under $2 million in gross sales and have anemic growth rates. According to 2112’s research, the average growth rate for the channel has stood at 11 to 15 percent for the last two years, with the bulk of solution providers falling closer to the 11 percent mark. Average, though, means that many are falling below the 10 percent growth rate, and quite a few are even shrinking.
If you ask the average solution provider about business performance, most will say with resounding confidence that they’re growing — often at spectacular rates. In reality, the performance of many looks like waves on the ocean — up one year, down the next, and then back up. The net: little real progress.
Vendors say they want productive partners (again, the right partners), but what they mean is they want “contributing” partners, which is a different standard. Contributing partners add accretive, measurable returns on the vendor-partner relationship – most often seen in boosting the vendor’s growth. Productive means there’s a level of consistency even if the outcomes don’t rise to the contribution level. In a conventional channel sense, contributors would be Platinum partners, whereas productive ones would be Gold and Silver partners. The matter at hand is not whether a partner is productive, but whether a partner’s productivity contributes to the growth of a vendor.
The line of demarcation when determining whether a partner is productive or contributing is 15 percent. By analyzing years’ worth of channel trending data, 2112 has determined that a true measure of partner value to a vendor is measured by the partner’s overall sales and revenue growth. For a partner to contribute more than it takes from a vendor in terms of resources and support, it must grow 15 percent or more every year.
The 15 percent threshold is important. Most solution providers consider 15 percent to be an acceptable rate of growth. Unfortunately, what’s considered acceptable has been falling in recent years as the easy sales dry up and products and services become commoditized. New technologies such as cloud computing and Big Data aren’t easily adopted by the channel, as they come with steep learning curves and investment costs. Hence, the growth headwinds are slowing what’s considered acceptable growth.
While vendors may appreciate positive returns from their partners, they need to recognize good returns. Only by assessing partners through their cumulative growth will they cultivate healthy partners that will produce sustained and consistent returns. If a partner is growing at 15 percent or more, they’re usually producing more with less, creating more value for their vendors.
You can learn more about 2112’s 15 percent rule by downloading our quarterly research report. Or you can request a briefing and learn how 2112 can help identify your partners that meet and exceed the 15 percent rule by emailing firstname.lastname@example.org.