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Over the last 20 years of developing programs for the channel
— that are equal parts incentive, education, information
and rewards — our industry always seems to come back to
the ageless method of rewarding channel partners in two basic
ways: marketing funds and rebates.
Marketing Development Funds (MDF) which has also gone by the
name Co-op and BDF (Business Development Funds – a name
invented by former EVP of sales at Seagate, Bernie Carballo, who
thought that any use of funds for "marketing" was a sin!). Whatever
the name, the idea has always been to hand out money to our successful
partners so they can implement "marketing" activities to drive
more sales.
Historically, these funds were accrued for each account and rewarded
based on the dollar volume delivered by the partner in the previous
quarter; When you purchase $X this quarter you will receive a
percentage of $X to help you increase your revenue to $X+$Y. The
plan is that these funds help create more $Y (incremental revenue)
each quarter.
The other standard reward process in our business is "Rebates"
— nothing more than a percentage of purchases returned to
a partner upon attainment of a preset revenue target. Often rebates
are tiered with higher percentages rewarded for more aggressive
targets.
In both MDF and Rebates, the methodology has been very simple:
Purchases = Rewards — the more you buy the more you get.
Sometimes a high-end Cap is built into the program to insure against
run-away costs. However, Caps can result in lost sales (to a competing
program) or revenue which is delayed from one quarter to the next;
"Hey, if I can’t make any more MDF this quarter, I’ll
have just saved the business for next quarter!" It happens more
often than we’d care to think about.
Although Caps can result in this sort of unnatural
behavior, my biggest concern today is that these two strategies
have other flaws that create stagnant or slow incremental growth.
First, because these programs are based on revenue achievement
alone, we are rewarding for the status quo. Most of our partners
have also been in business for many years and even those with
the highest integrity know how to play the game and often plan
their sales cycles to maximize their back-end rewards. And, Partner
B would have achieved many of the sales that are receiving rewards
anyway.
The second issue I have with the old standard is that we can
only reward relatively few resellers. While the oldest and biggest
continue to receive rewards, the younger, hungrier and more aggressive
partners who have the potential to truly bring us incremental
revenue go unnoticed.
Finally, we need to examine how our channel rewards programs
line up with the goals of our organization. If we are rewarding
solely on revenue achievement, then our company focuses on revenue
from solutions, software, strategic verticals and overall profitability
may never be achieved. If we say that our goal is to create an
independent channel that can sell our boxes and solutions is important,
but do not provide incentives for education and service excellence,
our words do not line up with our actions.
Making the change to a strategy of rewards beyond revenues requires
a commitment from all levels of your organization. For your partners,
you can expect a reaction akin to drug withdrawal; you have created
a habit that will be very hard to kick. So, I do not recommend
going cold turkey. But, rather, an evolution of your programs
which combine rewards for revenues with rewards for achieving
goals that will result in success over the long term.
One way to begin is with a "Points Based" rewards program. Points
are awarded throughout the quarter for the achievement of goals
set in advance. Revenue can still be a part of the program. But
consider a goal that increases the linearity of sales to prevent
the hockey stick effect at the end of the quarter. Also consider
adding a profit goal to the program — nobody wins when unnatural
pricing happens. Reward partners for hitting profit goals as well.
The attached presentation provides some additional ideas about
how you might begin to think about points based rewards program.
As always, your program must be aligned with the goals of your
company, Channels and management team. Each of you has a unique
value proposition that should serve as your starting point. And,
my mantra of "involve your partners" in the process of program
development is extremely important – change is hard and
nobody likes surprises.
The Core team and I have been developing Rewards programs, for
many of our industry’s leading companies, for more than
20 years. Hey – if we can learn new tricks so can you! We’ve
already learned and implemented quite a few, in North and South
America, EMEA and Asia. We’d be happy to help you –
just give us a call.
For more ideas click
here to download a PDF.
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