Indirect sales channels can often represent a lucrative opportunity to grow revenue, but it can be challenging to know where to start—and tempting to bite off too much too quickly. The ideal approach is to start small and at low cost, prove the concept, and build over time as the channel provides a bigger piece of the overall business.
This article will help companies understand what this journey looks like and how organizational changes occur as the channel grows in terms of revenue size, partner count, internal roles, and scope of responsibility.
Companies that choose to sell through indirect channels often enhance their own credibility, particularly when the partner is a known entity with a positive brand. Channels can also provide better coverage of the market, and it’s easier to scale up or down than if selling through a direct sales force. Another benefit is that market penetration typically comes at a lower cost than with a direct sales force, as does customer service because many companies find efficiencies in utilizing partners to handle some servicing of customers.
On the other hand, channel selling can give a company less control of the message and sales activities. It can also create the potential for conflict with the direct sales teams – which are your company’s employees. While the overall costs of using channels are lower, typically, channel sales are more expensive on a deal-basis.
Even when an indirect channel makes sense, it often brings some common challenges:
We recently surveyed 20 companies across various industries on their channel/distribution partners to understand how organizations utilize and structure channel partnerships to maximize performance. We found the following:
Understanding the current channel landscape will give you a sense of which levers you might pull to build a channel that’s right for your organization.
There are several critical steps to building an indirect channel and selecting partners. While the specifics of each step will be unique to your situation and business needs, utilizing a “crawl, walk, run” mindset will ensure you don’t over-rotate.
1) Insights: Competitive Landscape, Solution Offering and Client Needs
Once you’ve completed a competitive market review, determine if there are true deficiencies in an under-served market. Then, from the customer’s perspective, assess whether it’s more advantageous to build the solution and go-to-market with your own sales team, buy it, or partner with a proven channel.
We recently worked with a managed services technology organization that was also building a SaaS solution. The client was affiliated with one of the mega-technology players but had not maximized this channel. Once the SaaS solution was in place, they decided to build the channel with the mega-technology player instead of using their existing direct sales force. The key questions they asked themselves to prioritize the focus of the partnership were:
2) Select a Partnership Type Based on Your Situation and Maturity
After reviewing where your organization is in terms of salesforce and go-to-market maturity, explore the types of partnerships available for getting into the market. We frequently see these three categories of partnerships:
One recent client was far enough into their channel maturity to justify differentiated internal roles to serve distinct channels. Exhibit 1 illustrates how this organization deployed Channel Managers and Alliance Managers and different stages of the sales cycle to drive growth.
In this case, Channel Managers interacted early with partners to help qualify leads and move software deals through the full sales process. The channel managers had responsibility to increase the number of external partners, create differentiated messaging, and administer sales practices, tools, and policies used by the resellers to drive channel revenue.
A separate role, Alliance Manager, partnered with implementation organizations in a wholly separate channel to drive software sales, often after leads were qualified. These managers would then typically ensure their partners were set up to succeed on selling the implementation work.
3) Assessing Alignment to Solution, Philosophy and Culture
Remember that a partnership is a relationship, so consider how the partners’ solutions sync-up: Is only technology in play, are there other services involved, and who will own the client experience?
Strive to partner with companies that are moving in the same direction, with a shared trajectory or mission, and a complementary approach to the market and/or client experience.
Finally, look at the chemistry. Cultures are like personalities and they can be strong, so make sure that both companies foster the same type of people, process, and transparency.
Our survey showed that robust and careful partner assessment and selection can help improve channel performance, but not always. Sometimes speed to market may be top priority and partner quality can be improved over time.
4) Launch and Optimize
Once you’ve selected the partner(s), focus on alignment, enablement, support and communication.
Start with clearly communicated targets. In a new channel, it can be difficult to estimate appropriate quota levels, and it may take several quarters of performance before data becomes reliable. Even the sales leaders face challenges in achieving desired performance levels from the indirect channel: Our channel survey found a 5 to 15 percentage point spread between targeted and actual revenue from channels, but with less control over the partner force than their own sales force.
In addition to measuring the performance of your own employees in your Channel Manager positions, evaluate the performance and quality of your partners. This can be a key performance driver in the channel.
Our survey reveals that the most common KPIs (Key Performance Indicators) focus on end results such as sales/revenue-generating measures more so than lead generation or impact to the brand/organization.
Next, establish clear incentive structures and rules of engagement for both partners and Channel Managers. Of the surveyed companies that don’t offer partner incentives, none exceeded expectations, and only 50% met expectations. All survey respondents in the Technology industry offer some sort of incentive, whereas 40% of respondents in other industries offer no incentives.
Determine the technology you’ll use to operationalize the sales relationship outside of your organization. While many companies still manage partners using manual, Excel-based tools, we’re seeing an increasing shift to dedicated web-based partner portals to track deals, crediting, performance, and disputes.
A final step to ensure alignment is to establish joint commitment to the marketing and co-branding approaches. Once the teams are aligned, ensure knowledge transfer by training sales, defining customer success, and establishing implementation teams.
When the partnership goes “live,” ensure a unified front. Find ways to improve partnership, e.g. deeper integration, more sharing of best practices, joint sales calls, etc.
As your channel approach matures and adds complexity, continue to optimize its effectiveness and productivity through additional customer segmentation, sales process mapping, deployment and coverage reviews, aligned incentives, and training initiatives.
Applying the principles outlined in the channel journey, you’ll find your salesforce better positioned to unlock additional growth via new and more effective channels.