What is critical for a channel leader who’s working on maybe building out or exchanging a channel partner program? What do you think are some of the most critical elements that a leader should consider when trying to optimize their channel program?
I think there are various reasons why things break down or need to be optimized, to put it in a positive way. One would be having vague agreements with your partners. If partners are not fully committed to your program, if you don’t understand their motivations, there’s going to be a problem. The second thing is making sure that you’re properly motivating them. Do you have a compensation program for them that makes sense?
Moving into SaaS is hard for everybody. Especially if you are transitioning from software, to perpetual software, to SaaS, all of the sudden your revenues are stretched out over a longer period of time. Well, the same thing happens to the channel. They’re going through this transition where instead of booking everything upfront, now their revenues are booked over a long period of time, or recognized over a long period of time. So understanding that there’s going to be some shared pain there, and making sure that your partners are willing to accept that pain that transition is critical. And not everyone is willing to do that and so you’ve got to pick your partners carefully. I think one critical role or one idea is to focus on partners who get it. Focus on partners who have accepted the SaaS model and are compensating their sales people that way and are making the transition themselves.
Do you have any war stories you can share with us or anything that you’ve experienced that was a major lesson learned?
The one that comes to mind deals with compensation where their quotas have to be aligned with the quotas of the direct team. And then you have to decide whether they will share that quota or not.
I’ve seen where the quotas for the channel team were aligned more towards run rate business. Say a large number of small deals, and then a large deal comes in. Maybe that large deal is a million dollars or more, and so the channel person blows out their quota but the direct team doesn’t. So whoever is in the compensation plan needs to be carefully architected to ensure that you don’t have a channel manager totally blowing up their number but the direct team doesn’t.
Have you ever experienced any challenges where like internal struggles with revenue share with partners?
There are a couple of different challenges. One challenge would be that the vendor doesn’t want to part with a piece of their SaaS revenue stream. And so they’ll try to get the partner to accept a finder’s fee or a fixed upfront fee and then forgo the annuity. And of course, if a partner accepts that then they’re really not participating in the best part of the SaaS business. And so they’re not going to be as committed to you as they would be if they had annuity for an ongoing revenue stream.
Right, so if you want your partners to bring you SaaS business you should be expected to pay them as such, and pay them the commission, is that what you’re sharing?
Yes. We want them to share in the ongoing revenue. And of course a lot of SaaS companies are very direct sales oriented and they see that as a major sacrifice for them. So that’s something that everybody has to work through. It’s the idea that partners should be sharing in the revenue stream. And so that’s one scenario. Another scenario would be where partners are having to shift their role in the sale from a software model where they’re making their money by doing provisioning and the licensing and installation and upgrade, and things like that, to providing more of a strategic consulting role, where they’re helping their client with business transformation and with integration and security. I don’t think that’s new to many established partners today, but five years ago that was a major transformation. So essentially they have to upgrade their value to their clients to take into account the difference in the way a SaaS product is delivered, versus a software product.
To learn more about investing in the channel, compensating your channel sales reps, and more tune in to episode 30 of The Allbound Podcast.