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Earlier this week I got my first email from someone with the acronym D.Sc after their name — apparently, this is the new self-assigned suffix being used by folks who consider themselves to be Data Scientists. I need to get out more.
Okay, rather than focus on how D.Sc represents everything currently wrong with a MarTech industry flooded with countless best practices, acronyms, theories, and now suffixes that even “insiders” are getting overwhelmed, what I thought I’d do instead is simplify with some quick insight on five critical KPIs for your channel that don’t require a D.Sc or a Ph.D — just a B.R.A.I.N.
It’s been pretty exciting lately to see innovators and thought leaders like Tomasz Tunguz of Redpoint Ventures pen articles on The Rising Importance Of Reseller Channels In SaaS. Max Altschuler of SalesHacker.com hosted a webinar on a similar topic in late April. The simple fact is this: as Tunguz points out, “channels can generate more new business and increase revenue without the need to hire more salespeople.”
YES! But it isn’t easy. And without the right strategy, tactics, tools, and KPIs to keep your channel aligned with revenue growth in today’s SaaS and Cloud-driven economy (PLEASE – no 2-minute business plans!), it can easily become a huge cost center. Here are five important KPIs you should be tracking regularly to make sure it doesn’t:
Customer Acquisition Cost (CAC)
It’s no secret that good marketing can be expensive, and that expense can multiply if you’re marketing, for and through partners. The wrong strategies and tools can quickly destroy the profit margins that you’re already splitting with your resellers. How do you fix it? Well, you can start with a very easy calculation that tracks the cost per acquisition of campaigns.
CAC tells you the average amount that you spend for each new customer your partners are bringing in — in fact, you can even do this for individual partners. It’s a reliable, quick check on the health of your channel and the performance of individual resellers and partners. And as Kissmetrics so gracefully puts it, “If you’re spending more to acquire customers than you’re receiving, you have a problem, my friend.”
Helping your partners retain their customers for the long haul should be one of the top priorities of your SaaS channel. At the end of the day, this ultimately determines whether their business, and likely yours, will survive. Churn measures the percentage of customers who leave every month. Partners with a high churn (think double digits) can be a sign of bigger trouble. There could be:
- A fundamental problem with your product or business model
- A communication, training or knowledge transfer issue between you and your partners
- A need for you to provide your partners with more post-sales content and support
To figure out what the problem is, start talking to your partners by reaching out to them directly. Collaborate with your partners and get in touch with people who have left and ask them why. Then work together to get in touch with people who have been around the longest and find out what’s keeping them here. It’s time to understand every last detail of those partners and their customers. Your churn rate is perhaps the most critical KPI when it comes to growing a sustainable SaaS channel.
Total Lifetime Value (TLV):
How much revenue should you actually be expecting to receive in the future from your partners’ customers? Who are your partners’ most valuable customers, and where should they be focused? By combining the average revenue per customer and the churn rate, you normally figure it out and get some pretty good insight into the longer-term growth of channel revenue.
Though there are numerous ways to calculate TLV, when it comes to your channel partners, you can typically rely on the simple version and evolve your formula over time. For a cloud or SaaS partner, start by taking your average subscription length and multiply it by your average monthly revenue per customer. More traditional businesses can take the average revenue received from each sale and multiply it by the average number of sales per partner per customer.
Average Revenue per Customer (ARC)
RPC, often referred to as “Wallet Share,” is the average revenue you’ve already received from your customers. It’s a simple calculation, but one you want to continuously see going higher and higher for all of your partners’ customers.
If your partners’ churn rate is under control and your CAC is at an appropriate level, the key to revenue growth is up-sells and cross-sells — moving customers to more expensive versions of your product or adding extra features down the road.
Your channel strategy must include a programmatic plan, content and resources to help your partners steadily increase the revenue (wallet share) that they’re receiving from their customers. ARC will tell you whether or not they’re succeeding.
No matter how much you’re focused on KPIs for your channel partners, none of them really mean anything if your partners are not engaged and selling. Partner engagement – how and how often your partners are interacting with your brand and product – has long been the holy grail of channel programs. According to Gartner, engagement is “the key indicator of partner loyalty and productivity…yet it’s flagging.” And the primary reason is the legacy portals, complex PRM platforms and cobbled-together channel stacks that vendors and their partners have been stuck with for decades, resulting in engagement and utilization rates in the low teens.
The fact is, these systems create roadblocks to partner productivity and sales, leaving partner sales reps hesitant to use them and providing vendors with little or no data to even measure. On the other hand, today’s modern Partner Sales Acceleration platforms are focused on the partner sales rep from the get-go, providing them with a comprehensive tool set in the cloud where they can access everything from sales and technical training to marketing content and campaigns, deal registration and collaboration tools, and more — all with a simple, modern interface.
Partner Sales Acceleration platforms also track each and every move by the partner, giving vendors clear and concise data points to see exactly where their partners are engaging and where they’re not, while also creating programs or incentives to increase engagement in real-time.
BONUS KPI: Time to Value (TTV)
This one is a little different, but I’m going to go ahead and mention it because it truly infuriates me that in 2016, channel technology and legacy PRM vendors are bragging about systems that are “built from the ground up” and take “days rather than months to set up.” The day of “customizable, enterprise-class web portals” ended before most millennials were even entering the workforce.
Today, even the most complex systems of record (see Salesforce or HubSpot) should provide instant access — taking minutes, or in the worst case hours, to start delivering value to you and your partners. If it doesn’t? Well, I hope you can count by thousands, because that’s how much you’re losing per day of lost partner productivity and sales.
Implementing a KPI-Driven Channel
Now that you know which KPIs to track, how do you do it? Well, the first step is to be clear and transparent with your partners. Whether you’re just recruiting your first resellers or supporting a global network of VARs and distributors around the world, installing a culture of trust and collaboration and making your business easy and simple to engage with is absolutely critical for both your growth and your partners. And, it makes a layer of accountability and performance metrics appreciated and respected by everyone involved — from CEOs and CFOs to channel managers to partner sales reps. The rest is up to you.