Often senior management teams seek new ways to reduce business operating costs, while simultaneously increasing top line revenues. One model many executives often contemplate is the setting up of channel partner programs.
Developing strategic partnerships or channel partner programs to help increase your company’s product or service sales is a key business process for many industries and an important goal for sales management.
But it is important to remember three sales management variables concerning revenue capture and channel partner considerations:
- Direct sales are short-term and long-term revenue enhancers for companies.
- Partner or channel program sales are long-term revenue enhancers.
- Sales capture costs must be accurately calculated for the distribution model you select.
Strategic partners and channel partners take time and money to help generate prospect sales. A partner’s sales success will be dependent directly on your firm’s direct sales team success and your delivery model of your sales and marketing programs.
Today, business alliances need to be managed with a more logical model approach. Deploying strategic alliance relationships correctly can help small firms appear big and generate true identifiable revenue streams which can be managed and enlarged. Conversely, correct strategic alliances for larger firms can help fill market gaps that smaller firms may be filling.
Much like the affiliate market for ecommerce sales such as books and information, business alliances can offer companies the ability to sell their services and products at lower sales capture costs while spreading the distribution and advertising costs over other firms’ General and Administrative (G & A) overhead.
When strategic alliances work, they become a self-replicating revenue machine as one partnership leads to another and each new partner adds value to the team.
In today’s economy, a true strategic alliance executive needs to have a hybrid of skill sets including experiences that cover major account sales, marketing, strategy, contract negotiations and deal making.
Product and Service Distribution Channel Guidelines When Expanding Sales Distribution (1) (2)
|Offering Price on 1st Sale||Model||Distribution|
|$100 – $9,995||Internet Sales||National Sales|
|$10,000 – $50,000||Channel Partner||National Sales|
|$51,000 and above||Direct Sales Team||National Sales|
(1) These numbers are based on a company expanding concentrically from one company office into multiple new geographies.
(2) These numbers do not take into consideration the client’s lifetime value of purchases.
When building reseller channel programs, your specific sales process must be analyzed based on the number of on-site meetings required to close one deal and the selling time needed to capture one deal in weeks or months.
Distribution Model Case Example
Several years ago, we were advising a CEO and the senior management team of a small public company on their operating strategic marketing and sales approach on how to increase corporate profitability. Their account managers were selling a complex product and service that averaged 7 on-site client meetings within their assigned geography to make one sale. Their average sales value was $18,000 and the closing ratio from proposals submitted was 21%. Each account manager (about 50) had an annual sales quota of $500,000. So, for every 1 client they sold (21% closing ratio), it took up to 35 on-site meetings to make that one sale. With approximately 220 business sales days (not counting vacations and holidays) a year at any given time, a sales account manager could only sell 6 or 7 deals a year. So, the average account manager was selling only $125,000 a year or 25% of their assigned sales quota.
So, we suggested four strategies: 1) simplify the product offering, reduce its sales price to $9,995 and sell it through the Internet with planned upgrades over two years using an inside telemarketing team; 2) Reduce the on-site meetings to two using the Internet as a marketing demonstration tool; 3) Increase the price of the offering and sell it to larger clients directly with a targeted price of $51,000 or more and reduce the on-site meeting to 3 or less locally; or 4) Set up a channel partner program on a national basis, reduce the on-site sales steps and help local resellers sell their offering.
They ultimately chose two of these recommendations and increased their top line revenues, reduced their selling costs and improved their sales team annual sales quota capture to an average of 92%.
So, when reviewing sales model options and considering strategic partnership programs, understand your current business model first. The outcome of these decisions drives long-term business success based on your firm’s ability to execute your plan.
Like any investment in your business, strategic relationships cost money, consume time and must have a definitive return on investment. When seeking new partners or looking to launch a partnership program, you must measure its long-term business value against your company’s short-term needs and ability to execute.
Remember strategy is important but execution is better