Recently, I represented MarketStar in a Partner Path webinar in which we examined the solution provider’s prospective as it relates to profitability from their relationships with vendors. Our MarketStar Insight team worked with PartnerPath to gather and analyze input from both, solution providers and vendors, to identify ways each side can improve the profitability equation. You can download the full webinar recording here.
Based on my experience in supporting vendor-partner relationships, we’re really seeing a trend over the last several years, in which solution providers wield much more power than they used to. They are more emboldened to trim unprofitable vendors from their line cards. To increase channel loyalty, vendors should consider the following topics we discussed in our webinar:
When working with the channel, front-end margin is easy to calculate for vendors, but it does not reflect true partner profitability. This is a much more complicated formula that takes into account commissions, overhead, capital investments, and other expenses. Solution providers will typically factor in how much opportunity the vendor offers through market demand, financial rewards, and program support, and then divide the opportunity by the amount of investment to be made through sales enablement, relationship, and the ease of doing business. If providers feel the relationship with a vendor takes more investment than the amount of opportunity they can experience, they will gravitate to other vendors.
So how do vendors enhance the opportunity and incentivize their partners? We posed this question to each group in our study and found differences in the way solution providers and vendors weigh the elements that produce opportunity. Solution providers prioritize market demand above financial reward. Vendors, on the other hand, believe that financial rewards are more important than product/brand strength, which improves market demand. Too often, vendors think all their partners care about is how much money they make. In reality, vendors should be asking themselves if they are creating enough value for the partner. If this is not the case, then the partner has to create that value to drive demand and that’s an uphill proposition for the partner.
In our study, we found another disconnect as it relates to solution provider investments. Providers rank unquantifiable relationship elements like resolution of channel conflict, experienced account managers, and trust in the vendor, as factors, which produce the greatest impact to their profitability. However, vendors rank these intangible relationship components as the lowest priority. Creating relationships and removing complexity from how business is conducted can be very expensive for vendors, but it is necessary for improving mindshare and loyalty.
You can get more insight from downloading the complete study, “The What and the Why of Partner Profitability.”