The channel partner program model isn’t just for the billion-dollar giants; companies of virtually any size can benefit significantly.
Most growth-oriented companies consider the channel partner model at some point, but many hold back out of fear that it will erode margins and productivity—and those fears are not unfounded. Depending on the product, the company and the approach, channel sales have the potential to accelerate the company’s growth—or impede it.
Three decades of experience in direct and channel sales have convinced me that every company needs to consider the channel as a growth lever. Most recently, as Senior Vice President of America’s sales for Palo Alto Networks, I grew sales from $300 million to $1.8 billion per year within a five-year period, and leveraging the benefits of an indirect (channel) sales approach was a big part of the growth strategy.
But the channel partner model isn’t just for the billion-dollar giants; companies of virtually any size can benefit significantly. I’m currently advising the CEO of a company with 13 staff and $1 million in annual revenue to explore channel opportunities because I think it will fast-track growth even at this early stage.
How can company leaders determine whether the channel will be an accelerant or a drain? In this GrowthBit, I’ll share some of the key considerations that can help them make the right decision.
Why should you partner with the channel?
The channel partner model is one of several ways to accelerate growth by increasing sales and productivity. But beyond sales, there are other advantages that can make a channel strategy valuable to your company.
One of the greatest advantages of a channel relationship, especially for a smaller company, can be the administrative support it offers. If there is a potential market for the product that a channel partner already has an established relationship with, this enables the company to reach that market without having to create a new contract, buying vehicle or limitation of liabilities with the end user. The channel partner brings that existing relationship to the table, along with the legal infrastructure required, so that the vendor can avoid some of the most onerous and resource-intensive requirements associated with expanding into new markets as well as the liability a direct-to-end user relationship entails.
Access to credit.
The opportunity to offload the challenges of facilitating and collecting payment is a significant—and undervalued—potential benefit of a channel relationship. For smaller companies, collecting customer revenues imposes a burden of financial risk and administrative costs. With a partner community in place, that burden is transferred to the partners, who provide credit and financial services to the product’s end users as well as assume the financial risk. This enables your company to pare back its operations, improve cash flow, and reduce the financial and legal risks associated with collection.
The channel partner model can help your company to pare back operations, improve cash flow and reduce the financial and legal risks associated with collection.
Access to new markets.
Good channel partnerships grow your market, but more specifically, they can help you reach new markets that your own sales force may not be able to penetrate. Some of the most successful channel partnerships are those that connect a vendor to end users within a specific industry, tight vertical or geographic area. If your company has a product that delivers value to a particular market, but you don’t have the connections, reputation or pre-qualifications to capture that market, a strategic channel partnership can help you accelerate the opportunity and achieve competitive advantage.
Good channel partnerships can help you reach new markets that your own sales force may not be able to penetrate.
As a vendor, you need to identify the benefits and resources your company can offer the channel, too.
Why should the channel partner with you?
Every company should evaluate the benefits of a channel partnership to determine whether it’s worth exploring. But remember that a channel partner relationship is a two-way street. As a vendor, you need to identify the benefits and resources your company can offer the channel.
Channel partners have many products and opportunities competing for their attention. If your product is easy to sell, delivers value to their end-user communities and offers a high return on their investment of time and effort, it will rise to the top of their line card. If not, it will get buried. Before you approach a potential channel partner, think about your product’s potential from the channel partner’s perspective and ask yourself these questions.
Is your product easy to sell?
The easier the sale, the higher the margins the channel partner is likely to see. If you make products whose use and value are easy to understand and that require little or no sales training to represent, they are more likely to appeal to a channel partner. Remember, that partner represents multiple products. If they can quickly grasp and communicate the value proposition, they are more likely to put their energies into selling it because it widens their own margins and helps them see revenue sooner.
Does your product offer service opportunities?
Products that give channel partners an opportunity to deliver services to the end user are an incredibly attractive proposition. If your product requires ongoing services, or if you can find a way to wrap a service component around it, you’ll have created a winning channel formula. Service delivery can dramatically increase revenue streams and the customer lifetime value for vendors and partners, as well as helping partners deepen the relationship with the end user. If your product lends itself to service delivery, think about ways to strengthen the offering through channel training, partner certification programs and partner-delivered services.
Find a way to wrap a service component around your product and you’ll create a winning channel formula.
Can you offer partner support?
Simple products are an easy win for channel partners, but a technical product can do very well in the channel if it’s supported by training, support and, where necessary, certification. Vendors often underestimate the investment required to support their channel partners. You need to be ready to deliver structured training and support for the partner community, and to hold them accountable to training thresholds or certifications. These activities will erode your margins, and that needs to be taken into account, but for some companies, it’s a worthwhile investment and a viable means of accelerating growth and leveraging the partner community.
(For more insights on how your marketing team can support the channel partner model, read “How to Rev your Channel Sales Engine with Marketing Enablement” from the Chief Revenue Officer at LLR portfolio company and channel expert, CoreDial.)
Here’s the bottom line.
Companies often avoid the channel as a viable sales conduit because of the impact on margins, but the potential increase in revenues and productivity can be well worth the investment. A good channel partnership can help you accelerate growth and break into new markets while minimizing the administrative, legal and financial burdens. The key is to explore your options with your eyes wide open. Add up the advantages that channel sales offer and then compare those against the time and effort required to nurture and support the channel partner model. It’s not the right move for every company, but when the fit is there, it can be a powerful way to accelerate growth.
LLR Partners believes in sharing the wealth of experience and expertise within our portfolio companies, network and teams in order to inspire and help accelerate growth for a wider community of business leaders. We hope you find these GrowthBits helpful and share them with your network. Reach out to us any time to discuss your growth strategy.