If you work for an excellent Sales EVP and CEO, they have also set a course and it includes running a profitable enterprise.  The question for you then is “are you in alignment with the profit directive of the corporate strategy?”. 

 

channel margin loss

 

Are you aligned?

When it comes to channel sales, conventional wisdom typically argues that partners don’t do much and they demand too high of a margin.  Therefore, we want to see ever higher levels of activity and bigger deals before we will offer higher margins.  

 

Some of the biggest channel deals I ever transacted during my high tech career were low or negative margin to my own organization but paid out at the highest level to the partner.  One of them actually won a cash award one year at the annual sales meeting which put us even further in the hole.    

 

There is a good chance you adhere to the same type of compensation ramp model that creates negative margins like my example above. 

 

Try the following to test for misalignment with a profit directive:

  • Collect 18 months of channel sales data
  • Chart deal size against margin
  • Look for any patterns (declining, flat, U shaped, etc)
  • Calculate the revenue delta for all deals below your target margin
  • Divide the revenue delta by the total channel revenue
  • Compare the this number to the same figure for the direct sales force

 

Are you running at a higher ratio of margin loss per revenue dollar than the direct sales force? 

 

Do you really need to worry about this?

If you are not running as efficient or better than the direct sales force, that’s a problem.  Channel sales is all about scale. Most CEOs translate this as efficiency that can’t be gained by going it alone.  You should be concerned if the revenue delta for deals below the target margin is greater than 8% of the total channel revenue.

 

What should you do?

Go back over the chart from the exercise above and identify the deal spectrum where low or negative margins occur most frequently.  For these types of deals:

  • Institute early alerts to flag these deals in your CRM
  • Train the channel and your own channel managers on how best to protect margins
  • Change your compensation model to penalize excessive variance from target margin