financial best practices for channel leaders slides

Financial Best Practices for Channel Leaders

Laying the groundwork for intelligent growth and profitability

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PRESENTERS

Laz Gonzalez

Service Director, Channel Management Strategies

SiriusDecisions

Debra Delaney

President & CEO

CCI | Global Channel Management

Steven Kellam

SVP, Sales & Marketing

CCI | Global Channel Management

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Introduction and Table Setting

Overview of SiriusDecisionsIntelligent Growth Framework

Key Pillar 1: Leadership

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2

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WHAT WE’LL COVER

Key Pillar 2: Organization

Key Pillar 3: Skills

Key Pillar 4: Infrastructure

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Key Pillar 5: Incentives

Wrap Up

Q & A

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SAFE HARBOR STATEMENT

Although CCI and SiriusDecisions possess extensive channel best practices experience, we are not licensed legal or financial advisors.

Your company’s appropriate courses of action may differ from what is presented herein, so always confer with your accounting and/or legal team for clarification and guidance.

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Finance and channel orgs often feel they are speaking different languages

Lots of confusion around best practices in allocating marketing spend between contra and Opex funds

Indirect model often not well understood by larger company…often less well versed in financial and regulatory context of indirect

Global partners and operations introduce regional variances and complexity

THE FINANCIAL DIVIDE

Intelligent Growth: SiriusDecisions’ Guide to Channel Growth

Laz Gonzalez

SiriusDecisions

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FIVE WAYS TO GROW

1Entrance into — or expansion of — vertical, horizontal and/or geographic segments using existing/new offeringsMarkets

2 Formal targeting of new buying centers and personasBuyers

3Launch of new products/services, or enhancement of the current portfolioOfferings

4Purchase of other companies, or the incubation of new business unitsAcquisition

5 Maximizing efficiency and effectivenessProductivity

Intelligent Growth: SiriusDecisions’ Guide to Growth Through New Markets

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THE GROWTH PILLARS: KEY ELEMENTS

The introduction of motivation that will promote a successful initiative, or the elimination of motivation that will prevent it

IncentivesSkills

The ability of employees to support the initiative

Functional executives willing to publicly support the initiative, then reinforce this support through consistent action

Leadership

The creation or alteration of disciplines that affect the ability to drive the proposed initiative

Organization

Processes, tools and metrics that, when deployed correctly, enable initiatives

Infrastructure

Leadership Success Factors• Compliance

• Alignment

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IncentivesSkills



Leadership


Organization


Infrastructure


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Marketing to Partners

Describes programs suppliers use to raise awareness and drive demand with their channel partners

Marketing Through Partners

Supplier created programs that partners execute with their customers

Often utilized in two tier or high touch channels

Marketing for Partners

Campaigns that are focused on “feeding”partners leads and opportunities

BALANCING DEMAND CREATION INVESTMENTSSiriusPerspective: Using the TRED Model, we’ve collected spend data from suppliers and Tier 1 distributors in 3 distinct categories:

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ALIGNMENT WITHIN CHANNELS: COMPARATIVE ANALYSISSiriusPerspective: As companies grow in revenue they shift in % of revenue through the channel and diversify their marketing spend.

Channel Marketing as % of Revenue

Marketing to

Partners

Marketing thru

Partners

Marketing for

Partners

$100M - $1B 2-4% 57% 35% 8%

$1B - $5B 3-5% 50% 40% 10%

$5B-$10B 1-4% 35% 54% 11%

$10B-$20B 1-3% 40% 45% 15%

Forcing suppliers to invest in channel awareness programs

However, partner adoption becomes an increasing problem (Industry Avg. 15-20%)

As companies enter new markets they move from supplier-led to partner led

BENCHMARK SURVEY FINDINGS ( Companies >60% Indirect )

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1. What kind of company are you?

Newer company valued on revenue growth? Tend to want to limit contra revenue.

Value company been around for a while? You're probably more valued on net income/gross margin.

2. What are your near-term objectives?

Trying to grow market share?

Pushing a new product or product line?

Integrating services/SaaS model

3. How does your customer buy?

Are you selling something that is technically sophisticated, or more of a plug and play or commodity offering?

ALIGNING CHANNEL PROGRAMS WITH YOUR LARGER ORG

Debra DelaneyCCI

Organizational Success Factors• Compliance

• Alignment

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IncentivesSkills



Leadership


Organization


Infrastructure

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ORGANIZATIONAL OBJECTIVES

Key Decision:

What are the desired outcomes of launching a co-op/ MDF program –both qualitative and quantitative?

Grow Channel

Sales

Build brand awareness

Generate end-

customer demand

Reach new customers

Increase sales of specific

products

Extend resources &

budget

“Jump-start” new partners

Win higher channel

mindshare

TIPWith focus, spend can be more targeted and a key set of metrics can be focused on.

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COMPANY COMPETITION MARKET/ ENVIRONMENT

SiriusPerspective: Building a sound go-to-market strategy starts with building a snapshot of the organizational needs which can be used to plan an incentives strategy.

PRODUCT

Price

Complexity

Whole product

Lifecycle stage

“Channel Ready”

Objectives

Financial

In-house capabilities

Current Channels

Marketplace Positioning

Sales Channels

Geo Coverage

Economic conditions

New technologies

Laws and regulations

Taxes, tariffs, etc.

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DETERMINE HOW FUNDS WILL BE EARNEDKey Decision: Which model will be used: MDF, co-op or a combination of both?

Co-op Hybrid MDF

Co-op = Earned Accruals

Co-op is advertising and promotional allowances granted to partners based on a percentage of past sales.

MDF = Discretionary Accruals

MDF is issued based on the expected results of the planned marketing activity, in terms of generating demand in “new” market segments.

Hybrid = Co-op & MDF

Traditional marketing activities are funded with co-op, while other activities are funded through MDF.

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LEVEL OF FUNDING

General Guidelines Accruals range from 1% to 6% and two-thirds of programs are between 1.5% and 3% Variances in marketing accruals (whether earned or discretionary) are based upon the competitive environment and

established industry practices, as well the type of partner organization the program is designed to address:

Key Decision: What level of funding is appropriate?

Partner Type % Applied to Incentives Types of Funds

Solution Provider 2-5% MDF

Distributor1% to 6% based on performance in

specific categories(avg. 2.5%)MDF / Rebate

Volume Reseller 2.5% % Rebate

OEM 5% MDF

Global Alliances Variable Investment

Resellers1% (Tier 2)

2% (Premium)Contra-Incentives

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SAMPLE DISTRIBUTOR MDF PROGRAM ACROSS 5 SUPPLIERS

Supplier BasePre-

Approval?Claiming

Required?2-Year Change

1-Year Change

Performance Incentive

Funded Headcount

Supplier A 1.7% Yes Yes None None2-4% based on product and calendar

Revenue and product type tied

Supplier B1.3%

BlendedYes Yes 30% -15%

1.3% ($500K cap) on growth partners; .16% ($300K cap) on overall

$1.3M

Supplier C 1% Yes Yes None None1% of supplier branded product excl. renewals

$400K

Supplier D 1% Yes Yes None None3% on commercial; 5% on enterprise

$1.5M

Supplier E 0.45% Yes Yes -50% -10% N/A $525K

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ORGANIZATIONAL COMPLIANCE: RELEVANT U.S. GUIDELINES

Financial Accounting Standards Board (FASB):

“Dotted line” to SEC, oversees standards of financial

accounting and reporting.

Sarbanes-Oxley Act of 2002:

Requires internal control report in companies’

annual reports.

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FASB: CONTRA VS. OPEX

Must meet all 4 of these to be Opex:

1. The payment covers a service by the partner that is a benefit to you.

2. The benefit is clearly separable from the sale of the product.

3. The benefit could be purchased by you from a source other than the partner.

4. You have obtained proof of performance to reasonably estimate true cost.

Advertising (Print/Web) Broadcasting (TV/Radio) Catalogs Direct Mail/email Telemarketing Trade Shows

MARKETING EXPENSES

Certification Training* Seminars Demo Equipment Funded Headcount Recruitment

CONTRA-REVENUE

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CONTRA REVENUE VS. EXPENSE MODEL EXAMPLES

ExampleContra Revenue

Marketing Expense (OPEX)

Re-classify

1) Allowance granted: No POP required

2) Reasonable claim: POP required & submitted

3) Reasonable claim: POP required but not submitted

Yes, from expense

4) Claim for $10K is reasonable

5) Claim for $10K is 2 times market value, but is still approved

$5K $5K Yes

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Key SOX Elements

Sec 302 Corporate responsibility for financial reporting

Sec 404 Internal controls assessed

Sec 409 Public disclosure

Sec 906 Certification of financial reports on periodic basis

KEY SOX RULES, GOALS Overall Control Objectives

All reporting is accurate and free of material omission.

All matters communicated to executives in a complete and

timely fashion.

All transactions are captured, reported per GAAP and SEC

rules.

Assets are compared to accounting records.

All assets are safeguarded

Skills: What’s Needed?

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IncentivesSkills



Leadership


Organization


Infrastructure

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Use ROI Data. Use ROI data to determine what types of activities to do more of and which to do less of, as well as determine which partners to work with.

Pre-Packaged Plays. Offer pre-packaged marketing campaigns that are available for partners to co-brand and customize for execution at the local level.

Partner Education/Certification. Train partners on marketing, how to implement the pre-packaged plays and use the tools to generate better results.

Concierge Services. Offer partners access to marketing experts who can assist with everything from campaign decisions to marketing plans.

Partner Incentives. Need to motivate partners to use supplier marketing tools through incentive rewards/points.

Channel Account Manager Training and Incentives. Train and compensate the field to become as involved in marketing plans as they are in sales planning.

SKILLS: ENABLEMENT & EASY PARTNER EXPERIENCE

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Critical to keep your program simple.

Partners are ‘free agents’ these days –have more options than ever before.

If you aren’t easy to do business with, they will find someone who is.

K.I.S.S. SKILLS

CCI 2015 SURVEY

“Complex or cumbersome processes for partners”

sited as #1 challenge

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EXECUTION SKILLS: PARTNER PAYMENTS – THEN AND NOW

Traditional

Payment method: Checks

Payment time lag: Months

Payment method: Wire transfers, ACH, rechargeable debit cards

Payment time lag: Weeks—3 or less is best practice

New Standard

Motivate partners’ behavior – quick reinforcement means repetition

Happy partners – "Cash is King" Loyal partners

Faster More reliable & secure Less admin for you (printing, mailing) More convenient for partner

Benefits

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FOR REWARDS, PAYING SOONER IS CHEAPER

Incentive Intelligence, “Motivation, Incentives and What Wimpy Knew“ http://www.symbolist.com/blog/2008/07/motivation-ince/

“Temporal Discounting”

We tend to prefer smaller rewards received sooner than larger rewards offered later.

The further out in time the award date is, the greater that award value has to be in their mind.

Example: Roughly, $300 awarded in 3 weeks has same impact as $600 after 6 weeks!

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ENGAGEMENT SKILLSPartner-centric vs. Program-centric Approaches

Improve ease of doing business with you. Betterpartner experience / loyalty

More complexity for finance group to deal with

Partner-CentricPay out earnings in partners’ various native currencies. Company covers fluctuations in exchange rates.

Usually much easier sell to the Finance team

“Ugly American” effect…can alienate global partners

Program-CentricPay out earnings in a single currency…usually US dollar.

Onus on partner to convert to their currency.

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Tying budgeted to actuals is table stakes. • Question is: how easily can you do that?

ROI is king. • Not easy to measure, but worth it.

Work on the skills to make the right ‘bets’• Scorecarding partners to minimize financial risk,

maximize return/incremental revenue

• It’s quality of partners over quantity of partners

ACCURATE AND PREDICTIVE MEASUREMENT SKILLS

Making the right partner ‘bets.’

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TRULY CONNECTING THE DOTSPartner

Scorecarding & Benchmarking

Joint Business Planning

Joint Marketing Planning & Approvals

MDF Fund Allocation & Distribution

Marketing Campaign Execution

Deal Registration

Point of Sale Data Creation, Collection,

Scrubbing

Systems of Record –Partner Info &

Outcomes

ROI Measurement & Predictive

Analysis

Partner Investment

Lifecycle

Think PEM:1) Planning

2) Execution

3) Measurement

Infrastructure Success Factors

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IncentivesSkills



Leadership


Organization


Infrastructure

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DEFINITION AND MEASUREMENT

Reasons to Establish and Measure Results:

Can prioritize and revise offerings according to their effectiveness

Makes it easier to internally justify budgets, programs and value; provides proof that programs are working

Holds partner more accountability for results

© 2013 SiriusDecisions. All Rights Reserved

Key Decision: What steps will be taken to define success and ensure ROI visibility on MDF spend?

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ROI OPTIMIZATION

LACK OF RESOURCES. The majority of partners are small to mid-size businesses with busy people stretched across multiple vendors and products, with limited time and money to build effective marketing campaigns.

LACK OF KNOWLEDGE AND SKILL. Most partners do not have a high-level of experience and skill at demand generation. Yet, most partners are given a portal, an instruction manual and practically no guidance about how to make use of the marketing tools and funding suppliers provide them.

LACK OF INCENTIVE. Many supplier programs do not provide a clear vision of “what’s in it for me”.

Reasons for ROI Optimization:

Key Decision: What steps will be taken to optimize ROI on co-op/MDF spend?

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KEY METRICS Approved Marketing Plans. Make the creation and approval of comprehensive marketing plans the

foundation for receiving co-op/MD.F Establish KPIs. Assign standardized metrics to each activity type. Set Minimum ROI Requirement. Require partners to estimate the results of their activities when requesting

approval for projects and establish a minimum bar for approval. Tie to Reimbursement. Require that partners review and report results as part of the claiming process. Link to Deal Registration. To gain better visibility into activity results, position MDF as a tool to drive deal

registration and make MDF approvals contingent on deal registration.

Marketing Activity KPI Examples (Beyond Sales Results):

Activity Metrics

Emailing Marketing Click-through rate Conversion rate (% that take action) Bounce rate (% of total emails sent that could not be delivered)

Events Number of attendees Cost of attendee Number of registrations

Telemarketing Campaign Number of calls made Cost of follow-up/lead Number of meetings secured Response rate = # of response / sales # of total contacts

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STANDARD TOOL FUNCTIONALITY

PROGRAM AUTOMATION Partners can make requests, update them, respond to inquiries, and view their MDF account balance and history through the portal

Supplier can approve MDF requests, assign them or request additional documentation

Automated email notifications and reminders are sent

Issue funds and set fund expiration dates via the web interface, CSV or our API

Account balances and reimbursement statuses are tracked

Documents such as receipts or backup documents for reimbursement can be attached

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MEASUREMENTUnmatched visibility into: Operational KPIs Personal to-do lists for

partners & staff Partner scorecarding &

benchmarking ROI measurement and

spend justification

INTEGRATIONEasy integration and data exchange with other systems via connectors and APIs.

ERP CRM MARKETING

TRAINING MRM PRM

BEST PRACTICES Strategy Best Practices & Benchmarking Operational ‘Do’s and Don’ts’ Global Monetary & Currency Expertise Compliance with local laws and customs

CONFIGURABILITY Customization through configuration Adjust settings and workflows with

limited developer involvement. Scales easily as you scale up or down

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USER SPECIFIC VISIBILITY IS KEY

Incentives Success Factors• Incentives options guide

• The shift to discretionary funding

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IncentivesSkills



Leadership


Organization


Infrastructure

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INCENTIVES CHECKLISTSiriusPerspecitve: Before implementing an incentives program make sure to cover all bases and ensure your incentives program mirrors your company’s over-arching strategy

1. Program Objectives

2. How Funds Are Earned

3. How Much Is Earned

4. Program Eligibility Requirements

5. Eligible Activities

6. Success Definition and Measurement

7. ROI Optimization

8. Program Management

9. Program Automation Vendors

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CO-OP FUNDS VS. MDF: NOT THE SAME!

MDFThese funds are usually given proactively to select partners at the vendor’s discretion based on the partner’s alignment with the vendor’s strategic goals.

PROS CONS

• Funds can be distributed dynamically to address the changes in the market

• Used for activities categorized as “contra revenue” expenses

• Multi-level pre-approved process

• Can expose vendor to litigation if partner access to funds is not properly tiered

CO-OPAlso known as “trade promotional allowance programs” where partners accrue credits for marketing spend based on sales performance.

PROS CONS• Easier to plan programs in

advance and requires minimal pre-approval

• Suited for qualifying marketing expenses

• Can be seen as an entitlement by marketers

• Harder to control or change the distribution of fund throughout the program period

• Requires heavy proof of performance and administration

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SPIF & REBATE, LOYALTY, AND SALES CONTESTS

SPIF & REBATESPIFs and rebates are the simplestsales incentives to develop and deploy.

Sell X to get $Y

PROS CONS• Used for short

sales-cycleproducts with highly competitive environment

• Minimal infrastructure with quick results

• Less effective with long sales cycles

• Might require 1099 compliance

LOYALTYDesigned to build relationships, loyalty sales incentive programs reward behaviors with a long-term duration.

Sell X, do Y, earn points toward Z

PROS CONS• Supports both

long- and short-term objectives with no need to re-launch for each tactical element

• Easy to model over time and reward budget is predictable

• Longer planning process to support both long- and short-term objectives

• Requires technology, management, and communications

SALES CONTESTSRewards are won by a limited number of participants and have an element of chance.

Sell X or do Y to win a prize

PROS CONS• Fixed reward

budget• Can be overlaid

with SPIF and loyalty programs to generate more involvement

• Subject to local laws and classified as “sweepstakes”

• Less motivatingand less effective for long-term programs

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Maximizes incremental ROI

• Increasing pressure from CMO and CFO to track the money. ‘Prove the ROI!”

• MDF can be targeted at partners who show signs of greater sales growth

Loyalty effect: keeps partners engaged

• You’re mutually participating in growing the business

Avoids ‘fat cat partner’ bias…

• Co-op can become an entitlement over time that favors incumbent leaders

• Money can be focused on achieving very strategic objectives, which may not align with your current top revenue partners

Technology move to the cloud

• Shift to from 1-time install revenue to cloud/subscription revenue

• Demands cultivation of next generation of channel partners

SO WHY THE SHIFT FROM CO-OP TO MDF?

channel

technology

Summary

and Q & A

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TOP TAKEAWAYS

How you run incentives is just as important as whether you run them.

IncentivesSkills

Do a skills assessment… does your team have the collective know-how?

Lead with a balancedapproach to partner engagement

Leadership

Ensure organizational alignment & compliance

Organization

Use of best practice processes, channel- grade technology, and the right metrics is key.

Infrastructure

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Laz [email protected]

Debra [email protected]

Steven [email protected]

THANK YOU. QUESTIONS?

More resources available at:

channelmanagement.comsiriusdecisions.com

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