Channel Compensation: Pay for Performance

by | Apr 1, 2019

Good channel partners help technology vendors to expand their reach into new regions and markets and supplement their skill sets. It’s common for vendors to use channel partners to not only sell their products, but to sell branded service contracts and deliver all or part of the subsequent services. It’s also common for them to use a compensation model that pays partners a percent of the service sales price. What’s not frequent enough, however, is for the compensation paid — to reflect exactly how a partner is performing.

How do you Incent Partner Performance?

How do you incent exemplary partner performance? The key is to employ a compensation strategy built upon a pay for performance philosophy. Compensation shouldn’t be determined simply by the product sold, the customer segment served, or even the level of effort the partner puts forth. Technology vendors’ real power and influence over the partner is in the carrots and sticks at the vendor’s disposal:  a partner compensation strategy must be viewed to encourage desired behavior and partner loyalty, and above all, achieve pre-defined results.

Commission rates for the sale of a new vendor-branded support and maintenance contract range from as little as 5% of the contract list price to nearly 50%. The average commission is 17.7%. The majority (76.5%) of companies performing a partnership role indicate that they are paid a percent of list price when selling vendor-branded support and maintenance services.  With margin-based models, the percentage paid varies based on the financial value of the service to the vendor and the level of effort invested by the partner.

Pay for Performance

Though effort is certainly considered, where vendors are failing to seize real opportunity is in closely monitoring and rewarding their partners’ performance. If a partner’s consistently attaching a large volume of service contracts around a particular product set, or up-selling customers to a premium-level contract, the vendor should factor it into the compensation they pay.

Vendors can choose to pay on a sliding scale, or on a bonus basis, or through some other method, but the driver is the same regardless of the method they choose: if vendors pay for performance, they’re much more likely to get it. If the performance isn’t up to par, they can reevaluate the situation, but in the meantime, they’re not overpaying.

Guidelines for establishing a pay-for-performance compensation strategy include:

  • Developing a compensation plan with clearly defined performance targets and compensation rates based on the level of performance achieved.
  • Developing an ongoing performance monitoring system to track sales performance, delivery quality, and customer satisfaction.
  • Setting clear milestones for incenting desired behaviors such as up-selling and renewing service programs.

Performance Enhancers

It’s not enough, of course, to establish behavioral guidelines and see how partners are measuring up. If vendors want partners to perform, they need to give them every opportunity to succeed. Such success depends upon the vendor’s ability to ensure partner expertise through training and knowledge transfer. Elements of an effective partner training program include:

  • Employing a variety of training methods, including on-site, online, and internship/mentoring programs.
  • Leveraging curricula developed for sales and support organizations to train partners.
  • Coupling individual training with competency testing and award certification based on skill level achieved.

Channel relationships go awry if both parties don’t benefit. By using channels to sell and deliver service and support, a vendor is supposed to benefit from greater reach into the market, while the partner is supposed to earn an acceptable margin for the products and services they sell. For this symbiosis to occur, vendors must establish a compensation model that pays partners based on the results they deliver.

Featured: How to Build and Sustain an Effective Service Channel Strategy

Technology vendors rely on partners to expand their geographic reach and extend access to the expertise necessary to enable the use of their products. While many vendors form channel relationships to sell products, more than two-thirds of technology vendors use channels to sell, deliver and renew support and maintenance services.  This report outlines the elements of a successful channel strategy for Support.

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