Guide to Channel Marketing

Introduction

No company is an island. Organizations collaborate with other businesses to promote and sell their products, expand their reach, and boost profits. Channel marketing enables companies to team up with channel partners to reduce marketing costs, find more prospects, and improve customer satisfaction.

Before all this can happen, companies need to build a marketing plan with clear benchmarks. Finding, evaluating, and retaining the right channel partners are crucial to success. Partners need to be clear about their expected roles and responsibilities. Part of reaching clarity is establishing specific goals for everyone involved.

This eBook covers important topics in channel marketing strategy, including how to plan a strategy, establish goals, and evaluate the results of your channel partnerships. Chapters include:

Establishing Common Goals: Channel Alignment

Channel alignment is probably the area where most channel marketers make mistakes. They assume that their partners are tightly aligned with them in terms of their financial and business interests.

In some cases, that's true. We see some organizations where channel partners make most of their income directly selling their channel partners’ products and services. In other cases, we find it's quite the opposite: Partners make all their money providing services to existing customers.

Both of those models, and anywhere in between, can work perfectly fine. You need channel partners that can handle different aspects of the end-to-end process. However, you really need to understand that those are very tightly aligned.

Channel marketing is much easier, and it's a more straightforward process. To achieve alignment, you need to think through in detail how to create programs and strategies so that you can market jointly with your channel partners. Keep in mind that your channel partners make a lot of their income outside of selling your product.

Have a Conversation

The best way to understand how tightly aligned you are is to sit down with your channel partners and map out the income over the course of three years for a given net-new customer.

Map out all the income that the companies derived from that customer, where that income got spread out between you and your partner, and, finally, what the margins are. There might be a high degree of income but a low margin. You want to make sure you take that into account.

After you establish common goals, you need to determine if you are meeting your goals. You should put in place a system for evaluating the performance of your partnerships. In the next chapter, we will discuss some factors to consider when evaluating your strategy.

1) Who are you targeting in terms of customers?

When you look at who you are targeting, you want to examine size, industry, type of company, and functional titles within the company and then build out your personas.

2) Why are you partnering with channel partners and channel resellers?

There may be accounts you want your direct teams to handle and accounts you want your channel resellers to handle. Any model can work, but clarity is important, both for your direct side and for the channel side.

3) Which companies will you partner with?

Figure out which companies will prioritize promoting your products. Examine performance metrics and take a deeper dive into what the numbers mean so you can decide how to invest your marketing funds.

4) What goals shape your overall strategy?

Set benchmarks so you can gauge your progress and adjust your strategy. Determine what KPIs you need to set and monitor once your strategy is in place.

5) Which roles and responsibilities go to you and your partners?

Determine roles and responsibilities at different stages of a customer’s life cycle. For example, is demand generation your responsibility or that of your channel partner?

6) Who are you targeting within demand generation?

Are you targeting net-new customers for both you and your partner, or are you looking to cross-sell into one partner or another's existing customer base? Again, both models can work perfectly fine. Clarity is important.

7) Who is responsible for closing the deal?

<p><span>This often gets overlooked. The person who generates the demand may not be the best one for closing the deal. Maybe your channel partners are good at getting you in the door, but they really need you to come in and help close the deal itself.</span></p>

8) How will customer engagement be mapped out?

You need to consider customer management, customer upgrades, and customer fulfillment. In some cases, you may be excellent at closing deals, and your partners may be fantastic at filling, or it could be the other way around. It's very important from a channel strategy perspective to map that out ahead of time.

Total Partner Revenue

First is total partner revenue, and you want to look at this in aggregate. Look at how much revenue you are generating in the channel in aggregate against the entire investment that you're making in the channel from a marketing perspective.

Then, look at it at a partner-over-partner level. You may have fluctuations year over year, depending on the type of partner and renewal cycles. So you may want to look at revenue for one year while also computing rolling three-year averages. The key is to look at total partner revenue and year-over-year growth.

So, is that partner growing? This may seem obvious, but in many cases channel marketing program customers don’t really look at that. They tend to look at metrics that are farther down, known as "lower-level KPIs.”

Margin: Higher-Margin Products or Not

Next, you need to examine margins. Is that partner creating more or less margin for you year over year? Are higher-margin products being sold or just ones that continue to sink in terms of your total margin?

Partner Loyalty: Appreciation, Advocacy, and Award

Partner loyalty can be a little more difficult to measure, but it is hugely important. Are all the marketing efforts you're making creating more or less partner loyalty? In other words, do partners appreciate what you're doing and reward you for that?

You can look at things such as wallet share. Of the investments that partners or their customers make, are we getting more or less out of them year over year? How much partner spend goes to you versus your competitors?

Brand advocacy can be even more difficult to measure than loyalty. Are partners’ reps promoting you? Are partners promoting you on social media platforms? When there's a competitive bid, are partners going to bring you up and advocate for you over your competitors or just sell whatever is the easiest thing to sell?

Channel Marketing Spend Return on Investment (ROI)

You always want to look at channel marketing spend ROI. Of the dollars you spend, can you tie a return to that?

ROI is a very important metric, but it should be looked at and viewed as a subset of total partner revenue. You may only be able to tie a low direct ROI to your investment of marketing dollars.

But if a partner is selling a lot more year over year, you should ask which of your efforts are helping to boost sales. If certain investments aren't helping, you can take them away.

Non-Direct ROI Investments: Partner Enablement and Training

There are certain investments that help increase partner revenue but don't yield a direct ROI. These investments could be in things such as partner enablement, helping partners with marketing plans, and marketing training. You might have to stretch a little bit to try to figure out how you really get ROI on those.

You may tell your partner that you're going to invest in some things but you're not sure if you can measure return on those. Then ask, “If we give you these three things, which would you like the most for even money?” Then the partner can tell you, "Hey, look I really love that training you're doing," or "Hey, I really like the planning you're doing." Your partner might say, "Yeah, if it's free we'll take it, but we don't get much value out of it."

Those are the sort of things you can look at in terms of asking partners how much value they have. Tying a direct ROI to that spend can be very difficult, so the overall partner marketing revenue is a much more important metric than the channel marketing ROI.

Because this will limit the sort of things that you do, you should focus on high-yield activities for the partners that can typically close the best net-new business versus overall business.

How do you make sure you will be successful at realizing your channel marketing vision? Carefully designing a joint marketing plan will enable you to increase revenue year over year, gain higher margins, and see both direct and indirect ROI for the investments you make in your channel partners.

To create a successful joint marketing plan, you need to lay a sound foundation. A lot of times, people want to jump right into the tactics required to create leads and create demand and awareness but don't spend enough time getting the foundations correct. This is like perfectly executing a tactical plan while targeting the wrong segment.

Company Strengths, Weaknesses, Opportunities, Threats (SWOT) Analysis

You want to do a thorough SWOT analysis of both companies together and independently and determine where they overlap. For marketing, pay attention to the skills of both partners. Partners with skills that overlap reinforce each other. Those with different strengths complement each other.

When conducting a SWOT analysis, you can get into things like technical skills for overall planning. But from a marketing plan perspective, let’s focus on sales skills and marketing skills.

Sales Skills

Sales skills are important to marketers. A lot of times, marketers may create a plan that assumes that there are certain sales skills at the backend. You don't want to make that assumption. Find out what skills each partner has and will bring to the joint relationship.

You can ask what their skills are, but sometimes people overstate their skills. For example, if you ask a company if it can sell net-new business, nearly 100% will say yes. No one ever says, "Sorry, I can't sell to save my life.”

So how do you get accurate information about sales skills? Ask partners to tell you about their sales team. How much of the team’s quota is on net-new business? How much net-new business was generated last year? This would be brand-new customers that didn't come from a referral.

Often you will find out that partners think their teams can sell net-new business, but in reality their reps achieve 100% of their quota on existing customers. If you get the sales rep something early in the sales process, he or she is not going to spend the time on it. It's not going to be of interest to the rep, and your entire plan — which may very well be a great marketing plan — is going to fail when it hits the sales level.

Marketing Skills

Then, you want to assess marketing skills. If a partner has robust marketing skills, developing a complex and exciting plan is highly possible. But if another partner has basic skills, you're going to be better off designing a simple plan. Simple can sometimes be better when you have minimal skills on the marketing side.

Marketing Plan and Segmentation

How you segment your marketing plan will depend on your perspective. If you’re a product manufacturer, you will want to focus more on what you’re selling. A services company may focus on who it’s supporting.

Product Alignment

Spend some time locating commonalities with your partner. Maybe you're providing unified communications services and you want to help organizations with their communications needs. If your partner also wants to help companies with their communications needs, then you're very tightly aligned.

Audience Alignment

Maybe you're selling business analytics software and you want to sell to financial organizations. If you partner with somebody who's looking to support financial decision-makers within large insurance companies, you are closely aligned.

Business Generation and Customer Targeting

Look at what type of business you want to generate for specific customers. You can target customers that are net-new to both partners. You can also target cross-selling, in which one partner is selling into the other partner’s install base. You can also look at an upgrade for a joint customer that may have older products.

Channel Partner Value Proposition

Next, look at the channel partner value proposition. You might think going to market under that joint value proposition is a given. You don't necessarily have to go to market with a joint value proposition. Your choice is going to depend on who you're selling to. In some cases, you can make a sequential value proposition to a customer.

For example, you may have a partner that's more of a fulfillment partner. In this case you’re going to do most of the selling. Once you've convinced a customer to buy your product, you’re going to bring your partner in to help implement the product. To make the final sale, you're highlighting the value prop of yourself first and then your partner.

Of course, there are many times when you do want to go to market on that joint value prop, but keep in mind that sometimes the best partnerships are ones where partners help fill in for process or capability gaps of the other.

Joint Marketing Goals

Finally, decide on the goals of your joint marketing plan. During your goal-setting session, you want to decide on new customer and new revenue goals based on marketing investment. Other areas you might want to consider are:

Upgrade revenue
Cross-selling revenue
Customer retention goals

You’re also going to want to set your pipeline goals. Pipeline goals are important to establish so you have estimates of how much pipeline is needed to meet your closed-business goals. How many leads do you need to get enough customers? Remember, you won’t close every lead. Your deal size will also influence how much pipeline you need.

If you’re establishing these goals for the first time, you may not know your close rates or deal sizes. It’s important to have a measurement system in place so you can see how well you did or where you fell short. Now let’s talk about measuring and analyzing performance.

Let’s see how much the pipeline generates in win revenue.

Say you have a partner that is generating 50x what you invested in its pipeline. In other words, for every dollar you gave the partner for marketing, $50 of pipeline revenue was generated. Of that $50 of pipeline revenue, the partner closed $10 in win revenue.

At first glance, these metrics look great. The partner is generating revenue, and it’s generating pipeline. You may be tempted to invest as much as you can in this partner. However, a little knowledge can be dangerous. Let’s dive deeper into these numbers.

Start by looking at total revenue growth for this partner. In this case, this partner’s revenue with you declined by 15%. You might say, "Well, how is that possible?" This partner is doing great from a channel marketing perspective but declining in revenue.

A couple of things might be the root cause for this declining revenue:

The partner may be losing customers at an alarming rate after sign-up because better post-sales support is needed.
The partner may not be focusing on churn or upselling into its existing customer base, so after initial contract terms, the customers may be re-signing their contract with the same solutions but at a potentially lower margin or just leaving due to a bad (or mediocre) experience.

BACK

This partner is only generating 30x pipeline, which isn't a bad number. But in comparison to the partner at 50x, it is much lower. This partner has generated 5x the revenue, much lower than Partner #1. So if you looked at just those two, you might want to invest all your dollars with Partner #1.

When we add in the total revenue growth, we see Partner #2 is growing at 30%, while Partner #1 is declining at 15%. How is that possible? If you're generating less closed business here, how is it possible that you are generating more revenue?

There are three different scenarios that could cause that:

This partner is bad at coding. The sales team is generating lots of pipeline, and there's lots of revenue out there, but the partner is not necessarily coding revenue back to marketing activities. Requiring your partners to use your CRM or deal registration with the related campaign/marketing code may help to resolve this issue.
This partner is going after net-new customers, which you would expect to have a lower marketing close rate. In aggregate, it's working well because the partner has been generating net-new customers year over year. The partner is going back and expanding accounts.
The worst-case scenario is that maybe there's a lot of channel shift. So, if you are not generating the number through marketing, where's the revenue coming from? In some cases, business can be moved from your direct team over to your channel team. You're not increasing anything; you're just moving it from one channel to another. This channel shift might boost that number.

BACK

Lessons Learned Analysis

You can’t always take top-level ROI numbers at face value. Sometimes a deeper dive into some of your other KPIs is going to be important when looking at year-to-year revenue.
Looking at deal sizes on an individual basis and very large or small deals could skew numbers.
Reporting systems may not be accurately registering wins and losses.
Your partners may be focused on new customers but ignoring their base. Churn is sometimes the biggest factor in declining revenue.

Three Key Takeaways

Make sure your team dives deep into the numbers. Don't reach a false conclusion by looking at simplistic numbers such as pipeline and revenue. These are very important, but you want to dive a lot deeper than just those two numbers.
Understand that marketing and channel marketing affect the entire business. They don’t just generate marketing-oriented revenue. You can do things from a marketing perspective to help grow revenue. Maybe you're building great awareness in accounts that your sales team is already trying to progress. Maybe you’re providing great materials that help the sales team to progress and close deals. Those are examples of things that you can do to help impact total revenue growth that may not necessarily tie revenue to a campaign.
Pay close attention to the lifetime value of a customer. If you are going after some net-new customers and you're offering cloud or a SaaS offering or something that needs to be regularly upgraded or added to, then that first customer may end up having a lot bigger value down the road than these numbers would indicate on their own.
Focus on your channel partners that are your advocates: those that lead with your solutions and services for both current and new customers. Net-new revenue does not tell the whole story. Not all partners are created alike!

Making channel marketing work is a process of planning, setting goals, and evaluating results to determine which channel plans and partnerships work the best. Taking a deep dive into your metrics will help you make changes based on successes and failures and adjust your partnerships to achieve long-term success.

TSL Marketing has been helping technology companies build channel marketing strategies and partnerships since our founding in 1999. We’ve seen firsthand the benefits that can come from developing successful channel strategies and understand the hard work it takes.

These plans aren’t built overnight. Marketing plans involve analyzing value propositions, mapping business alignments, setting revenue goals, and evaluating KPIs. These aspects of marketing strategy are something our team works on every day to achieve continuous improvement.

Guide to Channel Marketing Strategy and Goal Setting

Introduction

Channel Marketing Strategy: The Basics

Establishing Common Goals: Channel Alignment

Have a Conversation

Setting the Vision for Channel Marketing Programs

Creating a Joint Marketing Plan

Measuring and Analyzing Channel Marketing Results

Lessons Learned Analysis

Three Key Takeaways

Building Better Channel Marketing Strategies

Contact us to learn more about how we can help you with your channel marketing initiatives.