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Financial Best Practices for Channel Leaders Slides

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Getting the funds you need to run and grow a channel organization can be a struggle. Often channel teams are the key path to much or all of a company’s revenue, yet are often woefully underfunded. You may be a superstar at partner marketing or sales strategy, but why do you often hear ‘no’ when trying to fund what you know you need to be successful?

The good news is you don’t need to be a financial or legal expert to run and grow a program. But you do need to understand what to pay attention to, and how to measure it, and how to talk about it with the rest of the company.

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Financial Best Practices for Channel Leaders Slides

  1. 1. Financial Best Practices for Channel Leaders Laying the groundwork for intelligent growth and profitability
  2. 2. 2 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
  3. 3. 3 Introduction and Table Setting Overview of SiriusDecisions Intelligent Growth Framework Key Pillar 1: Leadership 1 2 3 4 5 6 WHAT WE’LL COVER Key Pillar 2: Organization Key Pillar 3: Skills Key Pillar 4: Infrastructure 7 8 9 Key Pillar 5: Incentives Wrap Up Q & A
  4. 4. 4 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.
  5. 5. 5  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
  6. 6. Intelligent Growth: SiriusDecisions’ Guide to Channel Growth Laz Gonzalez SiriusDecisions
  7. 7. 7 FIVE WAYS TO GROW 1 Entrance into — or expansion of — vertical, horizontal and/or geographic segments using existing/new offeringsMarkets 2 Formal targeting of new buying centers and personasBuyers 3 Launch of new products/services, or enhancement of the current portfolioOfferings 4 Purchase of other companies, or the incubation of new business unitsAcquisition 5 Maximizing efficiency and effectivenessProductivity Intelligent Growth: SiriusDecisions’ Guide to Growth Through New Markets
  8. 8. 8 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
  9. 9. Leadership Success Factors • Compliance • Alignment
  10. 10. 10 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 Intelligent Growth: SiriusDecisions’ Guide to Growth Through New Markets
  11. 11. 11 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 INVESTMENTS SiriusPerspective: Using the TRED Model, we’ve collected spend data from suppliers and Tier 1 distributors in 3 distinct categories:
  12. 12. 12 ALIGNMENT WITHIN CHANNELS: COMPARATIVE ANALYSIS SiriusPerspective: 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 )
  13. 13. 13 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 Delaney CCI
  14. 14. Organizational Success Factors • Compliance • Alignment
  15. 15. 15 THE GROWTH PILLARS: KEY ELEMENTS Intelligent Growth: SiriusDecisions’ Guide to Growth Through New Markets 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
  16. 16. 16 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 TIP With focus, spend can be more targeted and a key set of metrics can be focused on.
  17. 17. 17 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.
  18. 18. 18 DETERMINE HOW FUNDS WILL BE EARNED Key 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.
  19. 19. 19 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 Distributor 1% 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 Resellers 1% (Tier 2) 2% (Premium) Contra-Incentives
  20. 20. 20 SAMPLE DISTRIBUTOR MDF PROGRAM ACROSS 5 SUPPLIERS Supplier Base Pre- Approval? Claiming Required? 2-Year Change 1-Year Change Performance Incentive Funded Headcount Supplier A 1.7% Yes Yes None None 2-4% based on product and calendar Revenue and product type tied Supplier B 1.3% Blended Yes Yes 30% -15% 1.3% ($500K cap) on growth partners; .16% ($300K cap) on overall $1.3M Supplier C 1% Yes Yes None None 1% of supplier branded product excl. renewals $400K Supplier D 1% Yes Yes None None 3% on commercial; 5% on enterprise $1.5M Supplier E 0.45% Yes Yes -50% -10% N/A $525K
  21. 21. 21 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.
  22. 22. 22 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
  23. 23. 23 CONTRA REVENUE VS. EXPENSE MODEL EXAMPLES Example Contra 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
  24. 24. 24 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
  25. 25. Skills: What’s Needed?
  26. 26. 26 THE GROWTH PILLARS: KEY ELEMENTS Intelligent Growth: SiriusDecisions’ Guide to Growth Through New Markets 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
  27. 27. 27  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
  28. 28. 28  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
  29. 29. 29 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
  30. 30. 30 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!
  31. 31. 31 ENGAGEMENT SKILLS Partner-centric vs. Program-centric Approaches Improve ease of doing business with you. Better partner experience / loyalty More complexity for finance group to deal with Partner-Centric Pay 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-Centric Pay out earnings in a single currency…usually US dollar. Onus on partner to convert to their currency.
  32. 32. 32  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.’
  33. 33. 33 TRULY CONNECTING THE DOTS Partner 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
  34. 34. Infrastructure Success Factors
  35. 35. 35 THE GROWTH PILLARS: KEY ELEMENTS Intelligent Growth: SiriusDecisions’ Guide to Growth Through New Markets 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
  36. 36. 36 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?
  37. 37. 37 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?
  38. 38. 38 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
  39. 39. 39 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
  40. 40. 40 MEASUREMENT Unmatched visibility into:  Operational KPIs  Personal to-do lists for partners & staff  Partner scorecarding & benchmarking  ROI measurement and spend justification INTEGRATION Easy 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
  41. 41. 41 USER SPECIFIC VISIBILITY IS KEY
  42. 42. Incentives Success Factors • Incentives options guide • The shift to discretionary funding
  43. 43. 43 THE GROWTH PILLARS: KEY ELEMENTS Intelligent Growth: SiriusDecisions’ Guide to Growth Through New Markets 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
  44. 44. 44 INCENTIVES CHECKLIST SiriusPerspecitve: 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
  45. 45. 45 CO-OP FUNDS VS. MDF: NOT THE SAME! MDF These 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-OP Also 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
  46. 46. 46 SPIF & REBATE, LOYALTY, AND SALES CONTESTS SPIF & REBATE SPIFs and rebates are the simplest sales incentives to develop and deploy. Sell X to get $Y PROS CONS • Used for short sales-cycle products with highly competitive environment • Minimal infrastructure with quick results • Less effective with long sales cycles • Might require 1099 compliance LOYALTY Designed 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 CONTESTS Rewards 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 motivating and less effective for long-term programs
  47. 47. 47  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
  48. 48. Summary and Q & A
  49. 49. 49 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 balanced approach to partner engagement Leadership Ensure organizational alignment & compliance Organization Use of best practice processes, channel- grade technology, and the right metrics is key. Infrastructure
  50. 50. 50 Laz Gonzalez laz.gonzalez@siriusdecisions.com Debra Delaney debra.delaney@channelmanagement.com Steven Kellam steven.kellam@channelmanagement.com THANK YOU. QUESTIONS? More resources available at: channelmanagement.com siriusdecisions.com

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