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Best Practices and Benchmarking in Channel Management - Bridging the Channel Gap
By Ed Chapman, Managing Partner & Co-Founder VizQuest Ventures

If channels are so critical to new business development, then why is there such a high failure rate in channel performance? In many companies, 60% of channels are underperforming—and 3 out of 5 major channel partnership frameworks are in desperate need of restructuring. Unfortunately, management does not really know where problems lie in its channel strategy or how it should best invest its time and resources in fixing them.

What is the Channel Gap?

The divide between potential net new revenue from well-formed channel partnerships and the actual results from underperforming channel partnerships is known as the “Channel Gap.” On one side of this gap is the need to efficiently and rapidly penetrate new markets, to drive sales and to lock up key channel partners. On the other side of the gap is the channel’s need to take orders, minimize its cost of sale, and avoid vendor cannibalization.

The Channel Gap will remain a barrier until both sides can create an optimal economic model based on a “joint venture” framework with maximum value delivered to the right target market — all of which will give the partnership a competitive advantage to rapidly capture market share.

In order to build that joint venture partnership framework and bridge the Channel Gap, it is essential to establish best practices and benchmark metrics for channel partner performance.








Best Practices for Avoiding the Channel Gap

Best practices in channel management dictate a multi-pronged approach for avoiding the Channel Gap: Segmentation, Positioning, Targeting, Channel Establishment, and Performance Implementation. Applying best practices to each of these areas allows companies to:

  • Define Customer Segments for Channel Value Add – Determine micro-segments within the market that are most likely in need of company’s offering.
  • Develop the Right Channel Model – Establish the best channel flow to the end customer to ensure that value is delivered.
  • Establish the Right Channel Strategy and Framework – Determine how to best leverage channel value and identify potential “joint venture-like” relationships.
  • Deploy Program to Reach out to Potential Channel Partners – Attract, educate, qualify and enroll partners.
  • Catalyze Channel Partnerships – Identify and produce new revenue and customers through pipeline development.

Benchmarking Channel Performance

Parties on both sides of the Channel Gap should pay particular attention to the measurement of four key dimensions of channel performance fitness: Financial, Strategic, Operational, and Relationship. Financial and strategic metrics show how the alliance is performing and whether it is meeting its goals, but may not provide enough insight into root causes of performance gaps. Operational and relationship metrics can help uncover the first signs of trouble and reveal the causes of problems.

Companies can go one step further by applying a Six Sigma approach to the measurement of channel performance. Six Sigma-based best practices and benchmarking tools that monitor the channel partnership allow companies to adapt channel relationships and react faster to market changes.

Together, the four dimensions of performance create an integrated picture to measure the health of the channel partner and portfolio:

Financial fitness: Metrics such as sales revenues, cash flow, net income, return on investment, and the alliance’s expected net present value measure its financial fitness. Most companies should also monitor progress in reducing overlapping costs, achieving purchasing discounts, or increasing revenues. Financial fitness can also include partner-specific metrics such as transfer-pricing revenues and sales of related products by the parent companies.

Strategic fitness: Non-financial metrics such as market share, new-product launches, and customer loyalty can help executives measure the strategic fitness of a deal. Qualitative metrics can be developed to track competitive positioning and access to new customers or technologies resulting from the partnership. Expertise in measuring metrics this area comes from experience, creativity, and continual assessment of efficacy.

Operational fitness: The number of customers visited and staff members recruited, quality of products, and manufacturing throughput are examples of operational fitness metrics that call for explicit benchmark goals linked to the performance reviews and compensation of individuals.

Relationship fitness: Questions about cultural fit and trust between partners; the speed and clarity of their decision making, the effectiveness of their interventions when problems arise, and the adequacy with which they define and deliver their contributions all fall under the heading of relationship fitness.

By addressing these areas, a company and its channel partner will better align their interests and resources. Through this collaborative approach both organizations will be able to realize a significant ROI and continue to realize optimal results from a “joint venture”-like partnership.

The Net Results

If top technology companies derive 45% of revenues from channels, why can’t any technology company do the same? With the correct timing in a product’s sales lifecycle and the right joint venture-like channel partners, a company of any size can expect to profit from channel partnerships in the same way that top technology companies do.

Small and mid-sized organizations have already benefited from establishing the right channel partnerships with a joint-venture-like approach:

A global provider of engineering simulation software and technologies saw its revenues grow from $8M to $65 M in 30 months with the development of new “joint venture” distribution channels.

A workforce management solutions provider increased its channel and direct sales pipeline of net new revenue by over 700% in 120 days.

The world’s leading global provider of virtual product development tools, during the first year of its operations in South America, was able to deliver a 33% operating profit through direct & indirect channels.

Ed Chapman is Managing Partner & Co-Founder of VizQuest Ventures, a revenue performance firm dedicated to partnering with clients worldwide to grow their businesses. Each of VizQuest’s core offerings are based on a Six Sigma approach: Pipeline Plus™, Channel Catalyst™, Frictionless Launch™, and Trans-Market Performance™. For more information, please visit www.vizquest.com.