The general perception is that Channel Managers are successful primarily because of their people skills. It is true that Channel Management candidates need an outgoing and pleasant personality. Equally important, the ideal Channel Manager is charismatic and exudes an air of confidence. Last but not least, Channel Managers must have a reputation of integrity. In most industries, channels are a tight community, with extensive networking and employees changing jobs within the industry. Opinions about the trustworthiness of a Channel Manager or their company spread quickly.
But often overlooked is the ability of a Channel Manager to plan and negotiate. These skills differentiate competent channel managers from order takers.
The key difference between Order Takers and Channel Managers is that competent Channel Managers plan. Effectively led channel organizations follow a methodology, develop Channel Account Planning Templates, and insisted on plans being updated at least annually and reviewed at least quarterly, both internally and with the channel partner. A good Channel Account Plan includes:
- Qualification criteria (company size, infrastructure, related revenue)
- Sales targets (revenue, new customers, units sold)
- “Share of wallet” – especially when channels represent competing vendors
- Channel compensation (margins, commissions and payment terms)
- Channel partner’s sales and marketing plan and investment
- Sales and marketing support provided to the channel partner
- Joint advertising, events, and lead generation – and related funding
- Product roadmap, responding to the needs of end users as perceived by the channel
- Training for partner’s sales and support teams.
Qualification criteria must be well thought out and implemented consistently. Responding to the high cost of Channel Managers, many sellers have implemented a two tier model, with smaller channels assigned to a Master Distributor. But partners typically object to buying from a master distributor who is viewed as a competitor. Master distributors should typically be focused on recruiting and supporting channels, and avoid conflict by not selling directly to end clients.
There are many models to determine Channel Compensation. The most common is the “earned margin” method, where partner margins grow based on sales volumes. This often creates a challenge when a company recruits new channel partners. The need to “earn into” higher margins can create a quandary: partners have insufficient incentive to promote the seller’s product or service, especially if they have a relationship with a competitor with whom they achieved a higher margin. This often requires granting higher margin levels in anticipation of the planned sales. But this should only be done in the context of a plan agreed to with the partner that includes a clear set of actions to achieve the agreed to targets. Exceptional partner margins make it especially important to monitor the Channel Account Plans. It is human nature to avoid the unpleasant discussion with a channel partner when margins need to be adjusted downward. Remember that under the Robinson-Patman Act, price variations between channel partners must be based on objective criteria. The best defense against claims of channel discrimination is a strong account plan that sets clear criteria terms for the relationship.
SPIFs (Sales Performance Incentive Funds) are frequently used for direct incentives to the channel’s sales force, in the form of cash, gift cards, trips, etc. SPIFs generate an incentive to promote one offering over a competitor. SPIF programs require careful consideration: they can be time-consuming to administer and awards may need to be reported to tax authorities. Many channels avoid SPIFs because they interfere with their compensation strategy. Finally, if SPIFs are matched by competitors they increase sales cost without results.
Joint Marketing expectations need to be agreed to in the plan. In many industries, it has become a common practice to request supplier funds for the channel’s advertising campaigns and events. Channel Managers then have the challenge to obtain these funds from the marketing budget. Joint marketing and their funding are a key element of the Channel Account Plan and must be tied to expected results. A good approach – albeit administratively burdensome –is the implementation of cooperative marketing funds, allocating a percentage of sales (or margin) that can be used by the channel for marketing or training. Coop accounts can be pre-funded from marketing budgets for strategic priorities and new partners, but must ultimately be replenished from revenue.
International Channel Managers must in most cases be fluent in the languages of the target markets. “If I am selling to you, I speak your language. If I am buying, dann müssen sie Deutsch sprechen”. To be effective, International Channel Managers must know the customs, culture, and negotiation styles. Equally important is the knowledge of local laws and regulations related to channel agreements that in some cases differ significantly by country.
Effective Planner and Negotiator
The best Channel Managers create a win-win by advocating the needs of the channel but never forget to represent the interests of their employer. Mediocre channel mangers – the vast majority - may be well liked, respond promptly to partner needs, and have good product and market knowledge, but are mostly reactive. Effective channel managers are proactive. They develop a plan for each partner, manage, measure results, make corrections, and are not afraid to demand results.