My fiancée and I are currently looking to buy our first house. (And for the record, we know it’s the absolute worst time in history to buy a home, and we are hoping things cool off.)
When we met our real estate agent, Mike, a few months ago, he explained this piece of the process: When we find a place we love and buy it, we don’t pay Mike; instead, the sellers pay Mike and their own real estate agent — let’s call her Meredith — each of whom will get a percentage of the purchase price. That’s Meredith’s commission for selling the home (and Mike’s commission for helping us find it), and the bigger the price tag, the bigger their commissions will be.
This flat percentage is how real estate agents make their living. And this is more relevant today than ever before as houses sell at massive premiums and agents compete for the best customers. Today’s agents need to do more than just make a sale to stay in business. And that’s the new direction you’ll find most channel partner programs headed in.
Before State Of Channel Programs
Long before the internet democratized the B2B buying process, tech vendors like Salesforce, Microsoft, IBM, Oracle, OneStream, and HubSpot primarily transacted through partner distribution channels. A handful of partners might have covered any given geography, and when a customer purchased the vendor’s technology, a partner in that customer’s geography would facilitate the procurement process and remain as the primary point of contact for billing and basic technical support. Vendors would often group these partners into tiers, such as bronze, silver, gold, and platinum, with each tier receiving discounts or rebates on the vendor’s technology commensurate with the volume of resale achieved.
Current State Of Channel Programs
The internet has revolutionized the B2B buying experience: 74% of business customers conduct more than half of their research online before making a purchase. In the past, customers may have defaulted to working with a particular partner simply because of geographic proximity or because that’s what they were offered. Now, B2B tech buyers will rigorously review a partner’s certifications, domain expertise, and other qualifications to ensure that they are receiving the best experience and value possible along with their purchase. Does the partner specialize in a specific vertical or technology domain? What certifications has the partner achieved? Can the partner continue to manage or optimize my environment even after the initial engagement?
As a result, historically transactional partners are increasingly embedded within their customers’ environments, providing value-added services above and beyond the fulfillment of the transaction. Acquiring the capabilities to provide this additional value, however, comes at a cost, and just as customers’ expectations of their technology partners have evolved over time, so too have partners’ expectations of the vendors they support.
I thought about this a lot when we chose to work with Mike. We had seen ads for another agent and worked with him initially, but that agent only worked part-time. When we decided to put an offer on a house, he didn’t say much. He got the paperwork together but didn’t share any additional information or ask questions. He wrote the offer, but the sellers didn’t accept it.
When we decided to change and work with Mike, we told him about that house. Mike told us we dodged a bullet. He explained to us that the house wasn’t in a great neighborhood (lots of car break-ins and Amazon-package porch theft) and that the town had voted not to build a new school building (which it desperately needs). He expected the home’s value to depreciate as a result. Mike, because he works full-time and has been doing this for 25 years, was already bringing us far more value than our original agent. My fiancée and I chose to work with Mike because of his added value. He meets all our needs and isn’t interested in us buying any old house: He wants us to buy the right house.
Vendors need to act like Mike. Partners increasingly need assurance that the outcome of their partnership decision will be positive and that the vendors they support will provide not only a superior product but also the tools, collaboration, and go-to-market resources needed to ensure the success of both parties.
Prove The Value Of Your Partner Program
Vendors have a lot to say about their partner programs and have spent a good deal of time and money building them out. These precious-metal tiers didn’t happen overnight. But few vendors have truly broken down what it all means for the partner. What are all the ways a partner can earn money, and how much can they reasonably expect to earn in the initial years? What are all the investments the partner must make to become “market-ready”? What if they want to mature their practice by adding an additional capability? And finally:
What kind of return can they expect on their investment when it’s all said and done?
As a senior consultant on the Total Economic Impact™ (TEI) team at Forrester, my mission has been to answer these questions and demystify partner economics using Forrester’s trademark TEI methodology. Leveraging Forrester’s extensive ecosystem of research, IP, and data, I create the definitive business case for any partner — prospective and even existing — for why they should (or should not) participate in a vendor’s channel program.
For vendors, this is an opportunity to articulate to the market the true value of their channel program in the language of dollars and cents that partners understand. The channel TEI study explores the following areas:
- Practice economics. This is everything you would find in a P&L. What are all the potential partner revenue streams, and how do they change over time? How do forces such as churn, retention, and upsell impact the bottom line? What are the different startup investments needed to kick off the practice, such as sales, marketing, R&D, and training and certification? And ultimately, what is the partner’s return on investment?
- Business outcomes. Not all partnership benefits manifest in the P&L. Each vendor offers unique IP and resources that a partner can leverage to generate additional value beyond even the immediate practice area, and an accurate business case must take these into account, as well. For example, a partner may be able to use the vendor’s technology to develop a new product or service to complement the vendor’s own or access the vendor’s ecosystem of customers and providers to foster unique collaboration opportunities.
A Forrester channel TEI study highlights the economic metrics and the business advantages of choosing them.
These studies can explain and break down the economics and the outcomes of a partnership investment in real-dollar terms that partners understand — not just gold, silver, and bronze.
Every seller in the housing market right now wants something that will sweeten the deal. Likewise, every partner is taking a critical look at vendors and asking, “What ancillary benefits are you bringing to the table that make me choose you over another vendor?” Be ready to demonstrate those benefits, or risk losing out to a stronger offer from someone else.