Define Your KPIs Before Someone Does It for You
Getting out in front of success measures minimizes the potential of having others misinterpret channel value.
By Larry Walsh
Channels are probably one of the toughest assignments in the technology world. Channel chiefs and teams face pressure on multiple fronts. Partners are never happy with their compensation. Executive management is always questioning the costs and value of selling through partners. And distributors are always trying to wring a few more duckets out of their vendors to pad their margins.
Mountains of evidence exist showing that indirect channels are the most efficient and effective route to market. While vendors must surrender a significant amount of margin to their partners for indirect sales, the effective margins on channel sales are often better than those of direct. Nevertheless, management often views channels as an overlay and cost center. And management pressures channel teams to continuously defend their value to the company.
That paradigm is unlikely to change anytime soon. If anything, executive pressure on channel management to prove value could get worse as vendors struggle to change to new business models and cope with commoditized legacy technologies. Profitability is a fleeting target, and channel organizations always present an inviting target for drags on sales productivity and increases in operating costs.
A couple of months ago, I wrote about the 10 KPIs every channel chief needs to use. That post was more than a suggestion. It was a road map for demonstrating value internally and externally. The first job of every channel chief is to contribute to the growth (revenue productivity), operational excellence (efficiencies in cost containment), and success (profitability) of the company. If a channel chief can’t demonstrate how partners and the supporting organization contribute to these things, there truly is no need for channels.
A common mistake by channel chiefs is not clearly articulating their goals and, subsequently, their performance indicators to their superiors and partners alike.
Let’s start with partners.
Partners need transparency to make business decisions of their own. Without insights into the strategic direction of their vendors, partners will act more conservatively. Partners are less likely to invest in a vendor’s products and go-to-market strategy if they have no real means of measuring how well the vendor is doing. By sharing goals, vendors can enlist partners to contribute to their strategic objectives. And, in doing so, a vendor can provide partners with the indicators as to how well they are, collectively and respectively, progressing toward their performance goals.
Internally, channel chiefs need to tell – or at least propose to – their superiors the measures of success for their channel strategies and operations. Revenue is king when it comes to channel performance indicators, but other measures are significant in gauging positive performance as well. Those include the number of new logos obtained, shorter sales cycles, higher average deal values, per-deal profitability, and customer retention rates.
Channel chiefs that fail to define their own KPIs are often caught having someone else define them. When sales or profits are down, executive leadership can point to the channel as a contributor to the weakness. Channel chiefs must react, so they start throwing out the number of new deal registrations, partner recruitment figures, and MDF awards. These are good data points worth measuring, but they are two and three steps removed from revenue.
The point is this: Anything that’s undefined from the outset is open to later interpretation. And unless you’re the one interpreting, you’re on the defensive as to what should be counted and what the data reveals in terms of positive and negative trends. By establishing KPIs annually or at the beginning of a program, channel chiefs have a much better probability of driving the agenda, managing realistic perceptions of channel contributions and value, and maintaining common data reference points for strategic decision-making.
This is the time of year that vendors finalize their strategic plans for the coming year. Channel chiefs should take this opportunity to draft KPIs that will define their individual and organizational performance.
The 2112 Group can help with establishing and measuring channel key performance indicators. Find out how by e-mailing [email protected].