Higher Share of Wallet Isn’t Necessarily Healthy for Partners
If vendors look beyond self-serving data points, and partners protect themselves through ‘diversification,’ channel relationships would be much healthier overall.
By Larry Walsh
I’ve been having a series of conversations with vendors about profiling and assessing the value of their partners. Partner profiling is a core 2112 service, and we passionately believe that understanding a partner’s composition, mission, and value proposition will lead to better alignment, working relationships, and productivity.
A metric that frequently comes up in these conversations is share of wallet. Vendors want to know how much value to assign to a partner based on the sale of products and services, particularly relative to another competing vendor. Their theory is this: The greater their share of wallet, the more loyal the partner is to them. And the higher the share of wallet, they believe, the more influence they have over the partner.
Share of wallet may hold appeal for vendors, but it’s also a risk indicator for partners.
Going all in on just one vendor, or even a handful of them, is a risky proposition for a partner. The more reliant a partner is on a vendor to drive its revenue, the more exposed it is to disruptions associated with the vendor. Case in point: A partner called me this week looking for advice on growing his business after his primary vendor pivoted in program objectives and operations.[ctt tweet=”Share of wallet may hold appeal for vendors, but it’s also a risk indicator for partners.” coverup=”sZ3Gm”]
The 2112 Group gets calls like this all the time: resellers, integrators, and managed service providers looking for direction on their investments and growth strategies. This particular partner was unusual in that it was approaching a crisis. Just a few years ago, its sales peaked in the low eight-figure range, but now revenue is trending downward to a mid-six figure.
The partner gave nearly 100 percent of its wallet to just one vendor. Just one. It earned money on top of product sales through its professional services, so the vendor’s share of wallet was actually somewhere around 50 percent. But the product sales drove the professional services, so you could say the vendor had absolute influence over the partner’s revenue stream.
The problem is the vendor decided to make a sudden change in its channel program and philosophy. Now, without revealing the vendor, I can say that this was more than just a channel change; the company underwent a profound shift in its corporate direction, mission, and value proposition.
For this partner, though, the change was catastrophic. The vendor was no longer deeply involved in helping to drive sales. Gone were the steady stream of leads, the teaming up on sales calls, and the referrals for value-add professional services. The change hit hard, and the revenue figures declined precipitously.
Now the partner is racing to diversify his vendor relationships, adding new and overlapping suppliers to reduce its risk exposure. In the process, the partner will tap into more and diverse resources such as market development funds, reference architectures, engineering collaboration, and distribution relationships that it could get through its previous exclusive vendor.
The problem with share of wallet is that its only consideration is for the vendor. The measure has little relevance to the partner. Sure, if times are good and the exclusive or leading vendor is treating the partner well, then a high share of wallet is beneficial. Should things change, the vendor will continue just fine, but the partner will be left resource-strapped and struggling to replace revenue.
Measure Relevancy, Not Wallet Share
Share of wallet isn’t necessarily a primary metric; it’s more of a nice-to-know piece of information. Relevancy is a far more important metric. A vendor can have a small share of wallet and still have strategic value.
Consider this scenario: A vendor has only a 10 percent share of wallet with a partner, while a competitor has a 25 percent share. And that partner sells only one product from the vendor’s vast portfolio. From a share-of-wallet perspective, this partner isn’t very interesting to the vendor. The partner, however, has standardized a process for the integration of that vendor’s product into one of the offerings it takes to market. For that reason, the partner considers the vendor strategic.
How about looking at it from a relative value perspective? A vendor may have only a 10 percent share of wallet with the partner, but the partner is growing its overall revenue, and that 10 percent share keeps increasing in relative value.[ctt tweet=”Share of wallet isn’t necessarily a primary metric; it’s more of a nice-to-know piece of information. Relevancy is a far more important metric.” coverup=”nb3Fp”]
What about growth? What if a vendor has only a 10 percent share of wallet, but the partner’s sales of its products are increasing steadily at double-digit rates?
And how about consistency? What if the share of wallet is only 10 percent, but it’s an unwavering share of wallet? The partner is bankable in terms of delivering revenue consistently over time, like clockwork.
How about measuring the overall health and stability of a partner instead of its share of wallet? If a partner is growing steadily and consistently, producing profitable returns on vendor investment, generating healthy internal profits, investing well in business development, and maintaining its own relevancy to customers, isn’t it healthy? And if a partner is healthy and the vendor is relevant to its business, isn’t that the underpinning of a healthy go-to-market relationship?
Of course, no vendor will look at share of wallet as the only measure of partner value. But vendors need to ask themselves why they’re putting so much emphasis on metrics like share of wallet when evaluating partners. They need to look beyond self-serving data points, like revenue generated by a partner, and look at a partner’s overall health, potential, and strategic relevance. This is how we approach partner assessments at 2112, and it provides a much deeper look at the tapestry of partner relationships.