Fulfillment Partners’ Value Is Overlooked, Misunderstood
Vendors often complain that fulfillment partners get paid too much for doing too little. They’re missing the point of fulfillment and overlooking the value these partners deliver.
By Larry Walsh
A recent CRN article touted the success of a networking vendor that enjoyed profound growth by working with partners as a route to market. Soaring sales, the headline proclaimed, came after the company found a “renewed focus” on the channel.
I know a little bit about this company, which I won’t name; but I will say it’s not a client of 2112. Yes, this vendor has tremendous respect for its channel partners. Over the past few years, it tried several strategies for driving sales through the channel. “Renewed” probably isn’t the right word to describe its efforts. A better one is “refocused,” as it’s often tweaking partner programs and models to improve productivity and return on channel investment, or ROCI.
The company’s partnership model is largely based on fulfillment, with its internal salespeople initiating and nurturing most of the deals and then handing them off to partners to deliver, implement, and support the customer. Partners get a cut of the sale, plus the add-on professional services revenue.
Fulfillment isn’t a bad model, unless you’re looking through the lens of a traditional channel program and value proposition.
The underlying reason for having a channel is to drive more sales at a lower cost. Channel partners get paid only when they sell something, therefore providing vendors the benefit of a larger, distributed sales force without the fixed cost of internal sales departments.
The traditional purpose of a channel is what brings the value of fulfillment partners into question. Management will often ask why their company is paying fulfillment partners a certain share of a sale when they didn’t do much to uncover and close the opportunity.
It’s a valid question, especially since vendors scrape to maintain profitability in every deal. Surrendering even a few points to a partner lowers bookings’ value and recognized revenue.
The next management question: Why can’t the partners do more?
The answer is typically, “They can,” and “We need to provide them with incentives.” Those incentives, though, when used to spur fulfillment partners to initiate more sales, often produce few results. The reason: The partner has little sales capacity or experience to act on the incentives. Fulfillment partners know how to make money on the receiving end of opportunities. Ramping up to initiate sales, even with incentives, represents risk.
Fulfillment partners operate under a “sell-with” model, as noted above. More often than not, they’re the recipients of jobs, not sales. Even when the partner initiates a sale, the vendor will often take the lead to bring it to fruition. The sell-with model works best with complicated technology products that require expert skill to sell and a definable market, such as a vertical (e.g., health care) or customer class (e.g., large enterprise or global account).
Fulfillment partners aren’t typically hunters, and that’s the source of friction. Their role is getting working product in the customers’ hands, and that’s an overlooked value. Fulfillment partners free their vendors from fielding large engineering, professional services, and project management organizations. Under the reseller model (sell-through), partners free vendors from sales. Under the fulfillment model, partners free vendors from fieldwork.
In other words, fulfillment partners allow vendors to move faster.
That’s right – faster.
By not having to worry about getting the product to customers and ensuring it works as intended, the vendor can focus more on sales, driving up revenue. Fulfillment is a synergistic relationship, in which the vendor’s strength (sales) is complemented by the partner’s strength (technical skills and capacity).
And that’s how the vendor in the CRN article is driving faster sales: leaning on its fulfillment partners. By working with partners that have a good roster of customers, the vendor is mining for opportunities through a sell-with model. After closing the sale on behalf of the partner, the vendor turns over the fieldwork and moves on to the next target. It’s almost like a leapfrog effect.
Vendors and channel chiefs not only need to define the roles of their channel partners; they also have to understand and appreciate the value of those roles. Each channel route to market comes with different value propositions, which should have a commensurate level of compensation to the partner.
Vendors need to recognize that even fulfillment partners are providing value, even if they’re not the primary source of a sale.
Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.