CCC RECAP: Making the Most of Back-End Incentives

Channel professionals have many choices when it comes to influencing partner behavior. But few are as effective as back-end incentives — as long as you use them wisely.

By T.C. Doyle

Vendors have a lot of options when it comes to influencing partner behavior, but few are as effective as back-end incentives. These include rebates, SPIFFs, and market development funds (MDF). The trouble is, back-end incentives are difficult to manage, tough to measure, and almost impossible to retire once partners get wedded to them.

That’s what conventional wisdom says. But is it true? Channelnomics research offers some insights, which we shared on our Oct. 18 Channelnomics Community Call (CCC). Truth be told, you can make better use of your back-end incentives if you know what our data reveals and what best practices to apply when leveraging those incentives. During our call, Channelnomics founder and chief analyst Larry Walsh shared his take on both.

According to a forthcoming report from Channelnomics, “Gauging the Effectiveness of Partner Program Back-End Incentives,” 44% of channel managers say back-end incentives are their most effective tool for influencing partner behavior, while 95% say rebates and other post-sales inducements increase partner revenue generation — most in double-digit growth territory.

Vendors love back-end incentives for several reasons:

• They cost money only when partners achieve financial objectives
• They drive channel loyalty by enhancing partner profitability
• They aid sales by giving partners more freedom to negotiate prices with customers

Despite the benefits of back-end incentives, however, they have their critics. Detractors note that incentives reward partners for doing what they already should do, reduce profits from the sale of product and service sales, and pose administration and management burdens. They remain popular because many channel leaders see no other way to stimulate activity in the field.

Walsh outlined 10 different best practices for getting better results from back-end incentive programs. Here are three. (For more, be sure to check out our new report, which is available to CiQ subscribers, and the fall issue of Channelnomics Quarterly.)

1) Define Your Desired Outcome: Incentives should drive behavior that leads to a definable return. Vendors should create incentives that align with clearly defined sales or market goals. In doing so, vendors can clearly explain what they want partners to do and articulate to stakeholders what the company will get from the incentive.

2) Involve Cross-Functional Teams: Incentive programs shouldn’t be developed in a vacuum. Channel managers should involve stakeholders from different business units and departments touched by the incentives. Cross-functional teams should include, at a minimum, representatives from finance, sales, product management, and regional management. Through cross-functional teams, channel managers will better focus on the incentives’ design and build support for the initiative.

3) Create Barriers to Participation: While back-end incentive programs should be available to all partners in a program, vendors should create conditions and qualifications to limit participation to partners with a reasonable probability of actively participating and generating desired results. Incentive programs that run wide open are difficult to manage and tend to increase the cost of sales without a corresponding return on investment.

In addition to discussing back-end incentives, Channelnomics examined the budget woes that many vendors are wrestling with now that the economy appears to be on the cusp of a recession.

Here’s our advice to those mulling budget reallocations and/or cutbacks:

• Invest in channel sales.
• Defer more to partners.
• Leverage distribution resources.
• Use automation to free up human resources.
• Double down on data analytics.

In August, Channelnomics produced a “Channel Recession Survival Guide.” It’s available for free to any member of the channel professional community.

COMING SOON: CQ Magazine, Volume 3 — In August, Channelnomics published the second edition of Channelnomics Quarterly, the industry’s first publication devoted exclusively to channel professionals. In November, we’ll publish Volume 3, which takes a look at the vendor-partner disconnect and how vendors can better leverage back-end incentives to motivate partners. As always, we’ll have marketing tips from channel maven Heather K. Margolis and insights from Channelnomics CEO Walsh.

NEW IN CIQ: Data Reveals That Non-Standard Pricing Is the New Norm in Many Places

In our latest analyst note, we examine the issue of non-standard pricing (NSP). At some companies, Channelnomics research reveals, more than 80% of deals go through a special bid desk where requests for NSP are reviewed. That’s an astounding percent of business, which begs a question: If more than half of channel deals pass through a non-standard procedure, isn’t the exception really the norm? If so, what are the implications?

Don’t miss the next CiQ Community Call on Nov. 15, when we’ll discuss selling digital services through the channel. Our community calls, which take place on the third Tuesday of each month (except in December), are now open to any channel professional and practitioner. Meanwhile, if you’re a CiQ subscriber looking to request your monthly one-on-one call or schedule your annual channel program review, send an e-mail to Laura Maziejka at info@channelnomics.com.