Is thinning the herd the solution to the 80/20 rule?

The Pareto Principle still holds true in the channel, with some thinking the breakdown is even more extreme. Should vendors be chopping off the long tail? And how do less-engaged channel partners suffer?

The Pareto Principle – that 80 percent of effects come from 20 percent of causes – is not lost on the channel. It’s generally said that 80 percent of indirect sales revenue is generated by 20 percent of channel partners – something that has held true for decades in the channel. But according to some, these percentages are increasing and decreasing respectively.

In a recent blog post, The 2112 Group’s CEO and chief analyst, Larry Walsh, says the 80/20 rule is more accurately 90/5 – under five percent of channel partners generating 90 percent of indirect sales revenue.

Walsh notes that while the industry “generally accepts” the 80/20 rule – with the 20 being described as “top-performing partners” – if we take a closer look, it is not quite accurate.

“In reality…that ratio is far more skewed, with 5 percent or less generating 90 percent of the revenue,” Walsh writes. “Even in smaller, more focused channel programs, vendors find a great disparity between the high performers and the laggards.”

Walsh is not alone in thinking that the 80/20 rule for the channel is shifting. John DeSarbo, principal and head of the sales, channel strategy and management practice at ZS Associates, says the channel currently adheres to a 90/10 rule and that if anything, the issue is growing.

“The vendors have created this problem of concentration and they’re perpetuating it,” DeSarbo tells Channelnomics. “It’s not just chance or happenstance, it’s something that’s been a consequence of the way vendors have been managing their channels for years.”

He explains that vendors with non-traditional partner types, such as professional service providers (also known as “shadow partners”), display a more balanced distribution of channel sales, while vendors focused on traditional partners demonstrate larger gaps.

As vendors continue to allocate valuable resources, like channel account managers, MDF and better pricing, to their more profitable partners, smaller partners lack the human touch, resources and incentive to sell a vendor’s products.

Further, vendors continue investing in top-performing partners as they are able to acquire more information on these partners, DeSarbo notes, pointing to profile data from registration and partner program participation and point of sale information.

Meanwhile, smaller partners are not as well understood and tend to get neglected.

“It’s a scenario where the rich are getting richer essentially,” DeSarbo tells Channelnomics. …

Written by Scharon Harding

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