This is a guest blog by Steve Buck, who has 30 years of experience in product management in start-ups and corporates. He has more than a decade of experience on each side of the reseller model, selling through channels and being a reseller for others.
A good sales channel strategy brings the benefits of growth in untapped markets at low costs of sales and implementation… but beware … done poorly, it can lead to frustration, and additional costs, undermine the value of your offer, and damage your company’s reputation.
What is a reseller channel?
Put simply, a reseller is another company (a partner) that sells your product in return for some financial benefit.
This offers a new ‘channel’ to market and can be a great way to sell to a market that is otherwise difficult or expensive to reach. A reseller may also be referred to as a distributor of your product – especially if their main focus is to provide geographic coverage.
I’ve used channel resellers successfully with technology products I’ve managed. This helped me at various times in many ways, including targeting different customer segments and geographies, enabling SaaS delivery and pricing, minimizing barriers to entry in new markets, and as a way to be part of large and complex deals.
For example, to reach small mobile operators with limited funds (the lower value segment), I needed a monthly recurring (SaaS) business model, low integration effort, and a low sales overhead. To achieve this, I partnered with suppliers who provided existing technology to those operators on which I could add my product and which they were able to resell to enhance their offer. A win-win situation.
In the finance sector, I worked with suppliers enabling them to sell their data into different market sectors (verticals) such as banks, retail, and insurance. For many, data was a by-product of their business, and they didn’t have relationships with many different verticals like our business did. So, using us as a reseller channel enabled sales they would not otherwise have achieved.
Different approaches to resellers
Resellers can simply be used to target specific market segments (whether they are geographic, value, or vertical), but I find they often add value with their products or services. This could be solutions such as hosting, integration, implementation, or support in a technology environment.
The right strategy can be to have multiple resellers and manage their competition or a single partnership per segment.
So what is the key to success? In this article, we provide some pointers to identifying the need for partners, picking the right ones, and ensuring the partnership is set up for success.
Why – be clear on the purpose
It’s easy to pick a channel partner because they come to you and want to resell your product. But does this make them the right partner?
Perhaps they are ‘gap filling’ while they build their product as they are late to market. Or maybe they just have one customer and need your customization effort for this customer as part of the “partnership.” I’ve seen both of these scenarios.
As a product manager, I’ve had pressure to prioritize and discount development efforts for customization for one customer based on the promise of more deals to come. However, this was a significant investment for just one deal! So it’s important to delve deeper to understand the wider opportunity and to get some shared commitment if development investment is required.
The potential benefit of channels should be considered as part of the go-to-market strategy. Would a channel help you reach a segment more profitably or enable you to compete more successfully? In my experience, the key things to consider are:
- Market/segment reach – would a partner bring credibility and coverage, helping you access specific segments or vertical markets? For example, a reseller who already targets a specific customer base, such as geographies or low-value clients, may have lower costs to sell and deliver.
- Joint proposition – is there a joint offer that can differentiate you in the market, whether this is a product and services or a richer solution to a customer problem? Could a combination of your products offer a unique delivery or business model? Perhaps your product could leverage partners existing infrastructure or more completely solve a problem.
- Focus – do you want to focus on building products, not offering services, and use partners who offer customization, integration, operations, or implementation services? Perhaps you want to only offer cloud-hosted software, but you need a partner to support on-premise solutions and hardware. Maybe you want to focus on your product as a software or hardware component of end-user products, so you will always rely on resellers to embed your product into their products.
- Market entry – would a partner be a way to enter or test the market at a low investment and potentially less risk?
Who – finding the right partner
Once you are clear on what you need a channel for, finding the right partners is important.
A good place to start is to look at who else sells into the segment you are targeting and the personas that buy your product, as this enables you to leverage their overall relationship.
Whatever the goal you want to achieve, finding a partner with coverage and credibility in the relevant market segment is a must. A good potential reseller should have good relationships and established connections with your target customers. There are advantages and disadvantages of larger or smaller resellers; while the larger will often have more coverage, they will almost certainly require more effort to set up and service the relationship, with more people to train and support, and it may be longer before you get traction.
Whether you seek one partner for a segment or multiple depends on your product’s importance in the overall reseller offer. If your product is an up-sell, portfolio gap fill, or value add as part of a larger offer from the partner’s perspective, it may well be that you want multiple partners because customers will primarily choose based on the partner’s products. In this case, it’s worth the complexity of dealing with multiple partners competing for the same customer because it’s necessary for market coverage. But in my experience, this can be quite demanding as it’s easy to be caught in a competitive battle between your partners.
If the requirement for the partnership is to find a differentiating value proposition, then it’s critical to agree on this with the partner and test this with some potential customers. If the partner is being used to provide services or infrastructure, it’s really important the technical capabilities align or are easy to train.
You should consider which partners your competitors use – is there more risk of using the same partners and thus potentially having regular negotiations on deals or more risk of not being an option for that partner’s customers? If your partner has multiple suppliers, then make sure you have strong relationships and clear differentiation.
There will always be some investment required for a successful partnership, this may be just training, but it may be samples, third-party licenses or hardware for hosting, etc. Factor this into your planning.
Ultimately the purpose of a channel partnership is revenue and profit, so one element of the partner choice must always be the pricing and volume commitments versus the necessary investment and reseller margin. If your product is embedded into the partners’ products as an OEM (Own Equipment Manufacturing), then agreeing detailed pricing will certainly be key as there is likely to be a high barrier to change. Remember that a simple resell will take much less margin than when a partner provides additional services, hosting, etc.
What value do you bring?
A partnership should be just that, a partnership. If it’s going to be successful, in my experience, the partner’s sales teams usually need to see the clear value and limited risk and effort. As such, it’s worth considering the value you bring and the concerns a partner might have, for example:
- Is this an easy upsell, and does it complement the portfolio?
- Does it help differentiate?
- What are the risks – regulatory, reputation, technical, quality, relationships?
- Investment – particularly initial effort and spend
Issues and potential conflicts
Partnerships are likely to fail if there isn’t mutual trust and benefit. To build both, it’s important to have relationships at all levels, a clear, agreed engagement model, and an understanding that that model will evolve from initial proving to scaling and tuning for performance. It’s likely and sensible that both parties want to prove the partnership before too much investment in equipment or training and documentation, and thus this will involve much more collaboration and support initially.
It’s easy for partnerships to fail despite initial success, and often there is a dip at this point. As you move into scaling, you need to enable and encourage the partner to be independent. Unless you have chosen to have a reseller who merely introduces clients, this means providing training and product collateral and making it easy for the reseller to sell because the initial “low hanging fruit” has been dealt with, and the reseller now needs to put in the effort and see the value themselves. As the relationship matures and your product is understood as part of the reseller’s offer, the focus can shift to joint planning and monitoring.
The engagement model
An engagement model should address the responsibilities of each party through the lifecycle of a customer engagement and ideally be tied into the contract, with the flexibility to evolve and cover:
- Prospects and sales funnel – sharing/registering
- Sales support
- Technical support
- Commitments approval
- Contract sign off
- Project management
- Installation / Hosting
- Operational support
- Contacts and escalation process
- Monitoring metrics
I’ve seen a new sales team undermine successful relationships by consistently undercutting with a direct sale, but equally, I’ve seen sales focus on supporting partners, increasing the cost of sales. So it’s key to decide how your sales teams might be incentivized as this can be a source of conflict. Either both sales teams need to get benefit from a partner sale so they will support it, or there needs to be some form of deal registration or allocation such as an agreed target client list, region, or vertical. This mechanism gives the direct or partner sales team exclusive rights to a specific market for a time to try and win the business.
It’s important to consider the right pricing and discounting models to incentivize resellers, encourage volume, and encourage them to learn the proposition to sell on value rather than price. The simplest model is a wholesale price list so the reseller can add their margin, but a percentage of the sale price is also often used, maximizing revenue with the risk of discounting by the partner being focussed on your product.
Where multiple partners are targeting the same customers, they may have different pricing (and business) models (e.g., SaaS versus CAPEX), but this can still lead to conflict when negotiating deals. So its worth at least aligning the pricing volume break points and considering ways to build discounts into volume or value achievements such as using rebates (i.e., additional discounts on hitting targets) or reseller tiers (e.g., gold, silver, bronze with associated pricing and visibility) based on technical capability or volume. Ideally, different resellers will offer different propositions, avoiding price being so critical, but this differentiation can also be based on how they support or implement your product. For instance, some resellers may offer full installation and 24×7 support while others only offer self-service.
Ultimately for the partnership to be successful, the sales, technical training, and documentation need to enable the reseller to mostly sell independently. This will often be product management’s responsibility, which is important to manage what is sold and understand the partner’s proposition. At the same time, there need to be relationships for forecasting and potentially joint planning, so pipeline, functionality, operational performance, roadmap, and competition are visible. One thing that I’ve always found challenging is to really understand the product issues and opportunities where the product is sold through third parties because the real need is so often filtered by the partner. So it’s important for product managers to try and establish a good relationship with some end customers.
Initially, proving and scaling a reseller partnership will require much effort, helping with the initial sales and then enabling the partner to act independently. Once the relationship works, monitoring its performance, particularly revenue and profitability for the target segments and the cost to serve, is important. I’ve had partnerships where I spent a lot of time on prospective deals, which supported the partner’s sales and credibility but led to limited revenue and low margins. Ideally, some level of joint planning periodically will help both partners – whether this is a joint marketing activity, joint proposition development, roadmap planning, process or engagement changes, or investments.
Conclusion and evolution
Resellers can be a highly effective and low-cost way to serve specific segments, especially for specialist verticals, difficult geographies, or small customers where a reseller who is already active will bring expertise, credibility, coverage, and resource. But, it’s not a panacea. It requires investment and is fraught with its challenges, so ensure you are clear on the purpose of each reseller and monitor their performance against that and your evolving needs to be successful.