Successful channel partner relationships require substantial investments of energy, time, and money. And like any investment, they need active management to ensure maximum return. Effective management requires answers to some basic questions:
- How profitable are my channel partner relationships?
- Which are my best and worst performers?
- Where should we focus our future management efforts?
The channel partner scorecard helps you collect and interpret the information that you need to answer those questions. Use the information to calculate for each channel partner a return on investment (ROI) that is based on actual revenues and expenses. You can use the scorecard results to evaluate channel partners and determine future courses of action.
Anatomy of a scorecard
A channel partner scorecard is typically an Excel worksheet that includes the following information:
- Partner profile
- Revenues by product
It's also a good idea to have a Notes section for marketing campaign performance, service issues, and anything else that you want to retain.
This is a straightforward profile that provides such details as name, industry, contact information, and length of relationship.
Revenues: forecasted and actual
Measuring channel partner effectiveness begins with tracking revenues, both forecasted and actual. Revenues should be tracked at the product level to:
- Identify product and product mix trends.
- Let your production department manage inventory levels and meet shipment requirements.
- Help your finance department manage cash flow and make financial projections.
Of course, actual product revenues are what really count. They are used to calculate ROIs and to improve the forecasting process.
Costs: the big four
To strike a balance between simplicity and utility, a scorecard tracks costs in four general categories:
- Market development funds
- Marketing materials
- Training costs
- Service costs
If your business would benefit from tracking additional or different categories of channel partner costs, by all means do so.
Market development funds These funds include money that you give channel partners to conduct sales and marketing activities on your behalf. Activities might include direct marketing, e-marketing, trade shows, and advertising. Your contract with the channel partner should specify how market development funds may be spent and which uses require your specific approval.
Marketing materials These include brochures, point-of-purchase displays, and advertising kits, and they help channel partners sell and market your products. While these materials are generally offered for free to channel partners, they have significant development costs that should be tracked and included in ROI calculations.
Training costs Training channel partners about your products and how to best sell them can be crucial to getting the results you want. Training costs include labor, documentation, and Web-based sessions. Track only your training costs, not those incurred by your channel partner.
Service costs Always track the cost of the services that you provide to your channel partner's customers (including parts and labor). Again, track only your service costs, not those incurred by your channel partner. Include service costs even if they aren't your channel partner's responsibility, such as those caused by product defects. Awareness of unusual service cost patterns will accelerates their correction and minimizes customer dissatisfaction. (Make note of significant service costs that are your responsibility so that the channel partner's ROI isn't negatively distorted.)
Calculating and evaluating ROI
After you have documented the actual revenues and costs that are associated with a particular channel partner, calculating their ROI is relatively simple. The formula is:
((Actual revenue less actual costs)/Actual costs) * 100
For example, if actual revenue were $100,000 and actual cost were $80,000, then the ROI would be: (100,000 - 80,000)/80,000 = .25 * 100 = 25%.
So your ROI for this particular channel partner is 25%. Is that good? It's positive — and that's important — but is 25% good enough? To answer that question, you need something to compare it with. Relevant comparisons typically come from three sources:
- Industry averages
- Your other channel partners
- Your direct sales force
Industry averages Sometimes average channel partner ROIs are estimated and published by industry analysts. If that's not the case for your industry, you can estimate channel partner ROIs by talking with friendly competitors or owners of similar but not competitive businesses to get a sense of what they're experiencing.
Your other channel partners If you have more than one channel partner, compare their ROIs. Lower performers may require additional management attention.
Your direct sales force ROIs for channel partners are typically greater than or equal to the ROI for your direct sales force because you don't have to bear the operational overhead for the channel partner. Given that ROIs are generally higher with channel partners, why should you bother operating a direct sales force at all? The answer is better long-term control over how you interact with customers, particularly important customers who are sensitive to your relationship with them.
Should I stay or should I go?
The key question for all these ROIs is: Should you stick with a particular channel partner? A negative or low ROI is certainly a cause for concern.
If there's a good explanation or there are some substantive steps that you can take to address the low performance, then you might want to continue the relationship. If, however, the low performance is a long-term trend, perhaps the relationship should be discontinued.
Avoid misleading evaluations
Throughout the ROI evaluation process, stay alert for ROIs that are skewed downward by ongoing channel marketing programs that — for timing reasons — have generated expenses but have not yet yielded any or all of their revenues. Otherwise, returns can look misleadingly bad.
In these cases, you should include estimated revenues to offset actual expenditures until actual revenues become available.
One more thing worth tracking
A valuable strategy for improving channel partner performance is to calculate ROIs for individual marketing campaigns in addition to overall channel partner returns. Specifically, track the type of campaign conducted, the expected return, and the actual return.
In this context, return could refer to leads or sales dollars. This process yields insights into which kinds of campaigns are most effective and helps you improve the productivity of your market development spending.
Tips to the wise
Here are some pointers for getting the most from your channel partner scorecards:
- Scorecards should be living documents that are updated regularly and used often (quarterly or monthly).
- Scorecards are a convenient vehicle for communicating channel partner program results with management teams.
- It may even be appropriate, in some cases, to share the scorecards directly with channel partners as you discuss progress and plans.
About the author Cindy Kennaugh is president of On The Mark, a Silicon Valley–based consulting firm specializing in all aspects of business-to-business marketing in the high-technology industry.