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Sales Compensation: What’s the Correct Cost Benchmark?

August 26, 2010

Sales Costs for Channel PartnerThe most significant factor impacting profitability for any channel partner is the cost of their sales team (or more precisely – the costs of winning the revenue) . Partners that have operating margins in the 5% range tend to have sales costs as a factor of Total Contribution to be under 30% (The example on the chart on this page is the best way to illustrate the financial numbers).

Here’s the honest truth: Many of the most profitable partners get leads from the vendor and therefore only need to focus on bringing deals to closure. Without marketing and prospecting costs, they can focus on sales talent that have value-add technical and relationship skills. Success leads to success which leads to industry consolidation. Partners that tend to hire employees that formerly worked for the vendor is the key differentiator for the partners that tend to get vendor leads. Most partners are not in this fortunate position. The example given in the chart is a partner that is in that fortunate position.

In my ten years as a Solution Provider, I never once received a lead from a vendor – I feel your pain! Well, no whining, it won’t help with the vendors and it’s a waste of time.  The answer lies in strategy, attitude and hard work.

Channel Partner Strategy:

  • Defining your Value Proposition and how you Differentiate from the partner with the same certification level down the street
  • The Retail Game: Defining your “Traffic” vs. “Winners” (disrupting the partner down the street)
  • Marketing efforts to increase the number of Qualified Sales Appointments
  • Technology, Managed Services and Cloud
  • Best Practices for Running an Aggressive, Efficient and Value-Add Sales Team

How to get more from your partners:

  • Strategic Planning for your mix of technology partners.  Think out of the box for new partner relationships and channels.  An example is a traditional Voice – Telephony Partner that adds Salesforce.com as a new partner.
  • Learn to hunt for leads without the vendor’s help. When you deliver opportunity for the vendor its certainly fair game to ask for an opportunity in return.
  • Define you Value Proposition without referencing a technology vendor. There’s risk in defining your business as a “Cisco Partner”

The bottom line – literally – is that it’s very difficult for any channel partner to have Operating Margins of 5%+  if your sales costs are higher than 30% of Total Contribution.

Do you agree with the Benchmark of 30% of TC? Do you agree that a channel partner needs to have Operating Margins of 5%+ to be long-term sustainable?

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