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What makes a good partner incentive programme?

Everyone reacts to incentives, but they need to be thought through – and some programmes are better than others

This article can also be found in the Premium Editorial Download: MicroScope: MicroScope: Channel themes for 2023

Everyone agrees that partner incentives are a good thing. There’s nothing like an additional reward – financial or otherwise – to help spur partners to work harder for their vendors. But what makes them good?

What are the most common partner incentives offered by vendors and which of those are the most popular for channel partners? Which are the most successful for partners and vendors? What types of incentive tend to be the least successful?

Sam Rudland, founder and managing director at The Essential Agency, a B2B marketing agency that has run partner incentives for many years, says the most common incentives for vendors “are those aligned to closing sales to ensure the vendor hits its targets”. But she adds: “In my experience, a sales incentive has a short impact and unless the rewards are compelling, risks poor partner engagement.”

As to what constitutes a successful incentive, Rudland says the best ones provide partner sales reps “with points for completing a variety of tasks that not only help the vendor build and close pipeline in the short term, but also skill up the sales reps so they gain confidence in selling that vendors technology into the future”.

Such incentives include points for completing enablement, registering deals, closing deals, setting up meetings with the partner and the vendor, and executing marketing campaigns.

Although higher points can be offered for particular deals or to push partners to increase deal registrations for a vendor’s latest products, it is always smart to offer points for deals for the existing product range. That way, says Rudland, “partners arent disincentivised from promoting and selling the vendors core products” while they are being encouraged to promote new products.

Vendor perspective

Offering a vendor perspective, Rob Tomlin, vice-president, UK channel at Dell Technologies, acknowledges that the most common incentives are based on sales volume, “with increasing rates and earning potential based on partner size and scale”. He adds: “Typical examples include front-end discounts, back-end rebates, marketing development funds [MDF] and sales rep individual rewards.”

Dell’s partner programme includes all of the above, but it also offers the opportunity to include “earned MDF accrued as a percentage of eligible revenue and the more commonly offered proposal MDF”, says Tomlin. Dell also offers additional back-end rebates “to encourage partner engagement across the entire customer lifecycle, with lucrative incentives for new customer acquisition and refreshing the existing install base”.

In terms of popularity, he says: “Simple and predictable incentives are the most popular, which is why many partners lean towards back-end rebates based on a set percentage of eligible product sales. This predictability allows partners to run their business engagement more easily with vendors, with visibility to profit potential.”

Lewis Simmonds, UK channel director at Hewlett Packard Enterprise, says back-end rebates and increased discounts are common incentives. “Increased discounts can help raise the win probability of deals,” he says. “This kind of discount generally rewards a partners early engagement through deal registration programmes, focus products discounts, or at the vendor quarter or year-end, and can help increase the gross margin [GM] on deals.”

In terms of popularity, Simmonds notes that sales teams prefer campaigns such as call-out days or incentives that give them a pricing advantage against the competition, whereas pre-sales teams get more benefit from enablement programmes with incentives. For their part, vendor managers prefer MDF-based campaigns and executives favour rebate-based incentives because they are visible on the bottom line.

Tom Herman, vice-president of global channels and alliances at the Synopsys Software Integrity Group, says the popularity of incentives depends on what the partner does with them and who gets paid. He explains it like this: “Rebates and MDF typically dont do anything for the sales reps and just go to the bottom line of the channel company. Additional discounts also benefit the company first and foremost, but still put some control in the sales repshands to increase the odds of winning a deal that they get paid on. SPIFs [sales performance incentive funds] directly benefit the sales reps.”

Interesting split

This highlights an interesting split between the company and the individual in terms of which incentives are most successful. For sales reps, it’s SPIFs, followed by discounts and rebates (provided they are structured in a way that the sales reps get a portion as a bonus). For the company, MDF and back-end rebates are usually preferred.

Sales reps are not too keen on MDF because it’s “a longer-term investment that they dont usually see a quick return on”, says Herman. On the other hand, the company doesn’t get much from SPIFs because they “dont help the bottom line – discounts are also often passed through to the end customer”.

Carlos Morales, senior vice-president solutions at Neustar Security Services, makes a similar point. “Channel partner executives typically favour margin and volume, which means pricing discounts, elite partner levels, volume discounts, rebates, leads and marketing support,” he says, adding that leads, marketing support and elite partner levels are the most popular.

“Channel partner executives typically favour margin and volume, which means pricing discounts, elite partner levels, volume discounts, rebates, leads and marketing support”
Carlos Morales, Neustar Security Services

Partner sales reps favour SPIFs because they provide “a direct financial reward”, he says. They also like co-selling because it helps them “scale more without having to build specific expertise with any vendors technology”.

Kerstin Demko, vice-president for marketing at Brivo, argues that although rebates on revenue and discounts or tiered pricing based on sales volume are the most popular partner incentive programmes, MDFs “drive the most success”. She says this is because when partners invest in marketing, “they not only see the benefit of investing in their brand, but also in selling to their existing customers”.

Demko adds: “For a SaaS [software as a service] business, driving additional revenue from existing customers is win-win – they collect more recurring revenue for less investment. Once partners see this happening, it gives them a whole new perspective on how to grow their business, and they embrace the investment in marketing as it has a ‘waterfall effect’ on their sales.”

Alex Walsh, UK&I channel and alliances director at Veeam, says that while most vendors run partner incentive schemes, partners often run their own schemes with sponsorship from vendors, perhaps for a weekend abroad, a ski trip or a pot of money that they can exchange for vouchers and spend as they see fit.

Most popular incentives

When it comes to what Walsh believes are the most popular incentives for partners, he doesn’t mince his words. “For partners, the most popular incentives are those that have a high monetary value,” he says. “Their purpose is to make salespeople excited about selling the vendors product, so what better way to do this than by offering something like a once-in-a-lifetime trip? Another option that often proves popular is a group incentive, which will lead to the top five salespeople being taken abroad or treated to an exciting experience, and some friendly competition.”

As to what makes incentives successful, Walsh argues that the best schemes “will always be those tied to driving positive business outcomes for both parties”. He adds: “As a vendor, it’s crucial they align the scheme with the expectations and goals of the partner and dont run schemes that are only tailored to their best interests. Theres no point running incentives targeted at making sales in an area the partner isnt experienced in or doesnt typically target.”

James Lewis, EMEA & APJ channel director at Infinidat, highlights deal registration and back-end rebates as two of the most successful incentives. He describes deal registrations as “very motivating for partners”, saying they also encourage organisations to be proactive about securing new business and eliminate the potential for conflict, because once a deal is registered, it cannot be claimed by another partner organisation.

“Pure cash incentives don’t tend to work as well, because they’re subject to tax”
Tony Reilly, Comstor

Offering a channel perspective, Tony Reilly, EMEA marketing director at Comstor, says there are two types of incentive that partners are most attracted to. At a business level, discounts are popular because they “contribute directly to overall profitability – and particularly during a period of economic uncertainty, financial discounts are especially appealing” he says.

For individuals, personal incentives always go down well, says Reilly. “Hospitality at sporting events, for example, is extremely popular.” But he warns: “Pure cash incentives dont tend to work as well, because theyre subject to tax. In fact, when devising any incentive-based programme, vendors need to make sure that tax and compliance are front of mind.”

Brian Davis, group cloud sales director at DataSolutions, says incentives can encourage partner sales teams to hunt for new opportunities, often delivered through deal protection discount and additional margin on the upfront pricing. “The partner seller is free to decide how much of this can be retained and how much needs to be given away to the customer to win the deal,” he says. “This usually directly impacts the seller’s commission and can be a powerful tool in driving partner sales activity to focus on a specific type of product sale or activity.”

Incentives can also be used to provide “a financial reward to the overall partner business in the form of additional discount paid out post-sale in the form of a rebate”, says Davis. He argues that these incentives “are important for the overall P&L profitability of a vendor within a partner as this additional incentive is usually not available to a partner sales team to use as part of the deal pricing, therefore it is retained by the business as guaranteed margin”. He adds that vendors are also tailoring partner incentive programmes to try to limit or reduce subscription licence churn.

Least successful incentives

Having looked at some of the most common and popular incentives, it is time to  ask what types of incentive tend to be the least successful. “The key to incentives is ensuring they are as simple as possible,” says Dell’s Tomlin. “Any incentive that is overly complicated or unpredictable is likely to be unsuccessful. To ensure maximum ROI [return on investment], it is best to maintain a predictable and long-lasting incentive structure that partners can learn once and implement consistently to keep seeing the benefits.”

Brivo’s Demko agrees, saying: “The least successful incentives are any type of programme that is hard to understand and hard to execute. Partners have so many responsibilities to join a complex scheme – many are mid-sized and leaders wear several hats in the business, from owner, manager and sales person to QA engineer, buyer, budget-checker, and so on. Programmes that require the partner to spend too much time understanding the benefit or how to participate will always fail.”

HPE’s Simmonds believes that MDF incentives “are probably the least successful” from a vendor perspective because they are controlled by the partner and it is difficult to determine the ROI on marketing investment. “There is also a risk that only a few people within the teams will actually benefit from the long-term high reward of MDF-funded incentives, putting the rest of the sales and pre-sales teams at a disadvantage,” he says.

Eleanor Thompson, global partner programme manager at Fivetran, says: “Marketing benefits are necessary, but can be very difficult to execute well with every partner. Some partners have very few marketing resources of their own – perhaps they already offer many other products, meaning that resources are stretched, or they have the opposite problem and want to do more events than you as a vendor can support.”

“Marketing benefits are necessary, but can be very difficult to execute well with every partner”
Eleanor Thompson, FiveTran

Neustar’s Morales notes that although pricing incentives can be successful in establishing an initial relationship with the partner, “they wont necessarily drive sales success”. He says: “Partners tend to be market enablers, not market makers. This means that just being in their portfolio doesn’t ensure sales success. As a result, the most successful partner incentives tend to be co-marketing efforts and overlay sales support. These set up the structure for pipeline generation and higher success in closing deals.”

Morales adds: “The least successful incentives are those that do not change partner behaviour. Salesperson SPIFs may generate some short-term success, but will often be at odds with the partners strategy, resulting in management shutting them down or incentivising the seller in a different way. Rebate programmes do little to drive growth because even though they may capture the attention of partner management, the rebates rarely make it to the sellers.”

Veeam’s Walsh says the least successful incentives are those that are only in the vendors best interest. “For example, an incentive to sell a new product line that doesnt align with the area the partner typically sells into. This will only lead to frustration and the eventual breakdown of the working relationship.”

He adds that “the days of pure cash incentives are gone as they often receive scrutiny due to bribery regulations”. Since the pandemic, group incentives have also become more difficult, says Walsh. “People are often based across the country – or world – thanks to hybrid working, and some may still have different comfort levels when it comes to attending events such as concerts.”

Jorge Martin, senior vice-president global alliances & partnerships at insightsoftware, says “The biggest challenge with incentives is figuring out how to keep them viewed as a perk and not have them turn into feeling like an entitlement. The least successful incentives are usually the ones that are most difficult to communicate to partners or to carry out.”

Martin echoes Walsh’s point that vendors can be guilty of “developing tunnel vision when formulating their incentives, without a view of how partners perceive them”. He adds: “Programmes that fail to engage with partners will fall flat, and we want to avoid that. The key is to keep things simple and straightforward.”

Demko agrees that vendors can make the mistake of designing incentives “they think will work based on their own goals, adding: “But if partners are not bought in, they will not participate, no matter how much time and effort the vendor puts into the programme. The partner has to see the value and work with the vendor on how best to implement incentive programmes.”

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