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Channel benefitting from “misdirected” vendor funding

A large chunk of vendor funds are being paid to the wrong people for the wrong things

IT vendors are trapped in a “painful” cycle of paying their channel partners for non-existent sales, according to CEO of US software company, Zyme.

Chandran Sankaran claimed a high number of vendors were overpaying partners by as much as 30% due to a lack of real sales data coming from resellers and distributors.

“There is a massive flow of marketing funds back to channel partners,” he added “On a $5 trillion market, there’s about $1 trillion of marketing funds that flow every year: rebates, MDF programmes, co-op programmes, price protection programmes. About 20-30% of that is being paid to the wrong people for the wrong things.”

“You have an incentive programme that’s supposed to pay the channel partner for performing well, but you don’t know how well the channel partner performed, because you don’t have the data. But you pay them anyway because you don’t want to tick them off if they’re an important seller of yours. So there is massive inefficiency in the way these marketing programmes are being spent…it’s extremely painful the way in which this money flows, it’s very controversial," he added.

Wasting money

Zyme's CEO spoke to MicroScope earlier this year as he started to bang the drum about wasteful spending and shared his calculations that for every billion dollars a vendor earns, $150 million (15%) will be re-invested in performance incentives, rewards, marketing support and other channel funding. But of this, around one fifth is wasted on who really don’t deserve the rewards.

The CEO believed vendors found is easier to pay out to avoid conflict with partners: “If you don’t know which channel partner is selling well on your behalf, you avoid controversy by paying all channel partners a bit more than they deserve.”

“Otherwise they’ll come back the next quarter and tell you they’re not representing you, they’re representing your competitor. So you err on the side of adding buffers to your business because you don’t know precisely where things are," he added.

Sankaran said the figures he was quoting were based on joint research between Zyme – which produces channel data management software – and analyst firm Accenture.

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