The What And The Why Of Partner Profitability

By Diane Krakora, CEO, PartnerPath

The balance of power is shifting. Gone are the days when solution provider partners begged to be included in vendor partner programs. Instead, solution providers have become savvy about which vendor’s lines to carry and are trimming unprofitable vendors from their line cards.

In this dawning age of partner clout, where do you fit in the partner profitability formula? Are you providing enough opportunity for your partners to be successful in the market? Are your partner investments too high, resulting in a poor ROI for solution providers?

In our latest study, we examined components of partner profitability and how vendors can ensure they are integral to their partners’ business.

Customers demand a complete solution for their business needs — which may vary from increasing efficiency in some functional area such as talent management, to reducing IT operating costs, to securing against theft (digital or physical).

Companies of all sizes continue to look to partners to provide the software, hardware, services, policy consulting and even financing to address their business needs and opportunities. These partners span the ranks of industry-specific consultants, IT professionals, systems integrators, service providers and VARs.

Collectively, we call them “solution providers.” They help design, implement, manage and operate IT solutions to fulfill customers’ business needs and opportunities, including cloud solutions. Even the large SaaS players realize partners will always be at the frontline of addressing customers’ needs. Just look at the size of the Salesforce.com ecosystem.

As solution provider profitability gets squeezed from lower margins on hardware, cloud-delivered infrastructure and software, and through higher administrative costs, they are getting more particular about the vendors with whom they partner. Solution providers are examining their profitability per vendor line to determine where they will continue to invest. Someday, we expect the tables to turn completely and see the solution providers setting requirements to qualify vendors as gold or platinum instead of vice versa.

Start With The Formula

Partnerships are relationships. And in any relationship, if the other party is not thinking about you, they are thinking about someone or something else. The more profitable your partners are, the more partner mindshare you have. In order for vendors to grow their businesses with a partner, the partner has to be thinking of them.

So what are partners thinking about when a vendor is on their mind? There are several factors they ponder when evaluating the overall profitability or value of each vendor relationship. Although these elements are not weighted equally across either the solution provider or vendor communities, we divided them into two components: Opportunity and investment.

The vendor’s goal is to create a significant return on investment (ROI) by making the opportunity as large as possible while minimizing the investment from solution providers (without making it zero).Solution providers are very willing to invest with a vendor when they experience a high return. For example, if you knew you received a return of $2 within a reasonable period for every $1 of investment, then you would make as large of an investment as you could afford. The more you invest, the greater the return and the more profitable you become overall.

The most surprising discovery of our study was realizing how many vendors don’t know their impact on their partners’ profitability. We find it appalling that vendors don’t know their partners’ overall profitability with the line, the adjacent services opportunities, the cost of complex process and enablement requirements. The most shocking is that they do not know the time it takes for partners to achieve ROI. How much would you invest in a relationship if you didn’t know what you would receive out of it and by when?

Every vendor should evaluate partner profitability, determine how they compare to the industry overall (not just technology competitors) and enhance formula elements to enrich their partners’ profitability — before it’s too late and partners resolve it for you.

Learn all the individual components of partner profitability and how vendors and partners view them differently by reading the report and listening to our expert webinar panels at partner-path.com.

Diane Krakora is CEO of PartnerPath, and has two decades of experience defining the best practices and frameworks regarding how to develop and manage partnerships. Contact her if you need help in improving your partner profitability.