Building a market-leading margin program · partner-generated pipeline and the ability to...

Deal RegistrationBuilding a market-leading margin program

2Building a market-leading margin program

Over the past 10 years, deal registration programs have moved from being merely innovative to a required element of any value-oriented channel program. This white paper illustrates the process of designing a deal registration program, including the key Decision Points of the design process and best practices for implementation, as well as design traps that can lead to underperformance.

Deal registration has become a critical part of many channel programs; over the past 10 years there has been an explosion of programs to bring this new incentive to partners. At its heart, deal registration shifts a substantial part of the economic compensation to partners – from solely in the mark-up on the purchase order to a mix of mark-up and directly paid rebate payments to partners. This allows vendors to incent partners who are generating and closing deals at a much higher rate than partners who are simply fulfilling orders or selling on price alone.

Deal registration existed in earlier forms; many of these programs existed to prevent conflict between direct and indirect channels by registering opportunities and making them “protected” from direct interference. While these approaches may have met their goal, they missed in a critical way from modern deal registration in that they protected partners from conflict but did not motivate partners to generate more demand. In this whitepaper, we examine the approach to building deal registration as a demand generation program, rather than an account protection scheme.

The initial reasons for building a deal registration program vary. Some companies are looking for a method to build more profitable margins relative to their competition, while others seek to provide a benefit that partners expect or prevent channel conflict. The core of modern deal registration programs is rooted in a simple thought – how to reward partners who spend more on sales to generate new business while protecting them from partners who come into sales cycles late in the deal with very little investment in the deal and sell-on price. Over time, this trend of cross-channel poaching deals on price teaches the partner community that it is far better to wait for the phone to ring from an interested customer than spending the effort to get customers interested in the solution.

Internal benefits from deal registration are also clear – vendors gain an early insight into the partner-generated pipeline and the ability to cross-sell and up-sell with partners early in the sales cycle. The underlying motivation in all cases for building a deal registration program is a single, straightforward goal – reward partners that generate demand.

When Citrix Systems launched the first comprehensive and modern deal registration program in 2004, the market trends that drove the requirements for the program were common among vendors. The Citrix channel consisted of a complex mix of project-oriented, value-added resellers (VARS), direct-market resellers such as CDW and Dell, corporate resellers like ASAP and Software Spectrum,

Why build a deal registration program?

Deal registration works. The company went from a -11% year over year decline in revenue to a +27% growth rate within 18 months from the program launch.


It was clear that Citrix was losing their demand-generating partners, and that the partners replacing them were, in the long term, detrimental to revenue growth. However, the customer base was adamant about the ability to purchase products, especially expansion sales, from these reseller channels. That’s because they had purchasing agreements in place and the sale of expansion licenses was a non-services-oriented sale – it typically was just a code that expanded the available pool of licenses. Citrix needed a solution that rewarded demand generators for driving not only initial license and expansion sales that involved a services engagement, such as a SAP deployment, but also organic expansion – where customers initiated the purchase – which did not provide an incentive.

The results of their experiment were profound. The company went from a -11% year-over-year decline in revenue to a +27% growth rate within 18 months from the program launch and partner satisfaction with the brand quickly shot up. These are impressive results, but the work in building a modern deal registration program can be daunting.

Symtoms:

1. The number of active VARs generating business was declining on a quarter-over-quarter basis. Many formerly successful partners were starting to focus their energy on other companies’ products over Citrix’s products.

2. The number of new VAR partners joining the business was declining while the number of resellers (non-services-oriented resellers who typically filled demand) was growing. They were losing their demand generators.

3. The repurchase rate for customers who bought their product through a non-services-oriented reseller was three to five times lower than those who bought through services-led VARs. In essence, customers who self-installed had a poor experience and rarely expanded their license count while customers who had a VAR install the product typically bought more licenses (a subsequent three to five times) and typically expanded their initial installation of 50 to 100 users to more than 1,000 users. If the customer bought from the lowest-price provider, Citrix lost future revenue.

and system integrators. Citrix observed several symptoms:


Is deal registration right for all vendors?

Recently, deal registration programs have been in vogue, including among vendors for whom the program isn’t a perfect fit for the problems they face. Deal registration programs work well for complex, value-oriented products that suffer from the “bad-install” problem mentioned previously; for easy-to-install hardware, where the user self-installing doesn’t lead to lower purchases in the future, such as printers, deal registration introduces a layer of complexity that may actually slow sales and increase transaction costs for the vendor. Consequently, there are better alternatives for incenting demand generation in these markets. Additionally, for widely deployed software products which offer incremental value in services associated with customization and

enhancements, like the Microsoft Office suite, alternative methods of rewarding local partners are a better fit for driving demand and sales.

Generally, deal registration programs introduce a level of transaction complexity that can be a disincentive for partners unless the reward amount is significant (greater than 10% of the overall revenue as additional margin); also, many commoditized products cannot be sold at this additional incentive level. It is critical to understand that deal registration is one of many methods of margin enhancement and sales-behavior modification. One must understand the nature of the product, the sales/demand challenges and the channel before implementation begins.


The 10 Decision Points of deal registration

In our program design methodology, we focus on the key strategic, operational and financial aspects of the program as a set of Decision Points – the core strategic decisions for building an effective deal registration program, those with the biggest impact on the overall program design, implementation and success. Many of these choices are hotly contested internally and understanding these Decision Points requires research and investigation; others depend on the risk/reward tolerance of your management team and the availability of IS/IT resources. Defining and gaining consensus for each of these Decision Points will result in a roadmap for your program implementation and greatly improve the likelihood of its success.

Each of these areas will be explored in greater detail, but it is important to recognize that each area will have a different result from company to company. One of the common mistakes when building a new program is to simply model the program on that of a competitor who appears to be doing well. While apparently logical, this tactic in the best case often results in a poorly performing program, given that it does not create a competitive differentiator and instead meets the competition. In the worst case, the vendor copies a program that is an active pain point for partners who nevertheless sell the competitor’s products because they offer compelling differentiators. Researching and understanding the competitive landscape is an important step in creating a program, since this information improves upon competing programs. We advise a method which not only looks at competing programs but weighs program elements against the target channel segments, taking into account affinity or dislike for competitive programs, their operational impact on the VAR’s business, and their effects

on VAR behavior. In reviewing the Decision Points, we also review key data needed to enable effective decision-making and identify which internal constituents need to support and agree with each decision. A key concept in the Decision Point process is to only involve the participants in decisions that they directly affect in order to minimize the effort required to gain launch consensus from the executive team.

The Decision Points are:

1. How to fund the program?

2. Who approves the deal as registered and when?

3. Which products are covered under the program?

4. Which partners can participate in the program?

5. What level of incentive drives meaningful behavior?

6. How do I compensate sales people for deals in the program?

7. How can I create competitive barriers in my program?

8. What is the operational workflow required for the program?

9. How does deal registration work with lead distribution?

10. How will we know the program is working?


When presenting a deal registration program to the executive management team, the common reaction from a CFO or VP of Finance is reasonable: “How are we going to pay for this?” Building an effective economic model for deal registration is a core decision for the program; many attempts at deal registration have been stacked on top of discounting and, as a result, are not rich enough to compel change in market behavior.

Decision Point choices

Options for paying for the program include:

▪ Collapsing other incentive programs Many vendors have budgeted for incentive programs already; often these programs don’t work because incentives and terms and conditions change too frequently. Collapsing existing rebate programs into a deal registration program is one option, but that can fall short of the required level found in Decision Point number five: What level of incentive is meaningful?

▪ Blending existing rebates and MDF into the incentive program This is a valid option, depending on total funding. The inherent risk implied is that you begin to underfund field marketing at your partners, which may have a greater effect on reducing demand-generation activities.

▪ Reducing your distribution discount A third model is to reduce your current discount into distribution to fund the incentive program. The risk is that this effectively raises street prices for your products; in a highly competitive segment, that is a significant problem.

For value-oriented products that require solution selling this strategy presents less of an issue, but understanding the price-elasticity curve of your products in advance is critical before undertaking this step.

▪ Lowering other expense budgets to fund As a channel-program design, this is a reasonable but politically expensive option. Finance and the executive team must reallocate existing marketing or discretionary spending from their current budgets to pay for the program. Given that even the best executive team is made up of people with their own goals, this choice can build active resistance to the program and greatly limit a successful launch.

▪ Using a contra-revenue approach Many vendors find this option initially attractive as it is easy to fund – the incentive is treated as a reduction of revenue, rather than an operating expense. The challenge in this is that the incentive can only be paid to the transacting partner in the deal, so in the case where the purchase is made by a different partner than the registering partner, no incentive can be paid through this model because of GAAP rules on expense recognition. Many of these programs eventually devolve into ineffective rebate schemes, with registration occurring the same day as the transaction. Contra-revenue approaches often require design compromises that undermine the overall efficacy of the program, so caution is warranted.

How to fund the program?

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Each of these options is viable, depending on a number of factors in the market and inside the company. A process-oriented approach to deciding how to finance the program is critical because it requires significant buy-in from your peers.

An important factor to consider in designing a financial plan for the program is the anticipated redemption rate. In a program where you expect 80% to 100% of deals to have a registration payment, moving 5% from existing incentives to a registration program results in a 5% payment.

In a program where you expect only a 40% redemption rate due to the nature of products covered or the type of sales covered, you can convert that 5% incentive payment to an 11% to 12% payment to the partner.

Finally, when the incentive level is high enough to change partners’ behavior, deal registration programs can motivate partners who were less active to become more active in demand generation, resulting in an increased rate of deal generation and increased top-line revenue. Some vendors have seen this increase in revenue to be more than sufficient to warrant funding the program through incremental margin.

Required data

The key to developing your program’s funding process lies in developing a clear understanding of street price and of customer sensitivity to price increases relative to your product and to that of the competition. In a high-value product market, you might be able to reduce the distribution discount to pay for the program; conducting a price-elasticity analysis first will determine if this course would be warranted. Additionally, understanding customers’ willingness to switch brands between competing solutions based on pricing (balancing installation services and the value of the partner’s recommendation) will determine what impact a price increase would have on real customer decisions. This Decision Point has to be undertaken in conjunction with Decision Point number five: What level of incentive drives meaningful behavior?

Who is involved in the decision?

Decision-makers include the CFO or VP of Finance, since they will have to model the revenue impact of the program based on estimated qualification and claim rates. Additionally, the VP of Sales has a voice in the decision given that he or she must ensure that the resulting impact to street pricing and to partner margin will be enough to drive the desired behavioral changes without creating a pricing backlash. In addition, he or she must model sales compensation issues that might arise (see Decision Point number six for a more in-depth discussion on compensation issues).


In many programs, this is a stumbling block because it exposes a critical flaw in the company’s go-to-market strategy. Deal registration approval should be conducted in a manner that is transparent to the partner and auditable by management but not divorced from the sales teams, the closest connection to the partner and to the customer.


Options for the approval process are:

▪ Approval by neutral sales operations staff Many firms have chosen to have a neutral party, such as a sales operations staff person, administer registration. This model significantly limits the value of a deal registration program in two ways. It reduces the interaction between the sales team and the partner, and it reduces confidence in forward visibility from the partner since deals are not vetted by a salesperson with responsibility for the forecast. Additionally, this approach creates a workload bottleneck on the operations staff and can act as a “sales prevention” function if not staffed correctly. The advantage of this option is clear; companies can quickly deploy the program with minimal disruption to their sales teams and infrastructure. This quick time to market is often offset as an advantage by the lack of communication between the “patch of dirt” territory reps and the partner that other options drive.

▪ Approval by the field sales reps covering the accounts Ideally, the approval of a deal is tied closely to the existing deal process, creating an opportunity for your sales team and the channel to work together

more closely. In these cases, the deal is submitted by the partner and not approved until the deal is “forecast-ready” in your sales process. This creates a productive tension between the partner and the sales rep, giving the partner an incentive to register deals as early as possible and the sales rep an incentive to ensure the deal is “real” before approving registration. Under this system, the conversation between sales rep and partner occurs much earlier in the process than typically occurs in most channel programs. Normally, the channel trusts the vendor only when the deal is nearly closed and the sales team can do little to expand or optimize the deal with the partner. However, a vendor with no documented sales process or poor channel/sales interaction finds this model very difficult to implement. Partners believe the sales team will take deals direct and the sales team doesn’t understand where in the sales cycle the partner should lead and where they should drive the sale. Result: very low channel leverage.

▪ Approvals by first-come, first-served policy Some vendors simply register deals based on the first party who notifies the vendor of the deal. Rewards like these that are granted for simply stumbling across an existing customer ready to place a re-order can be easy to manipulate. This type of policy does not improve deal visibility, can reward partners for submitting poorly formed deals and also result in a great deal of work for staff with little return.

Who approves the deal as registered and when?

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Ultimately, implementing a deal registration process in conjunction with your sales process can significantly improve channel awareness among your sales team and drive a leverage orientation into the sales culture. Some vendors implement a two-stage registration process where deals are provisionally approved on a first-come, first-served basis with final approval contingent upon demonstration of value-added activity, such as a customer pilot or other services work. This model can be effective; however, the risk is that it opens the vendor to a negotiation between partners regarding who was more valuable in closing the deal. A key consideration related to this decision point is how long a registration, once approved, will last. In general, given the nature of the program is to reward demand generation, an approved deal should last for six months, with the approval being renewed by the sales team if there is activity on the deal. This creates a mechanism that automatically removes expired registrations that have no activity, but keeps approvals in place for deals that extend beyond the six month window.

Required data

To make this decision, vendors will need to conduct a survey of external partner attitudes on working with the sales team, measuring trust, perceived responsiveness and the value of co-selling. Additionally, segmenting the deals by average sales cycle and size is a valuable step in understanding the timing sensitivity of deals, which can impact the approval process.


The sales VPs (channel and direct) are the key decision-makers in this process, although your CFO or Controller may want to review the process and the approvals policy to ensure that there is transparency, particularly if your company is publicly held or subject to Sarbanes-Oxley process audit controls.


In companies with multiple product lines at varying stages of the lifecycle, a deal registration program can open up an opportunity to focus partner attention on newer or strategically important products by varying payment percentage by product line. Under this model, vendors gain an important tool for focusing partners on strategic objectives, such as attach-rate selling of a new product with an established one, or by focusing partners on a new acquisition. By raising the compensation on certain product lines while lowering or removing the compensation for established product lines, vendors can radically change the economics of launching a new product and accelerate growth for strategic product lines.

The risk in this model is, of course, complexity. The ability to change incentives frequently is lower in the channel than in consumer incentive programs; while there might be a quarterly incentive for end-user promotions, channel program incentives change on a much longer basis, typically 18-24 months. Often, partners report that they only begin to go through the cycle of “awareness-understanding-belief-confidence” in a vendor program on a 12-month basis, meaning that any changes before the 12 months of program launch have passed will disrupt the cycle. Additionally, vendors often forget that the typical value-added partner focuses on three to four major product lines and 10-15 supporting lines, which means that the finely tuned nuances of your program are likely to be completely missed by the majority of your partners. This can create discontent later when they learn that the deal they just drove didn’t qualify for the higher rate because they

didn’t attach a secondary product. Lastly, by introducing different payment levels without proper research and strategy formation, vendors run the risk that partners will hold deals hostage at the end of the quarter to get higher percentages on deals that do not qualify.

Required data

The factors that drive this decision lie in the overall perception of the complexity of your program and on the degree of partner loyalty, as measured by the percentage of revenue you receive from a typical partner. Analyze your partners by revenue contribution and find the mode average for revenue, where 50% of your partners have more revenue and 50% of your partners have less revenue; interview 10-12 partners to find out the revenue-contribution data you need for this decision. For example, if you sell a high-value product with a focused channel and your typical (mode average) partner does $120,000 a year in business with your product accounting for more than 15% of their overall product revenue, the odds are better that they closely track your program and will tolerate the complexity of having product-specific incentives in the program. If you sell a commoditized product and your typical partner does $20,000 a year in sales on your product representing less than 5% of their overall sales, the partner likely will not be paying enough attention for incentives to drive behavior at the sales-representative level.


The VP of Marketing should be a key decision maker, with the Channel Chief, on the overall incentive structure for individual products, using the criteria above.

Which products are covered under the program?

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One of the drivers for creating a deal registration program is to better differentiate between partners that generate deals and partners who fulfill orders from customers. Often, these partners are already segmented into different channel programs, typically a VAR program, a system-integrator program, a corporate reseller or direct market reseller (DMR) program and, occasionally, a retail program. While it might seem to make sense that you would open the program only to VAR and potentially to system-integrator programs, there are reasons to be more open; some DMR and corporate reseller partners have been investing in developing services arms to better compete as demand generators. It could be a strategic error to exclude those partners. Additionally, there are legal and regulatory reasons to differentiate on behavior, rather than role, in a deal registration program.

The key to choosing which partners can participate depends greatly on the integrity of your program’s process, the criteria for how deals are registered, and a strong corporate willingness to block exceptions to the approval process. Generally, modeling the program after a behavior that is desired and not a “role” is an easy way to address objections to the program from volume and fulfillment-oriented partners. In particular, a good deal registration program will drive more initial sales into corporate customers, leading to a more fertile reordering base.

The risks lie in opening the program to multiple partner types, including non-value partners, and in poor enforcement. At the core, a deal registration program is based on the partners’ faith that the program will have integrity, and that the behavior of the company behind the program is predictable.

One or two “innocent exceptions” can fundamentally kill the program’s effectiveness, so pay close attention to participation and to field decisions.

For programs that are designed for VAR partners only, some vendors only open their deal registration programs to the upper “Gold and Platinum” level tiers. While this would seem a logical benefit for rewarding partners with the highest contribution, this model can be very destructive to a program over time, as potential partners who enter as a lower-tier member are essentially prevented from competing for business. If the top-tier members alone receive incremental margin for demand generation, there is a strong disincentive for growth among new entrants, which can lead to program stagnation.


While the basis for making this decision lay in the strength of your program’s policy enforcement, the decision itself needs to be made with the VP of Sales, who is ultimately responsible for disciplining the field. The CFO or Controller might be involved if your company needs to document its program under Sarbanes-Oxley regulations.

Which partners can participate in the program?

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Building a successful deal registration program requires that the incentive be material enough to act as a behavioral motivator and not a “consolation prize.” In practice, we have seen a strong reaction from partners against programs that are implemented with a low incentive amount. This creates a strong negative perception among the most valuable partners, who view the program as a half-hearted attempt to placate, rather than compensate, partners who drive demand but lose deals to low-price competitors. Getting the financial targets right is a function of modeling the base SG&A operating cost of the partner driving the demand, rather than fulfillment partners combined with offsetting the distribution discount delta between the partners. This number can vary, depending on the product, from as little as an incremental 5% to as high as 25%; getting this correct requires some fairly comprehensive analysis beyond the scope of this white paper. Historically, programs that pay out a single-digit incentive fail to reach the goal of creating a motivated, loyal channel which usually results in channel partners seeking alternative vendors. A key thought experiment related to this decision and to the decision on how to pay for the program is this: “Would a partner sell an 8% to 10% increase in street price to a customer for a 200% to 300% improvement in margin?”

An additional matter, given the prevalence of deal registration programs, is understanding the impact of competing programs. You might now compete for wallet share against competitors with similar products. In channel programs, however, you compete for share of sales attention against a much broader array of competitors, and it is important to understand the relative incentive programs and products upon which channel partners focus.

Lastly, some vendors have introduced deal registration programs that offer non-cash incentives, such as additional training vouchers, MDF funding or support contracts. These programs work very well in some narrow cases, typically where there is little competitive pressure on the product line and there is a desire to develop early visibility into partner pipelines, not to restructure and improve the economic equation for partners. Given the competitive nature of many technology product segments, this level of incentive may not be enough to drive the behavioral changes in partners and produce the desired impacts on revenue and profitability.

Required data

In order to make this decision, you will need to develop an economic model of the business costs and profits for each of your partner types and of where street pricing is currently set. An example model for the A/V equipment industry would be:

What level of incentive drives meaningful behavior?

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Partner Type Installer/Dealer Discount Retail Website Home Theater Designer

Discount 40% 40% 40% 40%

SG&A Costs 16% 10% 5% 20%

MDF Rates 5% 2% 0% 5%

Profit Targets 20% 10% 5% 20%

Street Price ($100 MSRP) $85 $72 $66 $89


The economic model starts with your existing discount and takes into account the various costs (sales, general and administrative costs at the partner), any recovered marketing expense, and their profit targets. As you can see in the example above, a web retailer can effectively sell the same product below the cost (discounted cost plus operating costs) of an installer/dealer or a home-theater designer. In this example, a deal registration program matters, since the two highest cost channel partner types generate more demand in the market for the product but they consistently lose profits to the fulfillment channels. A revised economic model with deal registration compensation would look more like:

You will notice that the street pricing for the competitive offerings is much closer; what is not represented in this model is a decrease in discount rate to fund the program (the model above assumes net new funding). The model shows how one can engineer different channel types to a similar street price while maintaining

a higher profit profile for demand-generating channels and installation/service channels over purchase-oriented channels.

Additionally, you need to estimate the redemption rate in planning your financial model; not every deal that is created will qualify under the registration program. Renewals, expansions of licenses, etc. are often not qualified under the program and result in a net gain in product revenue, as the reduced discount model is recaptured by the company. Each program’s financial model will be different and a key source of competitive differentiation.

Partner Type Installer/Dealer Discount Retail Website Home Theater Designer

Discount 40% 40% 40% 40%

SG&A Costs 16% 10% 5% 20%

Deal Reg Award 15% of SRP 0% 0% 15%

MDF Rates 0% 2% 0% 0%

Profit Targets 23% 10% 5% 20%

Street Price ($100 MSRP) $66 $72 $66 $71


The Sales VPs (channel and direct) are the key decision makers in this process, although your CFO or Controller might want to review the process and policy on approvals to ensure that there is transparency if your company is publicly held or subject to Sarbanes-Oxley process audit controls.


One of the most contentious aspects of implementing a deal registration program is the decision regarding the program’s impact on sales compensation, especially in areas of quota-credit values and compensation rates. In developing a deal registration program, vendors have to be prepared for the compensation consequences that arise from program design. For example, a vendor with a channel segmented by customer size, where large enterprise customers are handled directly and SMB customers are managed by the channel, will have to deal with the inevitable situation of a partner generating a registration for a customer that would qualify as a direct account. While the natural inclination of the sales rep will be to say that the account is direct and that he or she should get credit, the truth is that the deal was generated by the partner and the vendor only learned about it through the registration. In this case, you might decide to allow the registration and commission the direct rep on the account, but what about the channel sales rep who developed the reseller and built the business in that partner that led to the deal?

At the heart of this example is a conflict between the vendor’s segmentation of the market (enterprise vs. SMB) and the natural segment of the market (sales to early adopters, whether they are in enterprise or SMB, vs. sales to CIO-level customers where a direct touch is required). Building your deal registration program will expose these conflicts, but designing the program correctly can reduce existing channel conflicts.


▪ Which deals can be registered? Some vendors have very clearly delineated programs where named

accounts are handled directly and the channel has an established understanding of these accounts. There are two risks in not allowing partners to register deals at existing direct accounts. First, it creates an incentive to introduce competitive products that they can sell, and, second, it limits your demand-generation activities in these accounts to your own sales teams. Generally, even the largest corporations purchase some technology products departmentally and work with partners to do this; limiting sales to direct may create more conflict than it resolves. The best practice is to allow partners to register the deals in direct accounts but transact the deal directly, paying a commission to the partner at deal close and requiring them to assist in the closure. The one notable exception to this is U.S. state and federal contracting and foreign government contracting. The incentive payment could be construed as a kickback and thus be illegal. Generally, deal registration works in these accounts but requires different structures and policies to qualify.

▪ Do you credit against quota at the pre-incentive value or post-incentive value? In this decision, two principles conflict. Generally, management is loath to credit sales for anything other than the actual revenue generated in a deal; however, crediting sales at the post-incentive payment amount is a disincentive for sales teams to approve deals since the approved deal will generate a lower revenue credit than a deal without an attached registration. Most vendors have struggled with this in their initial rollout,

How do I compensate sales people for deals in the program?

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but the eventual decision is to credit sales at the pre-incentive amount, making the deal registration compensation neutral to the sales team. This is managed by the sales management and financial team by raising quotas prior to the program launch by the anticipated claim rate and payout value so that revenue generated by the quota maps to the company’s financial plan.

▪ Dual crediting In organizations with a direct sales team and a channel sales team, the question of crediting the direct team with registered deals or the channel sales team with registered deals in direct accounts is a vexing one. Generally, most vendors have handled this by allowing dual crediting for direct accounts to the channel team, but raising the channel-team quota to cover the estimated dual crediting amounts. This creates a temporary spike in quota for the channel team but generally results in a far clearer program for partners.

Required data

The key data required for designing this aspect of the program is a financial model of expected claim rates and channel crossover deals updated quarterly to adjust quotas on a forward basis. Estimates for the model can be derived from examining the competitive program results from partners that are involved in multiple vendor programs, but an updated estimate is normally sufficient, as the crossover rate and claim rate for direct deals is typically low as the program starts.


The VP of Sales, the VP of Channel Sales and the CFO are the core decision makers, with the VP of HR capturing the changes to the sales commission plan.


One of the perennial frustrations of channel-program managers is the rate at which an innovative program is duplicated by competitors, resulting in diminished impact in the market. Deal registration programs offer a unique opportunity, in certain circumstances, to create competitive barriers to entry by the nature of their structure. However, policing these program terms can be difficult.


In a deal registration program, there can be several competitive barriers.

▪ Do you enforce loyalty at the partner level? Programs can have an enforced loyalty component, where the partner is required to represent the vendor’s product to qualify for the registration incentive. The difficulty is that some products don’t require vendor-program participation to sell and can be purchased openly through distribution. This is generally only an option for very high-value products where the training and learning curve is a significant investment, leading resellers to carry only one vendor naturally.

▪ Do you enforce loyalty on a deal basis? A deal-specific, “sole bid” clause can be enforced, requiring the partner to offer only a single vendor in the sales proposal. Policing this can be problematic, but in programs where there is a high degree of vendor sales involvement, this provision can have a tremendous impact.

▪ Do you incent loyalty with suites? Vendors can create competitive barriers

to entry by offering higher incentives on selling a suite of products from a single vendor, preventing a competitive product from being sold into the solution. The challenge with this model is one of customer choice: if the customer chooses to purchase the third-party product, this provision creates a serious disincentive to the partner unless the program terms are implemented with care.

Generally, competitive barriers in channel programs have to be very highly weighted toward creating value for the partner rather than restricting choice; the best kind of barrier provision is a program that is so compelling that focusing on a competitor is a low-return activity.

Required data

The key data required for designing this aspect of the program comes from an analysis of the current competitive product overlay, measuring your top 20% of partners (by revenue) and seeing how much of their current business is coming from direct competitors. If a high degree of brand switching is common, building a competitive program barrier may actually introduce a negative incentive for them to participate.


The VP of Sales should be involved in approving any exclusivity requirements, once the risks are documented. The natural inclination is to want these barriers, but clearly documenting if they will work and what operational impacts they have vs. the perceived benefits will help guide this decision process.

How can I create competitive barriers in my program?

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Modeling the operational workflow from initial deal submission to final payment to the partner is a critical step in developing a program that works in sync with the current efforts of partners. Ideally, the best deal registration programs require the partner to do little work beyond their current sales process and integrates the vendor-sales process with the partner-sales process on a more tightly aligned basis. This alignment should extend to the deal-closing process, where the claiming of the reward should be automated into the installation process the partner is conducting. As an example, at one vendor, the claim process is tied to the installation process; the partner only needs to input the order number from the sale into the deal portal to automatically start the payment process.

The payment process should be as automated as possible in order to reduce the headcount impact of the program. Payment amounts can be matched and audited automatically based on the variance from the registered opportunity to the order value, with any amounts that differ by near or more than 10% being placed in a review queue. Payment should commence as soon as the order is placed, especially if your collection rate is greater than 95%. Delaying payment can create a significant disincentive in the channel.

The best practice is to build a seamless process from lead management and distribution (creation of opportunities) to deal registration (opportunity management) to order placement and management (opportunity fulfillment). A good workflow will allow the sales and marketing team to track the creation and disposition of leads and opportunities as a natural extension of the sales process.

Required data

At its heart, this is a “build or buy” decision for each company. Either you have very advanced CRM and investment in infrastructure, or vendors provide solutions for automating this process and making the time from program design to deployment as seamless and quick as possible. In a review of many of the leading vendor programs, use of a software-as-a-service solution seems to be prevalent, with time-to-market and scalable cost as core drivers. Preference should be paid to vendors who have created systems specifically for deal registration programs as opposed to general purpose CRM solutions that seek to bolt on a deal registration module.


The CIO and the CFO should approve the operational workflow of the program, but design responsibility is a cross-functional process in the program creation stage.

What is the operational workflow required for the program?

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Deal registration programs are designed around demand generation, but many vendors also provide their partners with leads. Integrating these systems can be a high value-add for partners and vendors alike, leading to a higher close rate for leads and better information for your marketing team. The core decision for integration is in the number of leads that are for existing prospects; while it is natural to assume that your leads are all new prospects, the reality is that many customers attend marketing events and respond to your marketing materials to support their decision process. Allowing partners to qualify and convert leads into registered opportunities can greatly enhance the incentive to follow up on leads. Having early registration of opportunities can enable you to measure how much of your marketing spend is tied to demand generation and how much is tied to the decision-support market. While this may be surprising for many vendors to learn, in some cases better than 80% of the demand-generation budget is really going to decision-support activities. This information can help inform the team of the right types of vehicles to create. In one deal

registration program, more than 94% of leads were tied to pre-existing, registered deals. As a result, the marketing team shifted their focus from creating demand to making materials that accelerated the sales cycle.

The default design model should integrate the lead-distribution program with the deal registration program; ideally, registrations should come into your system as a lead type, with the approval of the deal registration a result of the sales team converting this lead to an opportunity.

Required data

After the program has run for six to nine months, measure the conversion rate of leads and use the combined close rate of leads supplied and deals registered to drive your lead distribution algorithm. This will be covered in greater detail in a separate Decision Point Guide on lead-management program design.


The VP of Marketing is the core decision-maker for this aspect of the program.

How does deal registration integrate with lead management?

9


Knowing your metrics for success in advance of the program and setting clear goals is a difficult thing to do in many deal registration programs. The motivation for starting the program can vary widely from vendor to vendor. However, the key metrics that many vendors track include:

▪ Visible pipeline: Improvement in the total visible revenue funnel

▪ Revenue-growth rate: Measuring before and after with a six-month adjustment window

▪ Reorder rates: Number of customers ordering additional units or licenses after a registered deal is completed

▪ Partner vibrancy: Number of partners conducting three or more transactions per quarter

▪ Partner breadth: Number of partners participating in the program

▪ Partner loyalty: Average number of competitive vendors also carried by partners

The metrics for your program will be specific to your business. For commodity products, measuring share shift between vendors will be

more critical than measuring reorder rates, a key indicator for value-oriented products.

In creating metrics for your program, a critical step is to ensure in the program design that you have the ability to reliably obtain information from existing data and systems and not create additional steps for partners or your sales staff to collect data. Additionally, gaining a shared agreement with the executive management team on the two to three most critical metrics will help gain support for implementation of the program.

Required data

To generate the reports required for the program, IT operations will need to be able to consolidate the transaction data from the CRM system, the order-management system and the lead-management system, as well as the master partner database.


The CIO and the Director of Sales Operations should own the design requirements for program metrics and reporting, with the VP of Sales and the CFO approving the key metrics and reporting them to the executive team.

How will we know the program is working?

10


Getting it done right

For more information on how you can utilize deal registration in your business, please visitThe Spur Group at thespurgroup.com

Creating a deal registration program is a fairly major undertaking that involves your channel sales team, finance department, IT, order operations and marketing staff. In talking with vendors with an existing program that was internally designed, the most common feedback cited was the need to get the program right the first time. Once launched, the program takes on a life of its own and modifying the program post-launch is painful, difficult and often unworkable, as it involves retraining your sales team, partners and operations staff.

The 10 Decision Points outlined in this paper provide a framework for thinking about the key decisions in designing the program for

success. In investigating each of the decisions, a process that balances external research with internal consensus and support is critical; too many deal registration programs fail because they didn’t gain the right support internally or were designed as a top-down program from management with no competitive and partner research. Designing a deal registration program can create sustainable value for your program and, when done correctly, result in a significant improvement in revenue generation and partner loyalty. The incentives in getting this program right are fairly high and, increasingly, vendors who do not offer a deal registration process are finding it harder to recruit partners and achieve revenue goals.

1. How to fund the program?

2. Who approves the deal as registered and when?

3. Which products are covered under the program?

4. Which partners can participate in the program?

5. What level of incentive is meaningful to partners and drives behavior?

6. How do I compensate sales people for deals in the program?

7. How can I create competitive barriers in my program?

8. What is the operational workflow required for the program?

9. How does deal registration work with lead distribution?

10. How will we know the program is working?


About the author

Formerly an executive at Microsoft, focused on growing business through our partners as the VP of WW Partner Strategy. Now, founder and Sr. Principal at The Spur Group, a revenue-side consulting firm with Partner InSite, a unique informatics service that provides deep proprietary data on the partner channel to help target and work with the best partners for your business. The Spur Group provides consulting and project support for sales and marketing leaders in technology firms.

Previous roles were as CEO and Director for a privately held security software firm. Also served as head of global channels and sales operations function for a $1b technology company with offices worldwide. Experienced with the development of licensing programs, channel programs and sales force effectiveness. Other roles include being a founder of a channel consultancy with broad industry recognition, leading the value channel organization for a security software company, running global channel strategy for a product line at IBM, working as a product manager for a leading distributor, managing a VAR and being a programmer.


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We can help you make your next project more successful. Our expertise includes developing partner programs for Microsoft and Dell, managing messaging and partner conferences for Cisco and Juniper Networks, and providing recruitment insight and strategies for Autodesk and VMware.

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