Partner P&L – the path to productive partners in the software industry
In a recent article on making software industry channel partners productive, we discussed the role and the content of the partner program. In this article we will narrow in on maybe the most critical component of the partner program.
The channel partner [slider title=”P&L”] P&L: Profit & Loss [/slider]
Using a channel of independent companies to resell, implement and/or service customers has a long tradition in the history of the software industry. For some software companies the channel has been a major contributor to global success, but for most software companies making it work is a depressing and constant struggle.
Making a new partner successful takes a series of initiatives and activities. The partner P&L is simply the financial ramifications of these initiatives and activities.
The activities required for the new partner to identify, win and make happy customers are defined in the value chain. Each software vendor will maintain one or more “value chains” representing how to find, win and keep happy customers in a certain market segment.
Each software vendor will also have a definition of who is responsible for which step in the value chain. What is the software vendor’s responsibility? What is the partner’s responsibility?
Based on the experience learned from other successful partners, the software vendor will recommend new partners to follow a certain “best practice bootstrapping process”. During a 1-day workshop the software vendor will review these best practice approaches with the partner’s management and put together a partner specific strategy with objectives and an action plan.
The objectives and action plan is reflected in the partner P&L giving the following key numbers:
- Investments/cash required
- Time to first revenue
- Time to profit
- 36 months return on investment
The plan never survives reality
Even the best-prepared plans will not survive the first meeting with reality. However that’s no excuse for not planning. Plans are adjusted as we learn from the reality and so is the P&L showing the impact of the adjustments. The first partner P&L is a first budget draft. The partner typically really relies on the input from the software vendor as he has no specific experience with the product in question. If the partner is replacing a current product with a new one he will have experience and can contribute actively to the planning and budgeting workshop.
The first activity after defining the strategy is training of marketing and sales people. Marketing and sales training is focused on customer benefits and purchase justification. The training will equip the partner’s marketing and sales people with positioning, lead generation, qualification and all the other activities required to identify and win customers.
Pre-sales consultants are also trained as required, while implementation consultants are trained as sales projects mature.
Some software vendors charge the partner for such training services while others provide the service a an integrated element in the “starter package.” Any external cost and the time used by the partner’s staff for the training has be accounted for in the partner P&L
Lead generation and sales
The software vendor will typically have a support program for the initial lead generation and a coaching program for the first sales processes. Most software vendors will recommend the partner to make the first couple of sales to their current customers, as this will shorten the sales cycle and the time to revenue. Any out of pocket expenses and the time used for lead generation goes to the Partner P&L. Time spend on sales and pre-sales support as well as the revenue elements also go the to the Partner P&L.
Most software vendors also provide implementation support for the first 2-3 customers by helping the partner’s staff to manage the learning curve and become confident with the product. Making the customer experience positive is crucial for winning references and thus creates the basis for further sales activities.
The partner P&L will obviously change over time as realty delivers actual numbers on activities performed and revenue booked. Most partner P&L’s will turn out to be under-performing compared to the initial budget. That’s a consequence of underestimating what it really takes to bootstrap a business. The “blame” cannot be assigned to one side. Both partners and software vendors have a tendency to be overly optimistic.
As the partner’s installed base grows and the partner’s staff move forward, the learning curve sales cycles will become shorter and cost of sales will decrease. Add-on business and subscription renewals will provide additional revenue with very little cost of sales associated. Active account management can generate up and cross sales opportunities.
This is what makes the partner P&L very positive and justifies all the investments made in the beginning.
Separating the new business from the current business
Making a P&L for adding a new product to an existing business is not always straightforward. The partner will have staff that work on current products as well as on the new products.
Separating the time consumed by an additional product can be difficult. However, ignoring that an additional product takes additional time and effort is not recommended. The partner should enable his staff to register all cost and time used for separate products enabling him to analyse cost of sales associated with different products.
Other posts in this series
- Successful Channel Building in The Software Industry
- The Best Process for Recruiting Channel Partners in the Software Industry
- What’s a best practice solution for managing channel partners in the software industry?
- Steps to designing and executing productive Partner Channel Programs in the software industry
- Strategic Partner Development in the Software Industry