Establishing realistic performance goals for new initiatives is often challenging for emerging- growth companies across all aspects of their business. Burn rates and time to revenue can dominate every strategic decision, including launching a channel partner program. Getting it right the first time includes establishing realistic performance goals. Doing this poorly can lead to unrealistic expectations, mismatched investment levels and difficult conversations with your sales leadership and your investors. Doing it effectively helps establish an effective foundation for predictable revenue growth.
This article highlights some of the common pitfalls and outlines an approach that will help you effectively establish performance metrics for your initial channel initiative.
Emerging-growth companies in the early stages of building out a channel program often have difficulty establishing realistic revenue goals for the first year or two of their program. They have none of the advantages a more mature company has: partner performance history and established relationships, a history of collaborative planning and perhaps a partner sales team with experience in the overall channel and insight into the partner’s pipeline.
Getting started: a foundation for predictable performance
Emerging-growth companies usually have none of these advantages but can use a well-constructed thought process with two pieces of readily available information as a starting point.
- Use your direct sales yield as a benchmark. This is a simple calculation, but be sure to distinguish between your expected new hire yields and the goals you’ve established for the reps with more seniority.
- Establish the number of reps your partners will actually have selling your solution. This is an easy total number to establish. Companies building a channel program start with a small number of potential partners, and the recruiting process should establish the total sales staff of each partner.
Once you’ve established these basic starting points, you can apply some business judgment to the following variables to get you closer to a realistic set of performance goals.
- Adjust your channel’s overall sales capacity to reflect their capacity for selling your solution. In the vast majority of cases, every one of your partner’s reps aren’t going to be 100 percent focused on selling your solution. Consider how much mindshare you’ll initially have compared to the rest of their portfolio. Are you the lead vendor in a new category for them? Are you the third option in an existing category? The recruiting process gives you the insight into how you fit into their business and the types of questions you need to consider. Don’t be surprised if the initial capacity to sell your solution approaches 25 percent.
- Consider if and by how much you need to adjust your sales yield expectations. Especially focus on the mix of solutions being sold and if there are any differences in the markets your partners will be selling to. For example, do you need to adjust the yield to reflect fewer add-ons and a lower level of services? Will your partners be focused on a segment of the market that’s extremely price sensitive and may require significant discounts?
- Make an objective estimate of your company’s overall sales maturity. This is especially important because it relates to how repeatable your sales process is and how transferable it is to your partners’ sales teams. It also includes the degree of your solution’s completeness in the eyes of the target market and the supporting positioning, promotion and pricing attributes. If your company is firing extremely well on all cylinders and the necessary elements can be extended to your partners efficiently, assign a factor of 100 percent. If not, reduce accordingly.
Once you’ve used this process to establish reasonable sales capacity and goals, it’s important to establish the time-to-revenue expectations. The unique characteristics of your company’s sales process are a major consideration, but the time to steady partner-led pipeline and revenue growth is virtually always longer than initially forecast.
You may see deals early on, but your new partners often already have these queued up due to an already established need with an existing client. The heavy lifting of partner enablement, business development and marketing leading to new opportunity creation takes time.
Putting it all together: achievable goals that increase the value of your company
Let’s assume you’ve launched your program with three partners that have a combined total of 25 sales reps.
- Your direct sales yield is $2 million per rep.
- You estimate you’ll have, on average, 20 percent mindshare with your partner’s reps, giving you the equivalent of five reps.
- You’re confident the $2 million yield per rep is transferrable, establishing an initial benchmark of $10 million in top-line revenue.
- You’ve estimated the sales maturity level of your company relative to your partners at 70 percent.
This gives you an annualized expectation of $7 million in partner-generated revenue as a starting point before you factor in time-to-market considerations plus unique program and partner characteristics.
Adopting this approach helps emerging-growth company executives negotiate and set the right sales targets, make the right level of investment in their channel program and provide a foundation for collaborative goal setting with partners. Just as importantly, this approach encourages executives to consider all of the dependencies associated with channel success early in the launch process. This all contributes to the creation of a channel program that is predictable, measurable and serves as a multiplier to the overall valuation of your company.
Rich Aroian is the managing director and founder of KP Channel Growth Associates, a business development consulting firm based in Boston. KP Channel Growth Associates helps emerging-growth companies grow their business faster and more profitably through all types of Channels. Contact him at rich@kpchannelgrowth.com.