IT partnership investment: Measuring ROI of the vendor-partner relationship

A PartnerPath panel discussion examines partner profitability. Hear how your solution provider peers manage their relationships with vendors.

Most IT solution providers would agree that their partnerships with vendors are not strictly defined by dollars and cents. In fact, according to results from consultancy PartnerPath's 2014 State of Partnering study, "The What and the Why of Partner Profitability," partners are sending a clear message: Partnerships are relationships. In a webinar last week, Mont M. Phelps, president and CEO at NWN Corp.; Mark Wyllie, CEO of Flagship Solutions Group; and Paul Stout, vice president and general manager of the HP program at marketing vendor MarketStar Corp., weighed in and expanded on the partner perspective of the study results.

'Complicated' within the partner-vendor relationship doesn't bode well for vendors and may drive a partner to seek out other vendors.

Tim Lowe, vice president at PartnerPath, moderated the panel and queried his guests on a range of topics related to IT partnership investment -- from firing vendors to tracking vendor profitability to regrets. SearchITChannel reports on some of the feedback.

Phelps, Wyllie and Stout were all on the same page about partners saying bye-bye to vendors that fall down in their commitment to the relationship as measured by whether they've won a partner's mind share.

"We … focus on particular vendors who have the right mix of product appeal in the marketplace, the ability to work with us, and … a profitability profile that allows us to invest and have something left over at the end of the day," Phelps said.

Phelps said NWN, which is based in Waltham, Mass., has reduced its partner list by 10% over the past year. That figure syncs with PartnerPath's study results. According to Lowe, the majority of partners in this study reported that in the past year, they trimmed their vendor ranks by 10%. One hundred and seventy-five solution providers representing a mix of company sizes and mostly from North America participated in the study.

Ogden, Utah-based MarketStar, part of the Diversified Agency Services division of Omnicom Group Inc., designs marketing solutions for both partners and vendors. Stout said solution providers are getting more picky about their IT partnership investments, and rightly so. "They don't have the time to spend with vendors who are not going to give them profitability," he said, adding that that dynamic is a two-way street.

PartnerPath predicts that someday the tables will turn completely, and it will be the solution providers -- rather than the vendors -- that set the requirements to qualify vendors as gold- or platinum-level partners, for example.

On the topic of profitability, Lowe said it involves more than just front-end margins. In fact, he described it as a complicated formula.

The equation: Opportunity divided by investment equals profitability return.

Opportunity breaks down into three buckets: market demand, financial reward and program support. Investment also breaks down into three buckets: enablement, relationship and ease of doing business.

According to Lowe, a vendor's goal is to create a significant return on investment by making the opportunity as large as possible while minimizing the investment required by a solution provider.

Solution providers are willing to invest with vendors in exchange for high returns, and partners like predictability on transactions, Lowe said. However, the cost associated with the vendor relationship is just as important to partners, so net profit is more important than gross profit.

Lowe described net profit as the money partners use to pay commissions and expenses such as telephone and electric bills, as well as to fund capital improvements.

Partners tend to use their own formulas to track vendor profitability and IT partner investments. NWN tracks vendor profitability monthly, and Phelps reported that front-end margins are sometimes impacted by purchase opportunities, while investment includes the time it takes to drive transactions and support them in a timely fashion.

NWN also monitors market development fund (MDF) reimbursements and the allocation of rebates.

"In my view, we're not so concerned about the actual time it takes to get the money, but the amount of effort it takes to make it happen, how accurate it is and how reliable," Phelps added.

For partners, that time component is onerous because it doesn't generate business or revenue. "Complicated" within the partner-vendor relationship doesn't bode well for vendors and may drive a partner to seek out other vendors.

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Lowe described the potential complications as issues relating to "channel conflict -- whether with other solution providers or with direct sales efforts -- whether there are effective account managers, whether there's trust [and] executive-level support for the channel. All of these things affect the partner's time and energy and goes into the cost of working with a vendor."

For Wyllie, process complexity isn't an issue. "We made a strategic business decision to work 95% of our business with IBM, and we do the programs pretty well," he said. Getting MDF reimbursements are straightforward with tools available to aid the process.

At Flagship Solutions, which is based in Boca Raton, Fla., more of the company's focus is on deciding what areas within IBM to invest for maximum profitability, according to Wyllie.

The PartnerPath survey results show a disconnect between how partners view the relationship intangibles and how vendors view them: Vendors rank them as the lowest priority while partners believe that these intangibles have the greatest impact on their overall profitability with a vendor.

The top five regrets about partnering, cited by solution providers, according to the report, were conflict with a vendor's direct sales efforts, low margins, a vendor's unkept promises, steep or costly technical training, and slower-than-anticipated product sales or adoption.

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