By Ted Dimbero, Co-founder and Senior VP Services and M&A, Zyme
Selling through indirect channels can sometimes feel like the blind leading the blind. Resale partners’ sales and supply data are available, but much of it is manually collected, months old and plagued with errors. Companies that leverage channel sales compensate for these inefficiencies with large investments in inventory and incentives, such as rebates, that cut into sales margins with questionable results. In many cases, they continue to pay for these incentives without any indication that they’re driving sales partners to be more productive.
The good news is that new, cloud-based Channel Data Management (CDM) technologies can solve the visibility issue, providing access to accurate, real-time data across the channel from distribution to the final sale. This insight can help companies target sales efforts and increase their “Return on Channel Capital Invested” (ROCCI) dramatically.
Think of ROCCI the way you think of ROI or ROCI in the banking world, with return from sales and sales margins in the numerator (those are the top numbers in an equation), and costs associated with channel inventory, incentives, channel account management and sales enablement and support in the denominator (that’s right, the bottom numbers).
By nudging up the numerator or nudging down the denominator, you can have a very positive impact on your returns.
Here are some real-world examples of how you can do both:
Selling through the channel typically requires investing about $250 million in inventory for every $1 billion in sales. Despite this large investment, depleted inventory often takes companies by surprise, forcing them to spend significant funds on expedited shipping costs.
With timely data visibility you can track where inventory stands at any given moment and replenish stock well before there’s a shortage. You can also get insight into inventory held by each of your reseller partners and take surgical action to either shed or motivate those that have stopped selling. Simply shedding unproductive resellers can help you reduce inventory investment and increase sales by focusing incentives on those that are most productive.
At the same time, replenishing channel inventory in advance can slash your expedited shipping costs dramatically. I recently spoke with an executive who was delighted to find he reduced his expedited shipping costs from about $20 million to $5 million in the first three months after implementing a cloud-based CDM system. Another company was able to reduce inventory costs by 52 percent using CDM, and avoided an additional $42 million in write-offs that would have resulted from excess inventory in the channel.
Every billion dollars in channel sales typically requires somewhere between $150 and $250 million in rebates, price protections, and other back-end payments. I think most experts would agree that at least 20 percent of that spending probably doesn’t have a meaningful impact on sales.
How did we get to the point where channel marketing teams are wasting 20 percent of their budget? Without real-time CDM, sales campaigns and strategies are often devised with obsolete, months-old data that may or may not be relevant today. New CDM technology can provide insight into last week’s partner sales data instead of what was sold last quarter, so you can focus incentives on your current high-momentum partners, with much better sales results.
There’s also another benefit: reducing incentives payments and driving sales by sharing actionable information. Study after study shows that price discounts and rebates are expensive and not particularly effective at increasing sales. With a real-time CDM solution you could provide resellers instead with timely analytics demonstrating the top three zip codes ripe for a profitable marketing program and intelligent, data-driven advice on the best way to run it. This information could both drive reseller loyalty and boost sales without eating into margins.
Timely data visibility can also reveal two distributors with identical coverage in the same geographical region. By eliminating the underperforming one, you could slash your channel management costs by a few percentage points, translating into much greater return on investment.
These are just a few examples of how adopting a system to get timely and accurate data from the channel can help you increase your ROCCI. I would say that reducing leaky incentives by 10 percent and channel inventory by 20 percent,channel sellers could recover more money than they’d know what to do with. Slash that $150 million in back-end payments by 10 percent or inventory cost by 20 percent and you have between $15 million and $50 million back in your pocket, some of which could be invested further in new strategies to use real-time channel intelligence to boost ROCCI.
It’s about time. Just about every other sales and marketing segment profits from timely data visibility and insight. Why not channel sellers?
Ted Dimbero is a co-founder of Zyme and Senior VP Services and M&A. In this role, he is responsible for all customer facing activities including operations, support, professional services, and customer advocacy.