Measuring The ROI Of Channel Incentive Programs

By Brian Crockett, Head of Marketing, Vanson Technology Services

Will your channel incentive program provide sufficient return on investment (ROI)? While many partner program managers struggle with justifying the financial investment in a channel incentive program, the answer may be easier than you think.

Channel incentive programs differ from other channel partner reward programs as they are targeted toward individual partner salespeople. They can take the form of sales performance incentive funds (SPIFFS), points-based programs redeemable for a variety of rewards, or debit card accrual programs.  But does rewarding individual salespeople drive incremental return?

Basic ROI Calculation

The basic ROI calculation is simple – what is the expected incremental financial return from a channel incentive program, and will it exceed the program’s cost? Let’s take a program that costs $500,000 annually in rewards and administrative costs. How many incremental products or services are needed to justify this investment? Assuming a 25% net profit margin, incremental revenue of $2 million would be required to break even ($2 million x 25% = $500K).  How that incremental revenue will be derived may depend on your business model and the average value of products or services sold – some companies may see incrementality from a few large transactions (i.e., those with high average revenue per transaction), others will drive incremental return from many small transactions.

Customer Lifetime Value ROI Calculation

For some industries with recurring revenue models, looking at customer lifetime value (CLV) is important. A CLV-based ROI model looks at the discounted value of future profit, adjusted for expected attrition, compared to the initial program set-up costs and annual program run rates.

A new customer may generate recurring annual revenue or a sale may result in annual licensing revenue. The value of that new customer or sale is more than just the profit from Year 1!

Baseline ROI Calculation

How can you measure whether your channel incentive program is driving incremental sales? One approach is to look at average sales before and after you implemented the program – a simple baseline comparison; the challenge is that other factors may have driven incrementality. A more rigorous approach is to compare the average pre/post sales (or projected CLV) for those partners and partner salespeople who are participating in the program versus the average sales for those who are not.

The next question is exactly how will your program drive incrementality? We can look to three levers (among others) to drive incrementality – how you stack up versus your competitive set, compelling rewards, and the ability to deliver product education.

• Incrementality And Your Competition

A channel incentive program may be essential in an environment in which your competitors are offering such programs – you must offer such a program simply to remain competitive. Look at your competitive set – if your competitors have a channel incentive program in place and you do not, you are most certainly losing sales – introducing a compelling program will likely increase your sales (or at least prevent further sales erosion).

On the other hand, if your competitors do not have channel incentive programs in place or if your program is more compelling than those of your competitors, you will be providing a clear incentive for partner salespeople to recommend your products/services, which will drive incrementality.

• Incrementality And Compelling Rewards

It’s critical to keep in mind that the ability for a program to drive incrementality depends in part on rewards that are sufficiently compelling. Do your rewards fit the demographics of your program participants? Is the effort required to earn meaningful rewards reasonable? Is the process for reward redemption relatively easy and straightforward?

Compare the rewards that your program offers to your competition – are your rewards at least at parity, if not superior?

• Incrementality And Education/Training

It’s also important to stay top-of-mind with partners’ sales teams and to use the program to communicate with participants and – most importantly – educate them on your products or services.

The ideal channel incentive program is really a communications vehicle masquerading as a rewards program. Be sure you are treating it as such! Capture email addresses during the registration process, and judiciously use regular communications to maintain awareness. Use the program portal home page to communicate marketing messages (e.g., promotions, sweepstakes, reminders, etc.).

A well-designed program enables you to educate your partners’ salespeople on your product. The old saw that we “sell what we know” will never go out of fashion, especially for complex products and services. Incremental sales result from helping your partners’ sales team learn more about your offerings. Program portals should include an education tab with videos, product information, and other materials. Provide links to videos if available. Include product/service PDFs with a strong search engine.  Leverage your product hierarchy if you have one.   Use quizzes to reinforce learning.

Brian Crockett is Head of Marketing for Vanson Technology Associates.  Vanson provides innovative solutions for channel incentive programs andhttps://www.vansontech.com/ other loyalty programs.