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Channel Incentives

Channel incentives are rewards that a business gives to its partners as an appreciation for meeting specific goals. This could be exceeding specific sales quotas or increasing market share within a given timeframe. 

Channel incentives are a great way to encourage your channel partners (distributors, resellers, vendors, service providers, and retailers) to engage in productive behaviors that benefit both parties.

Simply put, channel incentives are a powerful tool for businesses to drive sales and achieve strategic objectives. 

As a business, you can use them to:

  • Increase sales
  • Lift seasonal sales
  • Support marketing campaigns
  • Drive revenue from multiple streams 
  • Reach audiences that you, as a business, can't
  • Motivate partners to engage in productive behaviors
  • Encourage long-term partner loyalty and preference for your products over competitors

What are channel incentives?

Channel incentives are monetary rewards channel partners receive from businesses for making extraordinary efforts to achieve or exceed specific goals. They are tools that companies use, small or large, to orchestrate partners' behavior, engender channel loyalty, and enhance indirect sales performance. 

Channel incentives are a great way to strengthen relationships with partners, encourage them to sell your products faster, and motivate them to engage in productive behaviors that help grow your business. They are an investment that will pay off in achieving both short-term and long-term business goals. 

No wonder businesses across the world, from small to large, design and use channel incentive programs as a tool to:

  • Encourage long-term partner loyalty.
  • Motivate partners to favor your brand over competitors.
  • Help boost sales and profits during specific periods (e.g., holiday season, annual conferences).
  • Reward your best-performing partners and allow them to earn more money from promoting your products or services.

Why are channel incentives worth the buzz?

Channel incentives programs have been around for decades—they were first used by IBM during World War II when they needed to increase their production of ball bearings to meet wartime demand.

From then to now, channel incentive programs have come a long way. As a business owner, you know the importance of finding and retaining high-performing channel partners. That's why you'll have to do much more than just keep them happy. And channel incentive programs are just meant to do that. 

They not only reward sales performance but also encourage it. It's a win-win solution for both parties: businesses witness increased revenue, and channel partners feel motivated to sell more with an attractive reward. 

In fact, Forrester says that over 73% of trade worldwide happens via a channel, and that's why they are worth the buzz. They are crucial for business growth and can't be overlooked. 

What are the various types of channel incentive programs?

Channel incentive programs are a popular way to engage your partners, but they can be difficult to create and tricky to manage without knowing what type of program will work best during what scenario. That's why understanding them is vital.

Here are different types of incentive programs available:

  • Sales-based incentives: These types of incentives work on a starightforward premise where a partner gets rewarded for selling a product. They differ based on sales volume, margins, type of product sold, etc.
  • Activity-based incentives: These are usually given at the time of sale or for fulfilling any engagement activities that a partner completes with a customer. A good example is product demos.
  • Channel rebates: These are given based on order size or frequency. They work well when a business wants to improve its sales for any underperforming product or clear out its inventory.
  • Training incentives: These allow channel partners to enhance their knowledge while receiving rewards for accomplishing it. This could be a certification, attending a conference, completing a quizz, etc.
  • Referral incentives: These reward partners for referring a product to a customer and being brand advocates.

How can organizations manage channel incentives programs to boost ROI?

Here are some tips to help businesses manage their channel incentives programs better for enhanced ROI:

  • Align the incentives to your partner's sale cost: Frame your channel incentive program based on a matrix that outlines two axes: "customer" and "product." Mark the end-points of each of these axes to be "existing" and "new." This will help measure the ROI of your program better.
    Let's say that selling a new service/product to a new customer costs up to 12x the cost of selling an existing service/product to any existing customer. As a business, if selling to new customers makes more sense and this is the position you want your channel partners to focus on, then the incentive should recognize the substantial cost increase.
  • Create partner-specific goals: Channel incentives quickly lose their power if a group of partners get to win a trip to a foreign country or receive the most recognition. An effective channel incentive program must build a level playing field, allowing every partner to compete in their past performance.
  • Set targets based on partner capacity: When you model the much-anticipated financial impact of the channel incentive program, you will have to understand their capacity, too. 

What are the best practices for running a successful channel incentives program?

Incentive programs are a great way to motivate your channel partners. To ensure that your program is effective, follow these tips and best practices:

  • Be transparent: Don't keep your partners in the dark about the details of your program. Communicate how you will measure their efforts and sales, what they can earn based on those efforts, and how they'll be paid.
  • Don't have too many rules: Your partners should know what they need to do to earn rewards. Don't overcomplicate things by adding too many details or requirements.
  • Make it easy to participate: Remind partners that it's their job to sell your products or services; don't make them jump through hoops to register or apply for a rewards program.
  • Set realistic goals for your partners: You want them to succeed, so don't set goals too high or too low for them — this could lead to frustration on both ends if they can't meet expectations.
  • Reward effort with bonuses, not just sales volume: Incentives aren't just about making money — they're about rewarding partners' hard work and encouraging them to continue promoting your products or services after the initial incentive period ends.
  • Make sure your incentives are aligned with the goals of both parties: If they don't align, then there is no point in having them.
  • Have well-defined goals that can be measured: This helps your business measure against actual results from time to time so that both parties know whether or not they are achieving their targets.
  • Create a budget for the program: Allocate this wisely so you don't overspend on incentives or under-allocate them. This ensures you aren’t leaving your partners out in the cold.

Employee pulse surveys:

These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).

One-on-one meetings:

Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.

eNPS:

eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.

Based on the responses, employees can be placed in three different categories:

  • Promoters
    Employees who have responded positively or agreed.
  • Detractors
    Employees who have reacted negatively or disagreed.
  • Passives
    Employees who have stayed neutral with their responses.