The transition to the cloud is certainly fraught with challenges. One challenge that is often overlooked, though, is how vendors can best help their channel partners along for the ride. This change can be difficult, and without the right tools, support and incentives, partners may drag their feet, struggle unnecessarily, or abandon the vendor relationship entirely.
“Cloud services are growing five times faster than the IT industry overall, and VARs who have 50 percent cloud revenue make 1.6 times the gross profit percentage than those who don’t.” (Source: IDC)
Migrating channel partners to a cloud program is not easy. For businesses that are accustomed to annual renewals, moving to monthly renewals requires far greater amounts of data about what was sold and more frequent reporting. Whether partners collect this data using spreadsheets or with an automated system, the transition will take time and effort.
“Over the next five years, a large majority of reseller partners will have made an effort to evolve their business into a hybrid model. But beyond basic resale, only about one-third will make the transition successfully.” (Source: Gartner and Perks)
A typical bell curve will apply to the cloud transition in the channel – whether you're moving to a hybrid model or a complete cloud conversion. First, you will see the (few) early adopters, followed by the larger population and finally the laggards. To convince the larger population and laggards to accept your new processes – including submitting monthly sales data on time – channel incentives can be used help create motivation, change behavior, and support adoption.
5 Ideas for Channel Incentives During a Cloud Transition
To encourage channel partners to take the first steps toward incorporating cloud offerings, vendors need to adapt their existing channel incentive programs to a recurring revenue model, and focus on activities toward the beginning of the sales cycle.
It's time to leave behind the straightforward transactional incentives – those that reward for sales. Behavioral channel incentives will be more powerful in driving business model transformation to the cloud. Some examples of behavioral incentives include:
#1. Reward activities that build and accelerate the pipeline: To help fill the cloud pipeline, begin by offering partner incentives for qualifying opportunities. Vendors can go one step further by rewarding for activities that lead to closed deals, such as presenting a proposal to decision-makers.
#2. Offer hybrid incentives: For hybrid cloud business models that offer both traditional and cloud products/solutions, ensure that incentives for both versions are comparable. This initial approach can help vendors and VARs maintain stability while integrating the cloud into their core offerings.
#3. Focus on total contract value (TCV): Base incentives on the full value of a deal, with a portion of the incentive paid up front. In contrast to traditional annual contract-based incentives, this approach can help offset the business model change.
To adapt to a new business model, channel partners need new knowledge, tools, and resources to sell your cloud products. VARs sell what they know. Channel incentive programs that reward individuals and companies for updating their product education, tackling new sales training, and developing additional technical knowledge will help build confidence and success. In addition to providing educational resources and tools, vendors can offer incentives for partners that obtain new training and skills.
#4. Points-based incentive programs: An alternate incentive program can use points (instead of cash), which could be redeemed for training or certifications that would otherwise be costly for partners.
What’s Next? Adjusting Incentives for Partners That Have Adapted to the Cloud Business Model
Over time, channel partners will adapt to the new business model and the process of supplying monthly renewal data will become embedded in their standard tasks. At this point, vendors may consider replacing channel incentives with a penalty, or offering alternate incentives such as:
#5. Upsell Incentive: Encourage channel partners to promote a specific product or service (especially during a new launch).
Transitioning your business to the cloud? Read more useful strategies in our ebook, “Your Guide to Transitioning to a Cloud Subscription or Consumption Usage Model.” It includes additional information about employee and channel incentives, channel programs, and operations strategies.