Manufacturers of electronics and high-tech products are faced with a major challenge: overpayments in their sales programs.
According to a new Accenture report, "Improving the Return on Investment of Indirect Sales Channel Incentives," these companies sell their products and services extensively in the "indirect channel" through value-added resellers and other companies. In this channel, high-tech companies frequently overpay salespeople across a range of sales and incentive programs, such as cooperative marketing, trade promotion, partner compensation, and rebates, with a result being that channel partners may get paid more than once for a single sale.
These overpayments are expensive. Accenture's report estimates that as much as 10 percent of a typical high-tech company's indirect channel partner incentives are overspent or generating an insufficient return on investment. This is particularly significant because, on average, some 70 percent of a typical high-tech company's revenue is generated by the indirect channel, and that percentage is expected to rise to 80 percent this year.
There are several reasons these companies overpay. Among them are unnecessary and excessive sales program complexity, insufficient insight and access to data, and an excessive number of competing sales programs and silos.
A path to corrective action
Such overpayment is not inevitable. Following are six actions high-tech companies can take to address the challenges behind this problem:
Identify and communicate the incentive strategy. Even at more sophisticated high-tech companies, explicit channel incentive strategies are often missing. The strategy should communicate which channel incentive performance metrics a company wants to influence, such as program effectiveness and incentive spend optimization, and which behaviors an organization wants to incentivize.
Establish a common vocabulary. High-tech companies and their channel partners should agree on a common definition of terms. Even simple labels, such as "programs," "incentives," "benefits," and "promotions," can mean different things to different people, which can result in confusion and errors.
Listen to partners. These companies should ask channel partners what is most important to them and why, then align those priorities to help drive desired outcomes. When designing a sales program, enlisting channel partner participation early and often can help verify that requirements are addressed and programs are as "user-friendly" as possible.
Track channel spending and create an inventory for use cases. To understand what changes need to be made in channel incentives, companies need to know how such changes will affect financial performance. Tracking all categories of spending in the sales channel should be considered. These include deal registration, market development funds, upfront promotions, back-end rebates, and partner program compensation. In addition, companies should document channel incentive scenarios their partners support and the robust steps behind each. Aligning these use-case scenarios with a channel spend tracker can better identify and accurately summarize new opportunities.
Hypothesize an ideal channel spend. To create an action plan for change, it's important to create a list of likely areas of opportunity and quantify them by asking questions such as: What would one need to prove change is needed? Or, what is the potential value of making that change? Companies can use this information to assign opportunities and resources to categories based on priorities.
Create a total rewards statement for your partners. Companies should consolidate their various data sources to consistently measure channel program performance and demonstrate to partners how they earn money. This can be achieved via an online rewards statement. By integrating necessary data, companies can identify key performance metrics, which may shed light on incremental sales, profits, and investment returns. Once these are accounted for, companies can compare performance across program types, products, partners, and market and facilitate more effective reallocation of incentive spending.
Jason Angelos is a managing director for Accenture Strategy and Sales Transformation He can be reached at firstname.lastname@example.org.