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Channel Strategy & the 80/20 Rule - How to Improve the Bottom 80%?

by: Vistex WebTeam | September 4, 2014

If you’ve spent any time in corporate America you realize that The 80/20 rule can be applied to pretty much anything – candy consumption, crop yields, tenant complaints, software features – the list is endless. It should come as no surprise then that this “Pareto Principle” can also be applied to channels of distribution.
As a vendor who sells through the channel, it is likely you will discover (if you haven’t already) that roughly 80% of your revenue (or profit) comes from 20% of your partners. You are likely looking to “fix” this imbalance, thinking “how much would my revenue increase if closer to 40% or 50% of my partners produced like my current top 20% do?”

There are two chief approaches that will propel you toward that goal of getting more than 20% to produce significant revenue:

  • Improve the productivity of the bottom-dwelling 80% of partners – which unfortunately is the vast majority of your partner ecosystem. Straightforward approach
  • Terminate the bottom 50% (or 80%) of partners. Ruthless approach
    Both strategy can yield great results so there is no reason NOT to pursue them, at least to some degree.

Either way, your first step should be to determine what your current top 20% of partners are doing right in two areas:

  1. Define the capabilities of successful partners. These can be anything – 24-hour product support to outbound sales teams, retail locations, minimum inventory levels, customer types, to investment in demand-generation or completed training modules. They can vary by geography, industry and many other factors, but they must be objective and measurable.
  2. Define the common attributes of successful partners. Attributes are often confused with capabilities, but they are usually less objective and less easily measurable. Also, they usually deal with what the company is made of, not what the company can do. They could include things like – partner size (number of employees or revenue), business focus, background or age of the owners, degree to which they rely on discounts, characteristics of their facilities, how their sales teams are compensated, etc. The idea here is to profile the characteristics of partners who are likely to thrive and succeed with your particular product line.

I would guess most vendors don’t realize that partners experience the exact inverse of the 80/20 rule – roughly 80% of their revenue (or profit) comes from about 20% of the vendors they work with. A partners’ strategy should be similar to that of vendors – make an effort to improve performance on the bottom 80% of their vendors AND if necessary, cut the laggards to free up resources to focus on the product lines with the greatest growth potential. For both vendors and partners, the key to success is to get into one another’s top 20%.

Of course that is easier said than done for both sides. Fortunately, vendors have the ability to tweak their channel programs to fit the needs of high-potential partners. Program elements such as MDF, technical support, enablement tools, promotions and partner managers can be designed to help partners grow revenue, penetrate new markets and close more business.