In today's competitive business landscape, effective channel management is crucial for any organization looking to optimize its sales processes and maintain a strong relationship with its partners. With increasing numbers of organizations adopting channel partner strategies, the importance of efficiently managing these relationships cannot be overstated. In this insightful article from Spur-Reply, we delve into the concept of partner scoring, a powerful tool that helps businesses efficiently manage their channel partners. Through a detailed exploration of the various aspects of partner performance measurement, we will provide you with the knowledge and understanding needed to implement this valuable strategy in your organization.
A robust scoring method helps you understand partner strengths and weaknesses and increase the return on each one. It helps you:
- Manage your portfolio of partners
- Best select whom to manage
- Choose where to scale
- Identify the highest-impact tactics
Why Score Partners
The changing world of tech
The revenue game has changed in the tech industry. For many years, it was all about product innovation. Look at the old guard of tech leaders — Cisco, Microsoft, Oracle — their product innovation gave them years of market dominance. Innovation is still a critical factor in market leadership, but the pace of innovation required to maintain that leadership has increased exponentially.
Companies now realize that a go-to-market strategy is a new path to sustained industry leadership. A superior go-to-market engine works across products, making it more difficult for competitors to deliver the same value.
Partners are a huge part of many companies’ go-to-market efforts. Used effectively, they are a force multiplier. But maintaining a healthy partnership is hard work. Partners can consume resources, impact customers differently, or be unpredictable.
Unlike direct sales resources, partners cannot be directly controlled, operate independently, and aren’t always aligned with your interests. What is a channel leader left to do?
The changing world of partners
Historically, partners fit into one of three categories—product resellers, service providers, or software/hardware development based on IP. The same three core business models exist, but now many different iterations of those models exist.
At the same time, the need to specialize to compete in the market has grown. Many partners do not focus on verticals; they focus on micro-specialties. For example, they sell physician practice management software to small hospitals in the Northeast United States. Or the partner has scaled the business into a large, powerful entity that tries to do almost everything for its (primarily enterprise) customers. The company has separate departments for each area that all run slightly differently.
Vendors can need much work to establish and manage traction in both cases. Because the customer is either hyper-focused in one area or very compartmentalized across services, the value-to-investment ratio may need to balance out.
In this new world, almost every partner fills a unique niche in the market — and delivers different values. The trick is understanding the value and how to foster growth.
The changing world of channel leaders
For most companies, the channel chief is central to these changes. Their job has never been harder.
Channel leaders are at the heart of the cloud paradigm shift. They must balance maintaining revenues from on-premises partners flowing while simultaneously convincing partners to change business models to support cloud sales. They oversee significant shifts in the business as last-generation products make way for new ones.
Channel chiefs ensure every segment is covered as they build go-to-market pathways, connecting their companies, partners, and customers. Often, every customer segment requires its own set of partners and a unique set of partner initiatives. In addition, partner offering complexity has multiplied and now includes partner programs, channel incentives, partner enablement, partner recruitment, field governance, and customer satisfaction.
Meanwhile, performance pressure continues for channel chiefs. Revenue growth is slowing as an industry, which results in smaller budgets spread across more partners and products. The need for scale is essential, particularly for a sales model that balances direct and partner sellers. Sales discounts, returns, and allowances (contra revenue) have become vital to the typical channel budget — showing these programs’ direct impact is essential.
These three changing worlds mean you must clearly understand partner performance and value. It would be best if you had a way to score your partners.
What is partner scoring?
Companies need the right channel partners to form healthy partner communities. Today, these channel partners play a more critical role than ever in making sales and providing additional support. Subsequently, driving growth with channel partners requires an insightful, deliberate, and data-driven approach to managing partners.
Partner scoring is a unique method of measuring partner performance that combines elements of key performance indicators, predictive modeling, and big data algorithms. It also allows channel leaders to measure both individually and as an aggregate.
Effective scoring benchmarks
First, scoring must look at more than generated revenue. Partner sales are an essential measurement for any channel management effort, but sales are only one-way partners contribute to a tech company’s success. Often partners are critical influencers shaping a customer’s decision to buy. Their endorsement — or better yet — building solutions around your platform, solidifies your position with the customer.
Second, scoring is only valuable if it is measured over time. Partner performance varies at any given point in time. Even the best partner sometimes fails to make a critical sale. But the cyclical nature of partner performance normalizes over time. Scoring is valuable in understanding trends and changes — both with individual partners and your business community.
The point of a scoring model is not just measuring your partner’s performance but understanding whether your efforts are having an impact.
Imagine being able to share data with your CEO, CFO, or EVP of Sales that shows how your incentives had a direct impact on partners. Think of the impact you could make if you could direct field resources to the activities or partners that contribute most to your channel objectives and adjust your partner focus depending on how your objectives evolve. That is the promise of scoring.
Understand your partner’s performance levers.
A scoring framework lets you identify your partner community's strong and weak points. You rank each partner’s ability to drive revenue, support your strategic platform, win and retain customers, and counter your competition.
Scoring gives you actionable insights:
- Identify the specific strengths and weaknesses of each partner
- Compare peer-level performance even in partner segments that are more influencers than sellers
- Measure the impact of programs and initiatives on partner performance
- Increase accountability of partner managers for their partner’s performance
Potential and performance
There is a difference between partner potential and partner performance. A partner with $50 million in total revenues and $5 million in sales of your product is very different from a $500 million partner selling $5 million of your products. The potential for more sales is probably better in the large partner, but the performance of the small partner is better — they are more aligned with you and your product.
Remember there are four levers of partner performance:
- A partner can sell more of your products
- A partner can align with more strategic products instead of declining products
- A partner can drive customer wins in critical, rather than oversaturated, market segments
- A partner can favor you or your competition
But if a partner caps out and performs at their full potential, they will have a tough time generating growth — unless you can steer them into a new opportunity area. Scoring allows you to incentivize underperforming partners to reach potential and steer lower-potential partners to better growth opportunities.
Your scoring model needs to account for all factors.
How should you score partners?
Spur Reply has a proven data scoring method we use with our clients. Before we explain our model, let us explain what goes into any good scoring model.
What makes a good scoring framework?
Partner data is available like never before, and a wide range of systems exist to capture key information:
- Vendors capture most transactional point of sales data, which is a wealth of information. It often contains not just how much a partner sold but also the product mix and customer information.
- Deal registration and incentive engines capture pipeline, close rate, partner sales capabilities, and joint selling effectiveness.
- Training, certification, and readiness programs can capture the number of reps and sets and the level of training and certifications earned. Appropriately done, app centers and product certifications can give detailed insight into partner-developed IP.
- Portals and campaign engines should track and manage engagement at the individual and partner levels.
- Support consumption, both by the partner and their customers.
- Program registrations, web forms, and partner business plans should feed profile collection.
Additional information about partners is also available through different third-party providers.
Partner scoring is a statistical model and needs to be based on numeric observations. However, you can still include qualitative information about your partner’s performance.
Try to turn observable, qualitative information into numeric data. For example, you can ask partner managers to rank a partner’s alignment to your platform as a positive, neutral, or negative data point. This lets you make calculations based on associated values. But be careful; too many qualitative measures or weighting them heavily can skew your scoring based on biases and partner favoritism.
Alternatively, you can use qualitative scores as notations and context. This way, they do not influence a partner’s score but may help explain it.
Measurement over time
As mentioned earlier, the real value of a scoring system is evaluating the changes that happen over time. If you have repeatable data, this is easier to do.
The challenge for channel organizations is that this data is usually spread across many different systems, and often the channel group needs to own the data.
The channel team must create its own data mart (a subset of a data warehouse for a specific team or department). Why we recommend a data mart:
- You can normalize data in a manner that suits your needs without changing the way the rest of your company uses the data
- You have control of the development environment; this reduces the dependency on having a different org crunch the numbers for you
- You increase your ability to model out “what if” scenarios internally
Think hard about your model and try to get it right the first time. Every meaningful change requires the recalculation of the entire model. This means past and current data.
Think of it as a customer segmentation model; it is more important to be consistent than perfect.
The Spur Reply scoring model
Spur Reply’s partner scoring framework emphasizes our belief that you need more than a simple forecasting tool.
Our model framework helps companies increase sales, improve ROI, and influence partner behaviors to act on the products and markets that matter the most.
To effectively rank your partners, you must examine their performance and growth potential. We calculate a PERC (Partner Estimated Revenue Capacity) score for each partner using a model called the 5Cs.
The Five Cs Model
How does the channel capacity plan framework work? The 5Cs provide a measurable score determining how much value each channel partner delivers.
- Contribution: What is the sales velocity of each partner? Sales velocity refers to how quickly the company converts leads to sales and the value of each closed deal over a set period. Almost everyone measures sales velocity, and you likely have data to calculate the rate for each partner.
- Consumption: How effectively is the partner driving customer adoption and usage? If contribution represents revenue, then consumption is the average customer’s lifetime value increase through affiliation with the product or service.
- Coverage: What markets does the partner cover? Your ecosystem capacity is influenced by the mix of partner types, the number of partners in each segment, and partner attributes such as customer service, business models, and solutions offered. You can expand into new markets with the right partner coverage.
- Capability: How aligned with strategic products is the partner? Capability combines the partner’s knowledge and effectiveness at bringing it to bear with targeted customers. Every revenue dollar is unequal when building a growth engine, and a partner’s capability is critical.
- Commitment: How predictable and consistent are the partner’s results? Most partners work with multiple vendors, so partner loyalty is a crucial determinant of channel revenue. A partner’s commitment will affect how it contributes to your growth curve.
Step 1: Rank for each of the 5Cs
Contribution measures more than just how much revenue each partner generates: it accounts for sales velocity.
What drives sales velocity? Contribution is based on the standard FRY frequency, reach, and yield formula.
Frequency: How many transactions does each partner complete in each period? A partner that makes just one sale a year could be assumed to sell your products opportunistically, while a partner that makes ten sales is more likely to prioritize your company’s offerings.
Reach: How many customers are involved in these transactions? You must prioritize identifying these customers if your partner doesn’t reveal the number of named accounts.
Yield: What is the average deal size each partner makes?
Identifying the Biggest Contributor
To calculate a partner’s contribution score, first create a stack that ranks all your partners based strictly on each partner’s sales frequency, with your best partners at the top.
Next, divide your entire partner community into quintiles, or five equal groups. (I.e., If you have 100 partners, each quintile has 20 partners.) Note which quintile partners fall into and assign a score of 1 to 5 based on what quintile that partner falls in, with one being high and five being low.
Then you must perform the same stack ranking exercise for reach and yield. As demonstrated below, a partner will likely receive different scores for each measure. Depending on your overall business strategy, you can weigh the FRY components.
Why Weight the FRY Factors?
The 5 C scoring method can be adapted to your industry and overall channel strategy. It is not a one-size-fits-all solution.
A savvy channel manager in tune with their partner community will know if increasing the number of transactions or the average deal size is easier.
The harder it is to change a factor, the more critical the top quintiles may be.
The goal is to weigh the three FRY components of the contribution score based on how well you know your partner community. Remember those factors as you weigh capability, coverage, and commitment scores.
While customer usage should translate to revenues for a company, consumption measures something subtly different from sales velocity.
Consumption focuses on how well a partner manages customer acquisition costs and lifetime value. This is commonly referred to as negative churn in cloud sales and SaaS. (Negative churn is an interesting term. We are generally conditioned to believe that “negative” is bad. As anyone familiar with a subscription business will tell you, negative churn is the opposite. It is the dynamo behind what makes a subscription model work as a growth engine.)
Consumption looks at existing customers and factors in three main areas: upselling the customer, cross-selling the customer, and customer expansion.
Upselling the customer
Upselling measures how effectively a partner upgrades the customer to a more expensive or functional version of a product they already own. Think of this as the ability to move a customer from the basic edition to the pro edition and then the premium edition.
It is valuable to the company and the partner because the acquisition costs for this type of sale are relatively low compared to the potential yield.
Done effectively, it also makes a company’s solution more useful to customers, as they fill their needs gaps and receive a higher value. But there is a danger — if the upgrade is pushed on and not valued by the customer — you can lose trust and future revenue. That is one of the reasons why measuring this over time helps you understand whether a partner is good at helping customers realize the value of your premium offerings.
Cross-selling the customer
Cross-selling is a big opportunity to layer your revenues with low customer acquisition costs like upselling the customer.
For many companies, the sales engine focuses on the product attach rate — the frequency at which one product is sold in conjunction with another. Understanding this metric helps you refine your sales strategy, strengthen your customer value proposition, and refine your customer profiles.
You may also want to consider measuring external, complementary, third-party product attach rates as part of your consumption model. Why? Because this is a simple way to demonstrate your value to your partners as you allow them to expand their footprint with their customers.
Customer expansion is mostly achieved through seat expansion but can include other expansion techniques that aren’t defined as an upsell or a cross-sell.
For most companies, this is a linear model. You charge a fee for the essential product and additional costs per user. As the customer expands the number of users, the consumption value increases.
The model might be slightly more complicated for other companies, but the concept is the same. For example, cloud-based storage offerings may provide a simple way to expand the amount of storage that isn’t a new service level (the upsell) or an attached offer (the cross-sell). It would also be an expansion model.
Capability measures a given partner’s knowledge of your company’s offerings to make sales and provide product support. A partner’s capability to sell your products highly depends on their sales force readiness and relevant earned certifications.
Proving a partner’s capability
Three components determine capability:
People: How many certified employees does the partner have? The more of their sales force that has technical and sales certifications, the more likely they are to rank high for capability.
Focus: For which products does your partner have certifications? The type of product certifications the partner holds can tell you much about their business focus and capability.
Productivity: How effective is the partner’s certified team? Productivity can be calculated by the total dollars in this partner’s sales divided by the number of certifications the partner should account for quality over quantity.
Finding the most capable partner
Quantifying capability requires a more personal touch than quantifying contribution, which directly correlates to sales. As a result, the criteria for scoring partners on capability is softer.
Start by identifying an excellent benchmark-level performance for the number of certifications. Then examine each partner and determine where they rank against that benchmark:
- Partner’s performance exceeds the benchmark
- Performance meets the benchmark
- Performance is below the benchmark.
This process must then be repeated with focus and productivity, respectively. Calculate a weighted average of the three scores to determine an aggregate partner capability score. Apply weights based on your channel strategy and knowledge of your partner channel.
Coverage measures the impact of your partners in each market. This metric can help determine the importance of any given market to your business, whether you are trying to gain more market share or maintain your foothold in that market.
Subsequently, coverage is relative as it is the only 5C to incorporate peer partner performance in formulating a single partner’s reach (to account for market relevance). As a result, coverage is quantified differently than both contribution and capability.
Evaluating market focus
Multiple factors impact and influence a partner’s market focus. To score partners on coverage, evaluate which market a partner does business in by breaking them down according to a geographic territory, customer segmentation, or a combination of these factors.
Determining a partner’s reach
First, to calculate a partner’s reach score, categorize the market by the estimated number of customers who have not been reached and the average revenue per account.
Divide the resulting graph into four equal quadrants and assign each a numerical value:
Best: High number of unreached customers and high average deal size for existing customers.
Better: High average deal size but a limited number of unreached customers.
Good: High number of non-reached customers but a small average deal size.
Bad: Small number of non-reached customers and small average deal size.
As with the previous components, you can easily weight this formula to get a more accurate coverage score for each partner. The formula should be weighted based on your channel strategy, industry, and other relevant factors.
The example diagram prioritizes market size and applies more weight to emerging markets. However, your market strategy may focus on the market’s maturity or strength of your niche, so adjust the weighting accordingly. Note that your company’s determination of a major versus an emerging market may differ greatly from other companies.
Crafting an informed market strategy
When thinking about coverage, take steps to understand the type of markets your partners are selling. A high number of accounts that have not been sold yet is a high-value segment, referred to as whitespace.
The most robust market opportunities have many whitespace customers and a high average revenue per customer. Expanding into a growth opportunity market like this can significantly impact revenue, and capitalizing on that opportunity requires careful consideration. There are three typical approaches you may take depending on the market opportunity:
Ramp-up Coverage: If many accounts yield low average revenue, you will want to ensure that you have enough partners to cover it to increase revenue.
Stay Put: In markets with few whitespace customers and above-average revenue per account, consider it well covered, as your partners are productive.
Know When to Walk Away: Markets with low customer counts and average revenue equal a market that is not worth focusing on. It should be a low investment priority.
Partners generally work with multiple vendors. In some respects, commitment is a measure of a partner’s loyalty to your company. It is determined by the percentage of deals that include your company’s offerings.
The measures of competitive alignment
Commitment is often overlooked in many partner capacity planning frameworks. However, you should not overlook a partner’s loyalty to you compared to the other partner’s vendors.
There are five distinct measures you should examine to determine how committed they are:
Planning Execution: What is the partner’s track record of execution on partner-level business planning?
Thru-Partner Marketing: How much does the partner participate in your marketing efforts, and how much of their marketing resources have been leveraged for this exact purpose?
Deal Tracking and Closing: How dedicated is the partner to tracking leads and closing probable deals?
Visibility into Pipeline: Does the partner share pipeline information through deal registration or other systems?
Branding Partnership: Is the partner actively promoting your products and brands on their websites? (Spur Reply can uniquely quantify this aspect for you.)
Determining exceptionally loyal partners
Quantifying commitment is subjective, like the capability measurement.
Just like with the capability measures, you first need to determine an individual benchmark for each of the five areas of commitment:
- Partner’s performance exceeds the benchmark
- Performance meets the benchmark
- Performance is below the benchmark.
As with contribution, capability, and coverage, set weights based on your channel strategy and the intricacies of your partner community; take that average to determine a partner’s commitment score.
Step 2: Rate each partner into peer-levels
Once you have calculated the partner ranking for each component, you can rate each partner.
We use a simple five-star rating. Our experience is that this works very well at this level. It is easily understood and simple to communicate.
Five Stars ⭐⭐⭐⭐⭐
Partners that score well in all 5Cs earn five stars. These partners have high revenues and are engaged around all elements of your business. They are your market movers.
Four Stars ⭐⭐⭐⭐
Partners that score well in 3/5 of the 5Cs. These partners have the potential to be five stars but are underperforming in some areas. Those missing areas become a clear growth plan.
Three Stars ⭐⭐⭐
Most of your core partner base is three stars. They almost always score high in capability and commitment with lower but good performance around contribution and coverage. They are where you achieve scale in your channel efforts.
Two Stars ⭐⭐
Partners who are two stars are engaged up-and-comers. Here is where recruitment and onboarding are essential.
One Star ⭐
1-star partners only opportunistically engage with you.
Step 3: Calculate a final PERC Score
You’ll want to calculate a final PERC score across the star grouping of partners. You can then assess whether a partner performs above, at, or below average for similarly sized partners.
Here is where you gain insight into what and where you should focus. CDW will always outsell smaller partners, but it is much more likely that a smaller value-added partner will have larger transaction sizes.
This calculation lets you create an action plan for your partners.
How should I use partner scoring?
There are many uses for a scoring model. The strength of our suggested model has the chance to view the data at the partner level or aggregate it. This lets you use scoring to measure partner performance and use it as a cornerstone of your planning, execution, and resourcing models.
We see four common uses: territory planning, partner-level business planning, program performance management, and incentive planning.
Channel churn is a natural part of the business community. Small companies come and go. By carefully investing in smaller partners with significant potential, channel churn becomes more manageable, and revenue dips minimally.
Looking for the up-and-comers in your partner community is crucial for sales growth and increasing your market share. In addition to broadening your footprint, investing in channel partners helps develop backfill for unavoidable aspects of channel churn.
By establishing criteria for partners of tomorrow, account managers can engage up-and-comers early on and drive growth beyond their original potential.
Partner-level business planning
You should have a business plan with all five- and four-star partners. You can create programmatic objectives for three-star partners that serve a similar purpose.
Play to your partner’s strengths. Use scoring to verify how a partner performs in any vital area against its peers. Determining whether a critical area is a weakness, strength, or on par will help you set appropriate goals by partner and territory.
- Strengths: Align big goals with big rewards.
- On Par: Keep the partner motivated but do not focus on this area of the business plan.
- Weaknesses: Partners rarely hit modest goals with moderate rewards in weak areas, so manage your risk correctly.
Use your scoring to model out what specific goals will help you meet your business objectives with these partners.
Program performance management
You can also determine the health of your overall partner community based on the aggregate score. These scores can be placed in a framework that suggests strategies based on chosen market objectives.
You can now measure a partner’s ability to execute within each area: contribution, consumption, capability, coverage, and commitment, and understand where to focus on improving specific partner performance.
You have formulated data pointing to potential risks and issues at the partner and territory levels. You also have four basic strategies to address these risks. You must ensure that your channel incentives drive the right behaviors.
At Spur Reply, we advise that incentives should only be used to drive behaviors that partners would not otherwise do. Your scoring model can help you direct incentive funds in this way.
Nearly all channel incentives fit into one of four primary groups:
Transaction Proficiency: These incentives reward partners based on the mechanics of a deal. Reward the sales of a product or win a specific customer on a targeted account list.
Capacity Development: This type of incentive usually coincides with the launch of a new product. These incentives aim to prepare a partner for a specific solution, including offsets for training or rebates for the first deals they make with the new product.
Demand Generation: These incentives reward partner leadership (specifically, finding and closing on opportunities.) Demand generation incentives often accompany a deal registration system and help offset a partner’s cost of sales, such as offering support to partners that run proof of concepts.
Performance Attainment: This type of incentive rewards partners for hitting specific, usually time-sensitive, targets such as growing by X percent or selling Y volume quarterly or annually.
The right scoring model helps you shape your mix of incentives. Discontinue any programs that aren’t improving a partner’s score.
Once you have established a scoring model, you can easily extend it to get more value for you and your partners.
Once a channel chief has taken steps to form a partner community, managing the partners and properly investing resources becomes a challenge. Without measurable data to make decisions, channel teams often make the mistake of only focusing on the top-earning partners. This creates an unbalanced and underutilized ecosystem that is not achieving growth potential.
Attaching a reliable metric to partners is key to maintaining and improving your channel health. Scoring helps align business goals, demonstrate partner capabilities, and increase ROI and growth velocity if you use the model effectively.
Partner scoring provides quantifiable data that can grow your business and assist you in making more informed decisions.
The breadth of data and how it is brought together into a single community help with investments in specific partners and the overall partner community.
Learn how to strengthen all elements of your channel management in our comprehensive guide to channel management.