A few years ago, my largest partner and I met with my executive team to solve the channel conflict that had plagued me for the last six months. This partner had year over year outperformed themselves. They had worked with us through our acquisition and continued to think of new ways to market our solution to a point that we were just getting orders off the fax machine. But then the problems materialized…The economy was starting to slide and sales were getting a little harder come by than they had been in recent years. Channel conflict between my direct sales organization and channel happened more and more each day. Through a series of investigations, I realized that all the problems came down to compensation.
A new policy had been put into effect that caused the direct sales force to receive little or no compensation on any deal that went through the channel, regardless if they were originally working the deal or not. Compensation and how it is defined for your direct sales force can make or break a channel program. As a vendor, you do not have the ability to determine whom your customer buys through. A customer is free to find the right deal for their organization and you must accommodate that to make them a strong customer for you in the long haul. By not compensating your sales force on deals that flow through the channel, you are inevitably causing the sales person to perform unnatural acts to make sure the deal goes through them, potentially costing you not only revenue but a valuable relationship with an organization that can bring in more deals down the road.
So, what are some options for a more equitable compensation? If you have a direct sales force and a channel you must first and foremost have very clear rules of engagement that dictate to each side the processes involved in working with prospects and clients. If this is not clear, it does not matter how great your compensation package is, there will be problems. As far as compensation, the best option (if you have both a channel and direct sales) is channel neutral compensation where your direct sales force is paid the same on gross receipts regardless of the channel the deal came through. There can still be issues with this method as the sales rep will always want to make sure he is maximizing his comp plan (and why wouldn’t they!). In an article on the Evaluator Group blog, the writer takes you through various scenarios. All of them have their pros and cons and so you must, as the writer notes, “…follow the money. This will dictate the behaviors.”
Resolving Channel Conflict
In the end, we chose a channel neutral compensation plan designed to benefit both our partners and our direct sales force. Additionally, we developed a very strong deal registration program for our partners so it was clear who owned each deal and allowed both sides to determine the best approach to closing the deal. Luckily, our partner believed in our partnership and worked with us to make sure the changes we put in place benefited both sides and our joint prospects. By working with your partners and your internal sales team, you can effectively manage channel conflict in a way that strengthens your channel program and your relationship with your partners.