The Pareto Principle - that 80 per cent of effects come from 20 percent of causes - is not lost on the channel. It's generally said that 80 percent of indirect sales revenue is generated by 20 per cent of channel partners - something that has held true for decades. But according to some, these percentages are increasing and decreasing respectively.
In a recent blog post, The 2112 Group's CEO and chief analyst, Larry Walsh, says the 80/20 rule is more accurately 90/5 - under five percent of channel partners generating 90 per cent of indirect sales revenue.
Walsh notes that while the industry "generally accepts" the 80/20 rule - with the 20 being described as "top-performing partners" - if we take a closer look, it is not quite accurate.
"In reality...that ratio is far more skewed, with five per cent or less generating 90 per cent of the revenue," Walsh writes. "Even in smaller, more focused channel programs, vendors find a great disparity between the high performers and the laggards."
Walsh is not alone in thinking that the 80/20 rule for the channel is shifting. John DeSarbo, principal and head of the sales, channel strategy and management practice at ZS Associates, says the channel currently adheres to a 90/10 rule and that if anything, the issue is growing.
"The vendors have created this problem of concentration and they're perpetuating it," DeSarbo said. "It's not just chance or happenstance, it's something that's been a consequence of the way vendors have been managing their channels for years."
He explains that vendors with non-traditional partner types, such as professional service providers (also known as "shadow partners"), display a more balanced distribution of channel sales, while vendors focused on traditional partners demonstrate larger gaps.
As vendors continue to allocate valuable resources, like channel account managers, MDF and better pricing, to their more profitable partners, smaller partners lack the human touch, resources and incentive to sell a vendor's products.
Further, vendors continue investing in top-performing partners as they are able to acquire more information on these partners, DeSarbo notes, pointing to profile data from registration and partner program participation and point of sale information.
Meanwhile, smaller partners are not as well understood and tend to get neglected.
"It's a scenario where the rich are getting richer essentially," DeSarbo said.
Thinning the herd
One approach vendors can take to address this issue is dropping partners that fail to engage in business.
In a 2017 blog, Walsh notes that the reality is that smaller partners - even those who are not underperforming or failing to engage in business - make up the vendor's long tail, which, he argues, is simply not as interesting a proposition for vendors, who want (and need) to be focused on the big money-makers in their channel.
"While the long tail does have intrinsic value, it's not nearly as valuable as the upper echelons of vendors' partner networks," Walsh writes. "Vendors need to make this clear to partners to dispel any illusions about relative value to programs. In doing so, partners will understand they aren't entitled to the same programs, resources, benefits and rewards as those partners that are investing in training, joint business planning, sales expansion and growth."
Lee House, partner at Sikich, a national VAR and SI, agrees this is a wise approach, pointing to the costs vendors face in managing partners that don't engage.
"If those vendors have to continue to invest...to manage those relationships, that's potentially going to be an expense where they're never going to realise any value," he said.
The channel partner adds it's important for vendors to prioritise investment of money and time into both top-performing partners and those investing in building business with the vendor.
Walsh notes that while the long tail is generally more profitable - because it costs less to serve those players, plus they they buy from distributors at higher prices, are not eligible for rewards and other incentives and typically don't have access to sales support - 'profitable' doesn't actually mean much.
"The long tail is entirely transactional and opportunistic," Walsh says. "On an individual basis, no long-tail partner looks interesting unless they're serving a strategic purpose, such as providing coverage in a niche or remote market. For example, I've been to [a] partner's shop in Ketchikan, Alaska, and he's never going to top a vendor's partner performance list, but he serves a useful purpose in this remote community."
On the other hand, some channel players aren't sure if thinning the herd is the right approach.
"That's a [mindset of] 'what have you done for me lately?… And if you haven't done anything for me lately, then you're not somebody I want to spend time with'," Peter Thomas, CEO of channel marketing automation software firm Averetek, says.
"My perspective is that you should make an investment in even the partners that haven't [done business] with you in a while to try to get them to do something meaningful with you.
"[Vendors] should give first because the natural order of the universe is people will give back to you when you do that. That's what partnering means. Otherwise, your channel is transactional, and if your channel is transactional, there's no loyalty and if there's no loyalty, then [partners will] pick someone else's product to sell to their customer…"
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