On Growing a Channel

13 Aug 2012

I keep hearing from vendors their intent to recruit more dealers. It's pretty easy to understand. Most manufacturers want to increase sales. More dealers times the average revenue per dealer equates to more sales, right? Perfectly sound logic for those with their head buried.

Vendors need to stop growing their channels, and start growing their dealers. The trick is in increasing the average revenue per dealer, not the number of dealers.

We have all seen the headlines regarding sector revenue, and vendor downsizings are more normal than growth. Although there is plenty of finger pointing, the reality is that rapid changes, both technical and social, are redefining normal buying cycles. There have been numerous shifts over the past decade or so, each impacting revenue; including hardware to software, voice to UC, desktop to mobile, TDM to SIP, campus to centralized, and premises to cloud.

The lesser or even untold story is the impact to the dealers. One on hand there's reduced demand, lower prices, and shrinking margins and on the other hand there's increased costs associated with training, retooling, and new certifications to master. The dealers are stuck between a hard economy and rock-faced learning curve. Companies are keeping their equipment longer, and when they upgrade it is to reduce spend. The Internet introduced new alternatives including dot com retailers, distant dealers, and service providers. Economic cycles are not new, but the cushion provided by maintenance contracts and TDM circuit commissions are disappearing.

The dealers want to move forward to new business models and technologies, but their customer bases are forcing them to tend to obsolete installed solutions. They are also scrambling to adjust to new best practices - websites, social media, webinars, etc. as the Yellow Pages don't cut it anymore.

The UC/Telecom dealer channel may look mature, but all the assumptions changed. The expectations: maintenance contracts, inventory, proprietary hardware, TDM circuits, customer loyalty, the need for a system at each branch, as well as model changes such as each dollar purchased for resale equating to $3-5 in revenue are all obsolete assumptions. The dealer must now contend with less revenue and less margin. Dealers are fighting with competitive pressures unlike ever before, and the last thing they want to hear about is how their key "partners" are looking to dilute revenue even more.

The vendors want channel partners that are focussed and dedicated to their brands. That's reasonable, but it has to be earned. They need to offer their dealers a path to profitability and stability. This means targeted, not general, programs for dealer success including promotional pricing, lead generation, technical and sales training, best practices including sales ramp, commissions, and operational measures. This is how to build a channel with loyalty and mindshare.

Expensive? Absolutely. The value of a dedicated, energized, and loyal channel: Priceless. Seriously, channels typically leverage other people's money, but that model isn't working. The cost of a direct sales force is too much as are the costs of distracted and ineffective dealer networks. Something needs to give, and that something is the vendors.

The old model rewards the best performers, but radical times call for radical strategies. The new model requires leadership that creates and fosters a path to become a top performer. Vendors don't need more dealers because the channel is shrinking. So stop measuring dealer loyalty by last quarter's results, and start building an effective channel.

Dave Michels is a UC Expert and blogs at TalkingPointz.com.