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How Do They Make Money, Part 2

by David Brock on February 12th, 2014

Recently I wrote, How Do They Make Money.  It focused on understanding how our customers make money—deep understanding of their goals, strategies, markets, customers, plans, priorities to grow their business.  In the article, I also talked about how we need to show the customer how we can help them make more money–by growing top line or bottom line or both.

Let me extend this discussion further.  Many organizations leverage channels, alliances, and various types of partnerships in their sales deployment strategies.  These partners go by all sorts of names, VAR’s, Resellers, Distributors, Dealers, Integrators, Manufacturer’s Representatives, Agents, and so forth.  They are important to our strategies, because they help us reach and engage customers more effectively, they help improve our coverage,.  They may provide capabilities and value that supplement that which we provide, improving the value we collectively create for our customers.

For many organizations, the only route to market is through leveraging these critical relationships, without them, we sell nothing.

Discussions about working with these organizations usually focus on, “How do we get them to perform?”  “How do we get them to do more?” “How do we get more mindshare?”  And the list goes on.

Attitudes about these important partners may be mixed, “Why don’t they spend more time on our products?”  “We’re paying them so much, why don’t they produce?”  And the list goes on.

Often, there are contentious discussions between parties about these issues.  Sometimes, we expect them to do things that, from their point of view, are unreasonable or even not in their best interests.

To be successful leveraging these partners and achieving the results we both hope to get, it’s critical for us to understand “How Do They Make Their Money?”

Depending on the partner type, the answers can be very different.  They may make their money from the margins or commissions they receive from selling products.  They may make their money from the services they provide from people who buy certain products–for example, in many enterprise software channels, the margins/commissions they make are miniscule compared to the services revenues.  They may not make a lot of money from our products, but our products may be a critical element of total solutions they sell–so without our products, they may not make that money.

Until we understand how they make money, we can’t engage them effectively.  We may be asking them to do things that are not reasonable for their business model.  We may be focusing on areas that, while important to us, are not important to them.  Until we understand how they make money, we don’t know how to position our relationship and to get them to invest in selling our products and solutions.

But with these partners, there’s one more step.  We have to understand how they help their customers make money.  If they are helping their customers make money, then they make money, and it ripples back through the distribution chain.  There’s a subtle but critical point here.  If every element in the distribution chain isn’t making money, the whole model fails.  Often, what we do, since we are focused on our goals, is we actually create cost in the value distribution chain.  This is a prescription for failure.

To be honest, like many of our organizations, many of these partners don’t understand how their customers make money and how they help their customers make more money.  Like many of us, they push products.  We know this isn’t the way to  engage customers.  If we are to be successful in reaching and engaging our end customer through these partners, it is critical that we help our partners understand how their customers make money, and how our collective solutions and abilities help them make more money.

In short, we have to help our partners understand how they can be more successful, not just hammer them to sell more.  Everything we do with them, everything we ask them to do must answer these questions:  Does it help them help their customers make more money?  Does it help them make more money?  If we don’t know the answer to these questions, we don’t know how to talk to our partners and get their mindshare.  If what we do doesn’t address both of those issues, all we are doing is adding cost–which is a no go 100% of the time.

So do you know how your partners make money?

Do you know how they help their customers make money?

Do you know how you help both of them make more money?

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