Partner Relationship Management

Transcription

1 What is Partner Relationship Management (PRM), and Why is the ROI so High?

2 What is Partner Relationship Management? Partner Relationship Management (PRM) software applications are Web-based solutions to improve processes for reaching customers through indirect sales and distribution channels. PRM applications automate the lifecycle of channel management and coordinate the exchange of information between sales, marketing and service organizations. Depending on industry, between 30 percent and 70 percent of all sales worldwide flow through channels, allowing businesses to lower costs, expand more aggressively into new markets and offer more valuable solutions to customers. If you boil PRM down to its essence, what you re left with are very effective applications that streamline how indirect channels are created, managed and harvested for maximum returns. PRM is full of applications that deliver value quickly and in hard dollars. AMR Research This white paper will outline the ways in which companies using PRM strategies and technology can create significant, measurable return on investment (ROI) by increasing channel sales revenues, reducing channel management costs and scaling channel networks without having to increase support infrastructure. PRM solutions, which are sometimes labeled CRM for Indirect Channels, Collaborative CRM, Channel Relationship Management, or Demand Chain Management, give companies that sell through third parties a single, integrated system to market, sell and service their products more effectively, in a fashion that traditional sales applications cannot easily support. These partners can include resellers, distributors, VARs, agents, dealers, OEMs, ISVs, systems integrators, franchisees, brokers, influencers, analysts, manufacturers reps, customers, or retailers. Partner Relationship Management in the Enterprise 2

3 Why PRM? While traditional CRM software suites focus on managing internal sales processes, PRM solutions provide a more complete approach to selling through the channel by enabling go-tomarket strategies with partners and customers. For companies that sell through channels, PRM is more effective than CRM because these solutions specifically address the challenges of selling through partners. Selling through indirect channels presents unique challenges and opportunities; PRM helps companies turn these distribution networks into a major source of competitive advantage. Enterprises that understand sooner than others the strategic value of partner relationship management (PRM) technology to achieve dramatic increases in revenue, productivity, and customer satisfaction will have a significant lead on their competitors that lag in the adoption of this technology. The Yankee Group The ROI of PRM Indirect channels play an invaluable role in the sales processes of many companies. Partners establish customer relationships and ultimately provide the products and services essential to their customers success. However, because businesses generally have less influence over partners than direct sales representatives, managing the channel can be difficult. Partners are independent businesses and their participation in a company s selling program will always be voluntary. As a result, channel management is often given less attention than other sales initiatives, even by companies that rely heavily on indirect channels. Traditional enterprise software sales applications have focused on direct selling relationships, ignoring the unique collaborative requirements inherent in managing partner relationships. As a result, there has been a shortage of technology solutions to help companies manage their indirect channels. This has forced many organizations to rely on outdated, inefficient, manual processes, such as makeshift, homegrown systems, spreadsheets, , phone calls and faxes to support partners. PRM solutions are custom-built to improve channel management practices. Since many companies existing channel management infrastructure is deficient, PRM often produces substantial improvements in short order. A Gartner, Inc. Research Note published in 2003 reported that deployments of PRM solutions had the highest rate of demonstrable return on investment of all automated sales applications: Source: Multitier Sales Groups Claim Highest ROI for CRM Sales, Gartner Inc. Research Note M , by Robert DeSisto, April 1, 2003.

4 GARTNER RESEARCH: PRM SHOWS UNMATCHED ROI. Question: Have you received demonstrable ROI from your deployment? Yes No PRM 66% 34% CRM Sales Suites 48% 52% Gartner Survey, n=54 sales organizations implementing sales applications, December 2002 Incentive Compensation 55% 45% Gartner Survey, n=25 sales organizations implementing sales applications, December 2002 Sell-Side Commerce 50% 50% Gartner Survey, n=52 sales organizations implementing sales applications, December 2002 Direct Sales 45% 55% Gartner Survey, n=38 sales organizations implementing sales applications, December 2002 Sales Configuration 39% 61% Gartner Survey, n=95 sales organizations implementing sales applications, December 2002 PRM = partner relationship management ROI = return on investment CRM = customer relationship management Source: Gartner survey of companies using sales applications, December 2002 Primary Benefits of PRM The Gartner report itemized the following specific benefits from deploying PRM software solutions: Improved effectiveness in delivering timely information to selling partners Stronger partner and customer service Cutting partner ramp-up from two weeks to two hours More efficient price quoting Shortening order placement and tracking time from weeks to real time Reducing communication, channel management and technology costs Making it easier for partners to do business with vendors PRM solutions are more important than ever, as they are going to be even more critical in building optimal relationships Gartner, Inc. 4

5 What does PRM do? Most companies have defined practices for managing their partners, but many rely on manual processes and basic tools to support these relationships. These companies use spreadsheets, and phone calls to manage vital activities such as recruiting new partners, tracking lead referrals, training partners to sell products, managing co-marketing funds and processing orders. Supporting partners through manual processes is resource-intensive and requires companies to add staff members as channel business increases. Manual processes also cause gaps in customer service, when untrained partners work with customers and communication delays result in lost business opportunities. AMR Research sees PRM as a competitive weapon in both low- and high-growth industries, as the performance of channel partners is increasingly what many companies rely on for accomplishing their revenue and profitability objectives. AMR Research Some companies have recognized the need to automate these indirect sales processes and have created custom software solutions or modified existing applications to meet the needs of their channels. However, the high cost of creating, integrating and maintaining custom applications has made it difficult to expand or scale these initiatives. PRM software resolves these challenges by providing companies with Web-based solutions for collaborating with partners and for providing them with the services and support they need to drive business. PRM software provides a single platform enabling companies to recruit, train, plan, market and sell with partners. In turn, these partners are able to market and sell to and service end customers more effectively. PRM solutions also enable companies to eliminate the costs of maintaining custom software. Without PRM With PRM Staff Large Small or same staff managing more partners Business Processes Manual processes Automated best practices IT systems Disparate systems Integrated systems Partners Not fully engaged Loyal and productive Customers Not fully served More satisfied Competitors Access to partners and customers Locked out Results Losing business Winning business PRM software solutions allow companies to increase channel sales without increasing channel staffing costs, by replacing manual processes and disconnected IT systems with an integrated platform and solution to drive best practices and more profitable sales channels. 5

6 How does PRM drive ROI? PRM drives ROI results in three ways: 1. Helping companies increase revenue through the channel. 2. Helping companies reduce channel management costs. 3. Helping companies create the scalability to ramp up channel networks without having to increase staff and infrastructure. First PRM ROI category: increased revenue Increasing channel revenue is one of the primary ROI benefits of PRM solutions. PRM helps companies ensure that partners have access to the service and support they need to drive business. PRM can give partners the same access to tools and support as direct sales representatives. Examining some of the main revenue-increasing drivers of PRM: Revenue Increases: ChannelWave helps partners get the service and support they need to drive business Area of Improvement Reduce partner ramp-up time Improve partner planning Target partner communications Closed-loop lead management Partner training ROI Driver Accelerates timeto-revenue Increases visibility into partner performance Improves partner access to sales and support materials Increases close rates Equips partners to sell more effectively Customer Results Automated the on-boarding process and recruited and ramped-up over 400 revenue-producing partners in three months Increased lead management efficiency 100% Reduced sales cycle time from weeks and months to days and hours Automated and enhanced lead management and agent communication processes, helping agent program to achieve 128% of target revenue in current year BTW (BEA Training Worldwide), powered powered by ChannelWave, has delivered over 12,000 courses to partners and internal employees. Many of these revenue-increasing improvements have both a push and pull impact: 1. Push impact: PRM makes it easier for companies to support their partners. This improved support provides immediate impact. 2 Pull impact: PRM thus makes it easier for partners to do business with companies. Businesses thus earn increased mindshare with their partners, which leads to repeat business. This increased mind share provides long-term impact. 6

7 Second PRM ROI category: decreased costs Another major ROI benefit of PRM is the ability to reduce channel management expenses. Many companies manage their channels using a collection of disparate applications, which can be costly to integrate and maintain and which a PRM solution can replace. PRM solutions can also redirect many manual communications and transactions toward low-cost electronic processes. Examining some of the main cost-reduction drivers of PRM: Cost decreases: ChannelWave automates partner support to reduce costs Area of Improvement Partner self-service Electronic communications IT infrastructure consolidation ROI Driver Reduces support costs Reduces communications costs Reduces IT costs Customer Results Reduced partner communication costs by 50% and overall channel management costs by 30% Redeployed three full-time channel support staff after replacing manual lead management processing Combined four partner databases into one, saving ongoing maintenance and staffing costs Third PRM ROI category: channel scalability The ability to achieve scale quickly, without having to add costs, is the main reason why companies choose to sell through indirect channels. One of the major benefits of PRM is that it can provide companies with the infrastructure needed to add large numbers of partners to their channel networks in a short time frame, without having to add channel support staff. This scalability provides significant business model flexibility. Examining some of the main scalability-enhancing drivers of PRM: Improved scalability: ChannelWave helps create flexibility for business models Area of Improvement Process templates automation Internationalization and localization Web-based architecture ROI Driver Provides reusable partner best-practice templates Reduces manual processing Extends support to international partners Requires no IT investment for partners Customer Results Increased from 5 to 175 active partners and increased channel share of total revenue from 15% to 23% without increasing headcount Partner Zone portal delivers sales support to 8,500 partners across 37 business units and North America and Europe Increased channel share of total revenue from 20% to 80% without hiring additional staff 7

8 Measuring the ROI of PRM The ROI impact of a PRM deployment can be projected beforehand, or calculated postimplementation. An effective approach is to group the benefit calculations by three major categories of benefit: increased revenue, decreased cost and increased scalability. The next step is to identify the key business process benefit sources within each category, and break each of these down by its component drivers. Before (without PRM) and after (with PRM) calculations identify the bottom-line benefit generated. Below are sample calculations for common PRM benefits based on real-world experience, using the case of a representative mid-market size, channel-oriented company. This company has the following details: PRM modules deployed: Partner profile management Partner recruitment and ramp-up Partner business planning Partner program management Partner training Partner communications and document management Sales opportunity management Sales pipeline forecasting 8 Item Value Notes Time length of model projection 2 years 2 years is a conservative assumption for the length of use of a PRM application. Number of partners 100 in Year 1, rising by 25 per year Annual channel revenue $25 Million Gross profit margin 50% Gross margin is generally the most appropriate measures of the benefit of increased revenue: Using simple total increased revenue overstates the benefit, as it neglects costs. Using net income likely understates the benefit, as this measure includes unrelated factors such as depreciation and sunk costs. 80/20 rule Applies The top 20% of the company s partners typically produce 80% of total channel revenue. Average length of time required to ramp-up a new partner Percentage of an existing partners sales that an average new partner can be expected to achieve in first year 5 months 25% Cost of capital 15% Required to be able to project cash flows out into the future. Number of sales leads assigned by company to partners, per year Average partner follow-through rate on distributed leads % Most companies have partner lead follow-through rates of 50% or below. Lead close rate 3% Of the leads that are followed up on, 3% can be expected to close. Average partner deal size $10,000 Average monthly communications cost, per partner Number of front-line channel management staff employed by the company $25 $25 in communications costs per month per partner is a standard benchmark across a variety of industries. Costs consist primarily of printing and mailing paperbased materials. 5 These are the employees who spend most or all of their time working with partners or on partnersupport issues.

9 First category: Increased revenue calculations PRM functionality: Partner recruitment and ramp-up Benefit: Reduced new partner ramp-up time For companies that are increasing their number of channel partners, the ability to get those new partners up and selling more quickly can have a substantial impact on the bottom line. Many companies report that ChannelWave s partner recruitment and ramp-up application has enabled them to reduce the time required to get new partners up-to-speed and selling effectively by several weeks or months. Online recruitment tools automate the application registration, qualification and program enrollment processes, and partners are moved through the ramp-up process automatically. Based on the assumption of a 40% reduction in ramp-up time, the calculation of this benefit is as follows: Monthly benefit of automated partner recruitment and ramp-up Without PRM With PRM Difference Average number of new partners Ramp-up time, in months 5.0 months 3.0 months (2.0) months Effective increase in selling year 0% 17% 17% Average annual sales per current partner $250,000 $250,000 - Average annual saler per new partner $62,500 $62,500 - Additional sales per new partner $0 $10,417 $10,417 Average gross margin 50% 50% - Total additional monthly margin $10, 851 $10, 851 A 40% reduction in ramp-up time for new partners results in a projected gross monthly margin benefit of $10,851. To calculate the benefits of PRM over the lifetime of the project, (assumed to be two years in this case, as noted above) this calculation must be run for each month, using the relevant inputs each time. PRM functionality: Sales opportunity management Benefit: Increased lead follow-through and close rates Nearly all companies without strict lead management processes have significant lead loss ( drop ) rates. The process for converting leads to sales covers multiple steps, including qualification, assignment and follow-up. Each of these steps is a potential point of failure where a lead may be mishandled or dropped. Leads get lost for a number of factors. The Yankee Group summarizes the concept of lead drop with this graphic: 9

10 Yankee Group: Causes of Lost Leads 2 As shown above, The Yankee Group estimates that companies typically lose between 40% and 80% of all sales leads because of inefficiencies in their business processes. Gartner, Inc. puts the average lead drop rate at 70%. ChannelWave s lead management module can significantly reduce drop rates, because all leads are managed and tracked from within a single system. This reduces the opportunity for loss resulting from the confusion caused by using multiple, disparate systems to manage leads. Business process rules, such as automatic notification of a lack of account activity, further ensure that all leads receive appropriate follow-up by partners. Distribution of leads is automatic and immediate, addressing the need for timeliness. And leads are targeted to the most appropriate partner, as determined by the information contained in the PRM partner profile database, greatly reducing the problems of poor qualification and incorrect assignment. In addition to reducing drop rates, the second major ROI driver of lead management is improvement in the average close rate, which is the percentage of leads that are eventually converted into sales. PRM can improve the timeliness and accuracy of lead distribution, resulting in a higher close rate. Combining the reduction in lead drop and improvements in lead close rates can result in significant monthly margin increases: Monthly benefit of closed-loop lead management Without PRM With PRM Difference Total number of leads distributed monthly Leads drop rate - lack of timeliness 10% 5% 5% - poor matching 10% 5% 5% - poor handling 20% 10% 10% Net lead follow-through rate 60% 80% 20% Lead close rate 3.0% 3.3% 0.3% Average sale size $10,000 $10,000 - Margin 50.0% 50.0% - Total monthly margin $22,500 $33,000 $10,500 Note: Companies with larger lead distribution programs could expect to see larger returns from this aspect of PRM Increase Revenue by Optimizing Lead Management, Sheryl Kingstone, The Yankee Group, August 2002

11 Second category: Decreased cost calculations PRM functionality: Partner self-service Benefit: Reduced partner communication costs PRM enables companies to offer partners a comprehensive set of support tools over the Internet. As a result, partner self-service replaces some more costly phone or fax support inquiries. Monthly benefit of targeted partner communications Without PRM With PRM Difference Number of partners Average number of phone/fax support inquiries per partner per month Processing cost per phone/fax inquiry $10 $10 - Total monthly support costs $4,000 $2,000 $2,000 This benefit of PRM can result in very significant cost savings for organizations with large numbers of partners. PRM functionality: Partner profile database Benefit: Reduced IT costs Many companies have fragmented partner support processes, and as a result, use multiple unconnected applications to help run their indirect channels. ChannelWave provides a single, centralized database of all partner profile information. As a result, ongoing maintenance costs are reduced. Monthly benefit of automated partner support Without PRM With PRM Difference Number of partners support applications Processing cost per phone/fax inquiry $1,000 $1,000 - Total monthly application maintenance costs $3,000 $1,000 $2,000 PRM functionality: Electronic document distribution Benefit: Reduced partner communication costs ChannelWave s electronic content management and distribution solution allows companies to create on-line content libraries, often reducing the need to send out paper-based materials to partners. Monthly benefit of targeted electronic document distribution Without PRM With PRM Difference Number of partners Average monthly cost of distribution materials, per partner $25.00 $17.50 $7.50 Total monthly document distribution costs $2,500 $1,750 $750 11

12 Third category: Increased channel scalability Channel management staff efficiency increases One of the main benefits of PRM is that it can help a company s channel management staff become more efficient, by replacing many time-consuming manual tasks with automated processes. This increased efficiency gives companies significant flexibility in the structure of their business model going forward. Companies growing their channels or adding new types of channels must consider how to support these additional partners. Unless a company is prepared to add new channel management staff, it must find ways of managing larger numbers of partners with the same number of people. By increasing the efficiency of existing channel management staff, PRM can help companies avoid adding staff as their channels ramp up. The first step in projecting the scalability benefit of increased efficiency is to break down how channel management staff spend their time by business process, and then to estimate the impact of PRM on each of those processes. Every company s processes are different, but a typical breakdown would be: Channel management staff time allocation by business process Without PRM With PRM Difference Partner profile management and maintenance 10% 5% 5% Managing distribution of marketing collateral to partners 10% 5% 5% Managing sales opportunities 30% 20% 10% Other communications with partners 20% 15% 5% Recruting new partners 10% 7% 3% Business planning with partners 20% 15% 5% Other activities 10% 10% 0% Total: 33% The next step is to estimate the impact that these projected efficiency improvements are likely to have on staffing requirements. One important measure is the ratio of channel management staff to partners. This sample company has five channel managers and 100 partners, for an initial ratio of 20:1. Applying the 33% efficiency gain described above yields a new effective ratio of 27:1 3. Thus, given a 33% efficiency increase, this company s channel managers will each be able to manage an average of 27 partners, as opposed to the current level of 20, with no deterioration in service quality or productivity. So the five existing channel managers together would be able to manage 133 partners, an increase of 33 from the current level. 4 As well as providing companies with the scalability to ramp up indirect channels without adding headcount, this increased efficiency also allows channel management staff to spend more time on high-value, sales-generating activities, thereby contributing to the revenue gains discussed above The calculation is (100 partners * (1+0.33))/5 channel managers 4 Please contact ChannelWave at for complete discussion of the complex issue of modeling scalability benefits.

13 Putting it all together Once the appropriate individual PRM gains have been calculated, all that remains is to sum up the different benefits, subtract costs, and project the series out over the life of the deployment. Revenue Increases Note: These revenue and cost figures reflect the PRM benefits for a mid-market company with $25 million in annual channel sales. Enterprises with higher channel sales would see correspondingly greater results. Increased revenue source Monthly Increase Total Over 24 Months Reduced partner ramp-up time $10,851 $238,722 Improved results among top-performing partners* $9,840 $216,480 Improved results among bottom-performing partners* $16,420 $361,240 Improved lead management** $10,500 $231,000 Total: $47,611 $1,047,442 Project length is 24 months, but benefits are assumed to accrue for 22 months, allowing two months for system deployment and partner adoption. *These items relate to the 80/20 rule, whereby the top 20% of the company s partners produce 80% of total channel revenue. PRM can help top-performing partners make additional revenue gains, while also providing a means of re-engaging some under-performing partners and helping them to increase their sales productivity. Please contact ChannelWave for further discussion of how PRM applies to the 80/20 rule. **Companies with larger lead-management programs could expect to see more significant returns in this area. Cost Decreases Decreased cost source Monthly Savings Total Over 24 Months Reduced document distribution costs $750 $16,500 Reduced partner support costs $2000 $44,000 Reduced partner support application costs $2,000 $44,000 Total: $4,750 $104,500 Project length is 24 months, but benefits are assumed to accrue for 22 months, allowing two months for system deployment and partner adoption. PRM Costs Software investment and deployment costs must also be calculated. Software deployments can typically have several cost components, including setup, license, maintenance, hosting, staff time costs and periodic code upgrades. As this example ROI calculation is based on a mid-size company, ChannelWave s Midmarket product costing will be used. 13

14 One-time and ongoing cost items are listed in the table below. Ongoing cost items are carried out over the length of the expected life of the PRM solution. Two years is a safe estimate for this length of time. PRM Investment Cost Amount Total Over 24 Months Setup $50,000 one-time $50,000 License $7,750 per month $186,000 Maintenance Included - Hosting Included, if applicable - Staff time $1, per month 5 $37,500 Periodic code upgrades Included - Total: $273,500 ROI Summary The final step is to add revenue gains and cost savings, and subtract software investment costs, to yield net benefits. Item Amount Total revenue gains $1,047,442 Total cost savings $104,500 Total benefits $1,151,942 Total costs $273,500 Net benefits $878,442 Net benefits - discounted * $778,950 IRR** 41% Projected payback timeframe (with two month ramp-up period) 5 months *Discounting refers to including the time-value of money in a calculation of net benefits. All projects with cash inflows and outflows stretching out in the future should be measured on a discounted basis, to facilitate correct decision-making. Net benefits for this company have been discounted using an interest rate of 15%, which is the company s cost of capital, as stated in the initial data points above. Discounted cash flows can be easily calculated using standard spreadsheet applications or financial calculators. Please contact ChannelWave Software for further discussion around this topic. **Internal Rate of Return is computed using standard financial calculators or software applications Based on the assumption that maintaining a ChannelWave PRM application would require 25% of the time of a full-time business user costing $75,000 annually. Large ChannelWave customers such as AT&T EMEA report that they require one-quarter of a full-time resource or less to use and maintain their ChannelWave applications. The calculation is (25% x $75,000)/12 months = $1, per month

15 Conclusion By using PRM solutions to help build more productive relationships with selling partners, businesses can extend their reach and build stronger, more profitable long-term relationships with end-customers. As a result, businesses can turn their distribution networks into a competitive advantage by making it easier for partners to work productively with them, streamlining inefficient manual processes, improving channel visibility and building more profitable selling channels. As Gartner recently wrote, At the heart of enterprises that are successful in today s increasingly competitive business environment is a recognition of the value of partner relationship management (PRM) Source: The Evolution of Partner Relationship Management Gartner, Robert DeSisto, June 2002

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