Sales Channel Strategy for Sustainable Revenue Growth

It is not individual transactions that bring in enterprise revenue. It is also through strategically constructed channels and repeatable business models that are scalable. Regardless of the dominant source of movement either direct sales, partner networks or digital funnels, to master the revenue engine, structure, roles and value alignment across any route to market must be addressed.

The majority of companies adopt a tactical approach to channels, including adding new routes to market since they appear attractive instead of addressing particular issues. This greedy growth comes with lack of value. The allocation of resources is thin and the channels that each require attention but does not contribute meaningfully are many.

The firms that develop sustainable growth in their revenues would regard channels as strategic resources that need conscious design. There is a purpose of each channel. Choice of channel is equal to buyer behavior. Goals are in line with lucrative results. The complexities are coordinated through governance. Such a systematic method makes channels a revenue multiplier rather than an engine of defensible market place.

To operationalize this in your team, align your execution with advisory services.

Adding channels is easy. It is more difficult to justify their existence. The reasons why companies frequently increase channel portfolio are that the opportunity arises, the partners are interested or the competitors appear to be performing well in new channels. These are reasons that make sense but do not comprise strategy rationale.

There are three questions that one should answer before investing in any channel. To begin with, what is the gap in this channel to the existing revenue strategy? When the same channel of operation has already reached the same buyers with similar economics, the new channel will produce competing channels to the same demand instead of reaching new demand. Second, does this channel appeal to buyers whom the company can provide services profitably? There are channels that serve market segments which do not sustain the cost structure or margin requirements. Third, does this channel concur with the value delivery and complexity of the product? Multifaceted solutions that involve consultative selling never perform well with a channel that is geared towards transactional volume.

The discipline is not willing to develop channels that are not clearly strategic. This eliminates resource dilution, and each channel has a significant contribution in overall revenue strategy. Each channel introduced fills the management attention, support resources, and coordination overhead. It is only logical to invest in that channel when the channel generates returns which no other channel can generate.

Dissimilar purchasers need various interaction models. Trying to sell to complex enterprise buyers with transactional channel produces frustration and failures. The high-touch direct sales to serve self-service buyers will lead to the cost structures that are not economical.

Enterprise buyers are complex and multi-stakeholder with long timelines and a lot of implementation factors. The consultative interaction required by these buyers should be able to comprehend their organizational environment, consider the interests of multiple stakeholders, and deal with complexity of implementation. These buyers are handled by direct sales teams that have a domain knowledge. They can only be served by channel partners who have a valid credibility and consultative power in the field of the buyer.

The channel partners or solution providers can also be successful in mid-market buyers with established needs and defined evaluation processes who have insight into the product and are able to lead simple evaluation and implementation. These buyers don't require the deep consultative engagement of enterprise sales, but they do need competent guidance through their buying process.

Low-contact or self-serve buyers are more attracted to digital interactions with no sales involved. They desire to assess, shop and onboard without making calls and going through sales. These buyers are efficiently served by digital funnels and market place presence at economics it could never accomplish via direct or partner sales.

The principle is the matching channel to buyer behaviour instead of organizational convenience. The channel that the company desires to employ does not matter as much as the engagement model that the buyer requires. Putting buyers into incorrect channels negatively affects conversion and satisfaction no matter the efficiency of the channel internally.

Channels perform well when the incentives are specific, consistent and are linked to the results that are important to the business. Unaligned incentive formulates pathways that maximize their measures at the expense of the general health of the business.

The patterns of misalignment are common and they are repeated in channel programs. Forgetting the conversion channels compensated on the creation of pipelines instead of closed revenue create activity without the responsibility of being converted. Channels that are paid upon initial transaction value are maximized on the criterion of volume and not on the criterion of fit. Performance based on activity measures instead of business impact rewards movement without considering the outcome.

These misfits do not convey ill intentions. They are proxies of incentive regime that appeared rational but give rise to the unintended effects. A compensated partner to make registration of deals has an incentive to register all possible whether they are qualified or not. A reseller whose compensation is based on seat sales has motivation to push volume, irrespective of the renewal and expansion by the customers.

To correct the incentive alignment, the stimulation should be determined by net-new revenue with meeting the margin requirement and not gross bookings. Multi-period goals which incorporate renewal or expansion revenue keep channels concerned with customer success, rather than with initial transaction. Gaming is prevented by use of performance gates where quality thresholds have to be met before more reward levels can be achieved.

The incentive alignment test is the channels make money when the company makes money and lose money when the company loses money. When the channels make profits at the expense of company economics, incentive structure should be redesigned.

Each channel is an overhead to operations. Reporting needs increase. The complexity of forecasting increases. Facilitation programs increase. The settlement of conflicts requires focus. This overhead wastes more margins than most organizations can realize before channel programs are in distress.

Operational capacity has to be verified before the introduction of any new channel. Does the organization have the capacity to provide this channel with proper training, materials and continuously interact? Will reporting through this channel be accepted in forecasting and with a reasonable accuracy? Are they outlined boundary rules that will not conflict with current channels?

The operational burden of channel management often exceeds expectations. Hiring and training are needed by partner managers. Registration systems to deal with registration need establishment and maintenance. The certification programs need to be created and implemented. Co-marketing activities need organization and investment. Every channel that appears light at the time of creation gets bigger as volume increases and edge cases multiply.

The simplicity of structure must not be sacrificed to channel diversity. Organizations that have numerous channels and yet have less capacity to operate in that channels deliver poorer results as compared to those that have less channels served very well. The challenge to put more channels should be weighed against the aspect of coordination costs.

It has practical implications in the form of channel expansion being gradual with one channel becoming operationally stable before the other is introduced. The simultaneous launch of many channels breeds complexity that is compound in its nature and overloads coordinating ability.

The experience of the end buyer should be consistent with the value of the brand even in cases when revenue is collected using partners, marketplaces, or affiliates. The consumer is not aware or concerned of internal channel make-ups. The brand is tried and impressions are created by them that influences their relationship forever.

When consumers experience inconsistent communications on various channels, they become frustrated about the actual functionality of the product and its intended audience. Once the buyers experience incongruent pricing between the channels, they become suspicious about whether they are getting the right price. Buyers who are given false expectations in terms of capabilities or implementation will feel disappointed and this will destroy the relationship irrespective of the channel that made the expectations.

The harm is shown subsequently: churn due to the misset expectations, discounting requests by the buyers who identified alternative prices in other places, loss of brand loyalty due to irregular positioning. These expenses are hardly ever traced to their channel sources as they seem remote to channel interactions that lead to them.

Best channel programs offer centralized value messaging to be used across all channels. There are pricing guidelines that ensure that the pricing remains consistent across channels with precise guidelines on variations. Positioning is also adhered to such that buyers are introduced to the same story irrespective of the channel they interact with.

Channels increase the market coverage, but are not a replacement of ownership of buyer experience. It is the brand that owns such an experience despite the channel involved in the transaction.

Revenue numbers can deceive. A channel with large volumes can seem to be performing well and in fact creating harm in the health of the business by the costs which are not reflected in simple revenue reporting.

Channels might have to be supported in an expensive manner that does not commensurate the amount of revenue they generate. They can be getting customers that are churning at a rate that would blow lifetime value calculations out of the water. They can impose severe pre-sale loads on the sales engineering or solution architecture group. They can also drive the pricing to unsustainable levels so as to compete against the deals they would not otherwise win.

Such a channel measurement should also look at gross margin contribution by channel, not revenue. Cost to serve will show whether the support burden is in the same proportion to the revenue contribution. Channel-source renewal and expansion rates reflect customer quality, and not customer quantity. Overall calculations of lifetime value per channel source indicate whether the initial transactions would result in sustainable customer relationships.

A channel must be successful in addition to being successful in terms of volume. The field is not celebrating its revenues by sacrificing its profitability, but rather by maximizing on channels that will generate profitable customers who remain and develop.

For related context, review lead routing optimization.

The channels have to be foreseeable in order to add to business planning. Systematic operations that generate consistent results bring predictability, rather than wishing that the good things will go on occurring.

Each channel has a defined buyer profile to make sure that there is uniform targeting. When all people handling a channel know who to target and who to reject the consequences are predictable. Individual judgment gives results that are not consistent when buyer definition is not clear.

Channel participants can be trained and onboarded in a standardized fashion, which is necessary to maintain the same capability levels. Different preparation has different partners or representatives with different results. Standardization establishes quality levels that render aggregate performance foreseeable.

Qualification criteria must be repeated to provide quality of deal. Pipeline quality is unpredictable when the standards of the qualification are different depending on the party doing the evaluation. Regular standards create regular pipeline which converts at regular rates.

Checks and performance gates detect the problems before they escalate. The periodic comparisons against set metrics would indicate when channels are not up to specification and this allows action to be taken before the small issues escalate into big problems.

Channel amplifiers do not grow scalably but randomly, generating spikes instead of growth. Excellent quarter could be a stroke of fortune as opposed to ability. Bad luck may be represented by a poor quarter, and not by any systematic issues. Repeatability will allow to differentiate between signal and noise and construct actual growth instead of statistical fluctuation.

Channels do not add to revenue strategy as a plug and play. They need to be invested in enablement prior to their ability to give desired outcomes. Companies that start channels without investing in enablement find that channel partners are not well equipped to market the value proposition, to the right buyers, or to go through the sales cycles.

There are various aspects under enablement. Value messaging training will make channel participants able to communicate why the buyer should care, rather than what the product does. There is clarity on the profiles of buyers so that suitable opportunities will be targeted instead of trying to do everything and hoping that something will be converted. Positioning support materials give the tools which the channel participants literally utilize in the sales actions. Feedback loops and progress tracking are used to give an insight into what enablement has accomplished and what is missing. Agreement over the lines of negotiation ensures that the participants in a channel make promises that the company can follow through.

An unenabled channel partner operates as a lead generator at most - forwarding names which still require a lot of direct sales. An enabled channel partner is a revenue multiplier - it will make and close deals that would not be made otherwise.

The time span of investment is important. Before launching, enablement must be done, and not established after issues arise. Channel programs that are launched fast without enablement investment seldom keep up with it. The trend of poor performance becomes entrenched before there can be any improvements in place.

As revenue channels multiply, governance becomes the backbone that maintains coordination and prevents chaos. In the absence of governance, channels will find their own way and come up with strategies that are incompatible with one another and even with the company goals.

Reporting standards form part of governance which provide uniformity of data across channels. With various channels reporting various metrics in various formats, it is impossible to aggregate and compare. Standardization also provides the management with the visibility of the channel performance.

Deal ownership regulations eliminate situations in which several channels boast of the same opportunity. Well defined rules that are set prior to the occurrence of conflicts ensure that the damage of relationships does not take place and in the case of overlaps the conflict is fairly resolved.

Conflict resolution paths determine the way through which disputes are resolved. There will always be conflicts irrespective of the effectiveness of rules. The point is that it is necessary to have specific procedures that can address conflicts effectively instead of letting them get out of control.

Incentive cadence is used to make sure the channel contributions are recognized on time. Late or inconsistent payment of incentives will hurt the channel motivation and confidence. Instant cadence holds channel captivation.

Forecast Accountability, links channel performance to the business planning. When channels are also involved in forecasting where they are held responsible to be right, their forecasting becomes good inputs to the company planning. Lack of accountability makes channel forecasts aspirational instead of forecasts.

Revenue channels without governance devolve into chaos as each channel optimizes for its own interests without regard for overall business health. The more complex, the more governance is in line.

Most firms consider channels strategically - as sales multipliers that enhance reach. The most successful firms treat channels as a strategic resource which contributes to the competitive advantage.

Strategic treatment refers to the analysis of channels during quarterly business reviews with other strategic investments. The channel performance is linked to the long-term planning rather than the revenue of the quarter. It is commitment to channel excellence by investing in the tools and infrastructure that would help to scale up coordination. The underperformers are ruthlessly rotated as opposed to letting them drag and waste resources.

The strategic channels that they have are their strategic assets that make them a part of the business planning table. They are given the right investment since they deserve it. The management gives attention to them due to their significance. They do not exist as fixed business strategy formations since they change over time.

The other option an alternative, (channels as tactical conveniences), creates channels that do not achieve their potential. They are under-invested and under-managed to get them to be the strategic engines that they can be. The risky cost is the chance cost that plays a minor role when it might play a significant role.

Revenue channels are not shortcuts to growth. They are structured systems, which necessitate emphasis, discipline, and economics. Companies that establish engines of profitable growth on a scalable basis do so with the establishment of the channels such as systems with purpose, buyer alignment, incentive plans, operational support, governance, and strategic positioning.

Companies constructing channels such as tactics - the addition of routes to market in an ad hoc way instead of being designed to facilitate this process, bring complexity into an organization that absorbs resources without equivalent outcomes. The channels are there but are not contributing. They are potentials that are not fulfilled.

It is the distinction between channel development as a strategic work, which should be held to the same rigor as product development or market strategy. Channels which are selected deliberately, which are aligned to buyer behavior, which are consistent in terms of incentive and which is controlled in a clear manner emerge as sustainable competitive advantages. They do not only make money but they build market share that is hard to duplicate.

For foundational background, see customer relationship management.