May 20, 2021
A large part of our business acceleration service involves helping our technology vendor clients manage relationships with sales channel partners in targeted markets and with their large accounts.
While most experienced technology executives understand what is involved in working with sales channel partners, we find that there is a lot of confusion, especially among younger managers at earlier stage technology companies, about what exactly is a sales channel partner.
A legal definition that we typically use in our service agreements defines a sales channel partner as any third party serving as an intermediary between the client – meaning our technology vendor client – and any customer of the client’s products and services.
For clarification, it is worth pointing out that working with sales channel partners is synonymous with business development, indirect sales and distribution channels.
Types of Sales Channel Partners
There are many different types of sales channel partners ranging from an individual who acts on behalf of a technology vendor in a specific country to a large multinational organization that promotes a technology vendor on a global level.
We segment the different types of sales channel partners we work with into the following categories:
- Agents – are individuals who fulfill the function of a sales representative in a specific country or region on an outsourced basis. Agents are often former sales executives that have a wide network of contacts at end customers in a specific geographic or vertical market.
- Value Added Resellers (VARs) – are companies that resell the products of technology vendors and add value by providing a set of professional services, such as training, configuration, implementation, support and so on, that are directly related to the end customer’s use of the technology vendor’s product.
- System Integrators (SIs) – are similar to VARs in that these companies also resell the products of a technology vendor as well as provide professional services to the end customer. The main difference is that the professional services provided by an SI are much wider than a VAR and cover integration with other systems and infrastructure used by the end customer.
- Managed Service Providers (MSPs) – are companies that provide managed services that allow end customers to access the functionality for certain functions or processes in subscription models. Many telcos and other communications service providers have evolved into MSPs and today offer a full range of VAS and managed services targeted at both business and retail customers.
There are of course additional types of sales channel partners, such as management consultants and distributors, although these other types of sales channel partners are less of match for the service we offer.
It is not uncommon for multiple sales channel entities to be involved in a sales opportunity.
For example, we are currently engaged in a sales opportunity in East Africa with a good-sized telco. In addition to providing traditional voice and messaging services, this telco also provides numerous managed services to its business customers. This telco is in the advanced planning stages of rolling out a new managed service to its business customers based on the software application of our client running in its Cloud environment.
This sales opportunity was developed by one of the agents we work with in the region and who is currently serving as the territory manager for this client. For the integration of our client’s products with the other systems running in the Cloud environment of this telco, we will be using services of a local integration partner of ours, who has in-depth knowledge of the network infrastructure of this telco.
All three of these entities – the agent, the telco/MSP and the SI – can be considered as sales channel partners and each plays an important function in contributing to the success of this sales opportunity.
Business Models of Sales Channel Partners
An agent generally receives compensation from a technology vendor in the form of a commission based on the volume of sales generated. Many agents will also request that the technology vendor reimburse them for their expenses, especially those related to travel.
VARs, SIs and MSPs each generate revenue from markups to discounted pricing negotiated with a technology vendor. This discounted pricing is also commonly referred to as a transfer price. VARs and SIs typically generate revenue from markups to a technology vendor’s discounted price list to end customers, while MSPs also generate their income from markups to a transfer price, although within the framework of recurring revenues from monthly service fees charged to end customers.
Why Work with Sales Channel Partners
The tendency of many Israeli managers, especially younger executives working for earlier stage technology vendors, is to try to sell directly to end customers in an effort to maximize the revenues from a sale. However, from our experience, this is a short-sighted decision that often gets many Israeli technology vendors into trouble and can even lead a sales opportunity to a dead end.
We will expand on this topic in more detail in our following update, although in the meantime, below is a quick list of some of the benefits of working with sales channel partners.
- Expand sales footprint – leverage engagements with sales channel partners to access more customers and more sales opportunities in local markets around the world that were otherwise beyond the reach of your company.
- Increase productivity – manage relations with sales channel partners strategically as if they are members of your sales team rather than pursuing individual sales opportunities one by one.
- Do business in local culture – utilize sales channel partners to bridge culture gaps and language barriers that would have otherwise prevented your company from accessing engagements with new customers in local markets.
- Improve awareness in local markets – take advantage of the brand, reputation and track record of sales channel partners to elevate the position of your company and its offerings in local markets.
- Improve payment collection – use sales channel partners to facilitate efficient collection of payments from customers in local markets.
We have a wide network of sales channel partners that we have been working with for many years with good success. Lately, we have been focusing on building relationships for our clients with sales channel partners in Southeast Asia and East Africa. These markets and regions are experiencing strong growth and offer attractive opportunities for Israeli technology vendors.
To learn more about how we can help your company begin working with our network of sales channel partners, please read our recent post on Dreaming of Thailand or contact us through the short form below.