I’m just going to say it. Launching a new product or service involves a lot of selling. Many first-time entrepreneurs hate that part. The good news is that you have a choice – you can either do it yourself (and eventually hire people) or you get someone else to do it (outsource it). When you are just starting out, finding another company that is willing to take charge of your sales for you can be a huge advantage. Partners come with their own sales teams and rolodex of existing customers. However, you need to pick the right partners and manage them properly.
“Why would anyone want to sell my stuff for me?”, you may ask. Good question. I knew there was a reason I liked you. 🙂
Types of Sales Partners
There are different types of sales partners and each one has his own unique motivations and business model. In each of these cases, the partner is using their own customer list and sales staff to drive sales, while managing their own lead generation (finding new customers) and sales funnels (a sales funnel tracks every sale’s progress).
“Sales partners won’t sell your product or service if there is nothing in it for them.”
Resellers make a living from selling products created by other companies. They have a rolodex of existing customers and they are typically trying to “upsell” those customers – i.e., convince them to buy an additional product or service that is complementary to something they have already purchased. Among traditional retail, a typical example would be a furniture store or a department store carrying products from different manufacturers. The same thing exists in software or almost any other industry.
2. Value-Added Resellers (VARs)
VARs build add-ons to your product or service, which they sell to your customers. Therefore, they are motivated to sell your product or service as the base for their products and services. A classic example is a service provider like AT&T. They do not manufacture phones, but they need to sell them to you in order to sell you their services. In the same way, Apple does not wish to become a phone company, but they use the phone companies as sales partners.
Typically, VARs make add-ons that you do not wish to produce for a couple of reasons. Let’s use Apple’s products to illustrate the point.
- Some add-ons would force you to change your core business – e.g., Apple does not want to become a phone company, so they partner with them instead
- Some add-ons adapt your product to a market that is not a priority – e.g., Apple is not likely to spend money on the marketing and software required to sell iPads as kiosk displays, but they can find partners that will spend that time and money instead
“A good VAR partner is one who NEEDS to sell your product or service in order to sell theirs.”
Affiliates are already selling a product or service but would be interested in bundling it with your product or service because the resulting package would be more compelling to their customers. An example of this would be a transit agency partnering with a bicycle-sharing service and offering a discounted monthly fee for access to both services.
Often, affiliates agree to the partnership because your product or service improves their image or gives them a marketing advantage. This can be more powerful than commissions, since an improved image often translates into more sales of their core products and services. In the previous example of a transit company, partnership with a bicycle-sharing service makes the transit company look more eco-friendly resulting in a better image, creates more loyalty with existing customers, and attracts new customers as well.
“If bundling your product or service can improve someone else’s image, you may have found a potential affiliate.”
Finding the right partner
For resellers, take a look at your competitors. Who are they using? Many resellers have no problem selling competing products or services. It gives them different options to offer their customers, based on finding the right fit for price and features. This might also be true for VARs but is unlikely to be true for affiliates. Another strategy is to look for products or services that target the same customers and that you think would make a good bundle with your products and services.
“The ideal sales partner has 1) a desirable customer list, 2) a complementary product or service, and 3) the ability to increase their sales by bundling”
Defining Terms and Conditions (T&C)
Once you have a partner in mind and have contacted them, you’ll need to focus on negotiating the terms and conditions of a contract. Here are some points to focus on…
1. Control the payment
The partner should be paid his commission AFTER you have received your money from the sale. The best way to ensure that is to have all sales of your product or service be handled by you, not the partner. If the partner handles the sale, then you will be waiting on him to pay you, which is not a good idea since the partner might delay your payment for accounting or other reasons.
“In any partnership, make sure you get paid first”
2. Use gross sales
Be clear about whether commissions are based on gross sales (before taxes are deducted) or net sales (after taxes). Before taxes is better for you, but after taxes is better for the partner.
3. Check references
Ask to speak to a few other companies that are currently using this partner. Ask them what they dislike the most about dealing with this partner. Most people will be surprisingly honest.
4. Pay for a lawyer
Get a lawyer to check the contract before signing it. Although I shouldn’t have to mention this, I think it’s important enough to do so anyway.
Maintaining a Healthy Partnership
Like any relationship, partnerships require constant monitoring and maintenance or they risk falling apart. When monitoring a partnership, use the same techniques that you would use with an in-house sales team.
1. Set targets
Partners should be expected to meet specific sales targets each quarter (a year is made up of four 3-month quarters, starting in January). Targets are typically focused on the number of new customers won or the amount of revenue generated. These targets are usually negotiated and the partner is expected to commit to them once agreed upon. If they fail to meet the targets, you can choose to define penalties or simply use that information to drive later negotiations (“you failed to meet your targets for the past 3 quarters, so…”).
2. Hold quarterly reviews
You should check to see whether targets have been met or not. If not, penalties might be enforced (see previous bullet). In addition, strategies should be discussed to see how targets might be met for next quarter and whether new targets should be set.
3. Hold monthly reviews
Every month, you should review the partner’s “sales funnel”, limited to the the deals that include your product or service. The goal to ensure that everything is on track for the quarter and to discuss how you might help thing move forward more smoothly – e.g., better sales material. A sales funnel lists the various potential deals along with the possible dollar amount, categorized by how close the deal is to being closed. Sometimes, categories reflect a time period (e.g., 3 months, 6 months, etc), but they often reflect the interest level shown by the customer (e.g., cold, warm, hot). Some partners just label each category with a letter (e.g., A, B, C, D) and then define what that letter means so that they can change the definition as needed.
“As with any sales team, partners should be given targets and held accountable for them.”
4. Provide good sales materials
No-one can sell a product or service if they don’t have the right sales material, in the form of a decent web site, solid pricing, a well-written sales pitch, printed material (if applicable), an effective pitch deck targeted at customers (if appropriate), and so on. Always check to make sure that the sales team has what it needs. If you’re not sure what they need, ask them.
“If you don’t arm your sales force with what they need to succeed, they will fail. Partners are no exception.”
5. Collect war stories
If at all possible, meet the actual salespeople on a semi-regular basis. Ask for their feedback about what it’s like to sell your product and the obstacles or objections they typically face. If a deal falls through, find out why and whether it was related to your product at all. If a deal is won, find out why as well, since there might be great feedback for your marketing team about why the product sells. Moreover, if there’s another competitor out there that you don’t know about, the sales team will know. If you marketing message is unclear, they will tell you. Salespeople are your front line troops and they can give you the real dirt on your product.
“Your sales staff and partners are a gold mine of information about your market. Don’t leave that mine unexploited.”
The Pitfalls of Partnerships
Nothing in life is wine and roses all the time (or peanuts and root beer – you have your vices, I have mine). There are a few things you need to keep in mind as you navigate these waters.
1. Partners are coin-operated
Partners will focus on the products or services that make the most money for them. If your partner can make more money by pushing their best-seller rather than your product, they will do that. This is often because your product or service is not adding enough value to their products or services (you’re an “OR” choice, not an “AND” choice). Let’s face it, selling your product or service probably requires training and practice before a partner can close the sale every time. They need a good reason to go through that effort and will avoid it if they can. Even if that means avoiding discussing your product during a sales call with a customer. It’s always more attractive for them to go for an easy win than to risk losing the whole sale because they weren’t sure how to talk about your product effectively.
“Partners want to make easy money. If you make a sale more complicated, they will neglect you.”
2. Partnerships are like dating
No-one dates forever. Eventually, you either get married or split up. The same is true in business. A partner will only stay with you for as long as it benefits them. The moment a better partner comes along, you will either be dropped entirely or possibly take a backseat (in the case that it’s a non-exclusive partnership). Therefore, make yourself invaluable and maximize the benefit of the partnership for as long as it lasts.
3. Partners can become enemies
Occasionally, two companies will partner because each one has a piece of a very compelling puzzle and bundling both solutions together simply makes sense. However, it can quickly become clear that the future for each company depends on that partnership. In a situation like this, some partners may take advantage of the unique relationship to build a competing solution internally with the intention of severing the partnership once they have eliminated the need for it.
“Keep your friends close; keep your partners closer”
Here are some steps you can take to protect yourself. Although this will not provide perfect protection, it will certainly help mitigate the pain of the loss.
- Be very careful about how much confidential information you share with a partner
- Ensure that you are properly protected by legal agreements, such as NDAs and non-compete agreements
- Have a clear plan that deals with the loss of this partner (e.g., an effort to duplicate the key elements they provide, a replacement partner waiting in the wings, etc)
Marrying a Partner
Just as in life, some partnerships go so well that marriage seems like a great option. In business, this takes the form of a merger (when two companies are roughly the same size) or an acquisition (where one buys the other). If the cultures are a good fit, this can be a joyous occasion (especially for the investors, who get their payout at this point).
“Partnerships can provide a viable exit strategy, if you find the right partner”
Now go make some new friends!
Although it may seem scary, partnerships are much easier to manage than an in-house sales team. Not to mention the overhead of paying salaries to a large sales staff. Partnerships are a great revenue booster and I encourage you to use them.
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