Many companies find that the most challenging part of setting up a channel network is finding suitable partners. These are companies that are actively looking for such a supplier. Failing to find them can lead to frustration, lost opportunities, and, potentially, a change in strategy.
These are the two most essential factors in selecting channel partners.
Find exactly what you are looking for
– Give enough time and resources to ensure the best result
Once a company decides it requires a channel infrastructure in order to reach its target market customers in different countries, it must continue to follow the process until it engages the right partners. TrainingPACT has 14 requirements that must be met by each channel partner to whom it is looking – at each tier of the pyramid and in every market.
What location should the channel be? Do you need multiple locations? This is especially important if the company is selling to large geographic markets such as France, Germany, or the USA. It is challenging to limit channels to specific regions in the EU. This is why it may be a good idea to find a partner who has reach.
You need a partner that is large enough to represent your company but small enough that you can influence it and gain their attention. We look for distributors (or parts of companies) whose year-two earnings on your products/services are 3% to 5% of their revenue. If, for example, a 40% GM can make 500k per year as margin on your products (i.e., We are looking for companies and divisions with sales between 10M-17M.
To ensure that your channel is serving your target customers, you must determine which vertical segment it should be.
4. Years in Business
It might be crucial that the channel partner is well-established in the segment and has a track record. This is an example of criticality in the financial sector. However, it might not be necessary for leading-edge technology products.
5. Financial Strength
Is the partner trading profitably? What amount of working capital is required to finance receivables, inventory, and sales promotions? What equity structure is desired? Does the VC have any involvement? Is this good or bad? No matter what the criteria maybe, they need to be clear and clearly defined.
6. Customer Base
Briefly describe the customers that the channel should be able to reach from the target customer list (section 2). When looking for a partner, the first thing you should do is find out how many of your 50 targets are already doing business with them.
You might think about whether you have any brands or products that are particularly complementary to your offer. These should be included in the portfolio of your target partner.
8. Written Agreement
Channel partners, particularly smaller ones, tend to be slow to enter into formal agreements and prefer to do business first. Note if a written contract is not an option for you and remove channels that don’t meet this criterion.
9. Stock Order
Is it necessary to have a reseller in order to place a stock purchase? It can prove to be a deal-breaker in the future, so it must be a pre-requisite.
10. Joint Business Plan
Channels will need to do more than react to opportunities. It is necessary to create a plan that will help you jointly grow your business and develop new products. You should eliminate channels that are unwilling to collaborate and who don’t have the resources or commitments to do so.
11. Existing Business
If you want to keep these customers, it can be challenging to acquire new business. Most likely, the partner will see all customers on the market as “his” and won’t want you to cherry-pick. Clearly state your position regarding existing business and stay true to it.
Only agency agreements within the EU can enforce exclusivity. TrainingPACT provides detailed guidance and information on managing exclusivity.
Do you prefer to work with channel partners that will sell your brand, or are you open to private labeling?
Ensure that your target partners can reach an agreement within the required time frame.