Profit-Driving Vendor Partners

Pop quiz: Which is more important--top- or bottom-line revenue? Top-line, or gross, revenue reflects the relative size of a company. Bottom-line revenue, or net profit, reflects a company's relative health. So, profitability almost always trumps gross revenue. No surprise that profitability--or profit opportunity--is one of the most critical factors affecting the symbiotic relationship between vendors and solution providers.

Solution providers seek hardware and software vendors that deliver both products and programs that open up profit opportunities. Vendors seek profitable solution providers that have the marketing, technical and sales infrastructure to channel systems to market.

It's no surprise that some vendors are helping solution providers build profitable businesses more than others. According to the 2007 VARBusiness 500, vendors with more mature programs, entrenched leadership and channel commitment, and diverse product offerings are best positioned to be in the black.

Microsoft--with the largest and one of the oldest channel programs in the business--topped the list of vendors driving partner profitability. Nearly 65 percent of the VARBusiness 500 said the software giant helps improve their bottom lines.

Under the leadership of channel chief Allison Watson, Microsoft has made partner profitability an imperative. Last year, it developed a comprehensive set of metrics based on key performance indicators to help solution providers better understand the underlying currents in their businesses and make adjustments that drive higher efficiencies and profits. Microsoft has trained scores of solution providers on how to use the metrics. "Microsoft is helping me be a better businessperson," one VAR says.

"Our key things are for our partners to extend their market reach and to reduce costs through readiness programs that allow them to increase profitability," says Robert Deshaies, vice president of Microsoft's U.S. Partner Group.

Partnership profitability is often tied to the diversity of a vendor's product lines. Manufacturers with more products to sell--either different technologies or products scaled for different-sized environments--have a higher propensity to drive solution provider profitability. The more products available, the more opportunity to sell goods and services.

Vendors with broad product portfolios will reward solution providers with deeper discounts, high rebates and other incentives for cross-selling products across multiple technology lines. Hewlett-Packard's PartnerONE attachment program, for example, offers incentives that lead with and upsell HP products. Nearly 55 percent of the VARBusiness 500 said HP helped them drive profitability.

"We offer a wide variety that fits into their business models. A partner invests with us, and we invest with them. Our deep portfolio lets partners drive profitability of their own companies," says Tom LaRocca, HP's vice president of partner development and programs, Solution Partners Organization, Americas. "They can choose how they go about making money."

At Inacom (VARBusiness 500 No. 319), a longtime HP reseller and Gold Partner, success boils down to an ability to offer a solution to customers that's based on a relationship, not a one-time fix, says CEO Laurie Benson.

"A major focus for us is to go deep by better understanding customers' businesses," Benson says. "Because of its broad offering of products, HP helps us go deeper into accounts, brings reliability, storage and security to our customers. And that helps us help our customers be more profitable."

Likewise, Symantec's strategy is product-centric. Despite recent troubles with its partner portal and ordering system--and complaints about the declining quality of its flagship Symantec Enterprise Antivirus product--it's been able to maintain its reputation as a profitability engine. More than one-third of the VARBusiness 500 said the vendor helps drive their profitability.

"What differentiates you is not the programs you offer, but the technology," says Julie Parrish, vice president of Symantec's Global Channel Office. "That's what you need to focus on as a vendor, and that's what will carry you."

NEXT: Strong programs, bigger profits.

Solution providers say that good products help make the sale, but strong vendor programs lead to better profits. In the 2006 VARBusiness Annual Report Card of solution provider satisfaction with their vendors, VARs said that product quality and reliability are most important to them, but managing channel conflict was close behind.

Symantec is keenly aware of the consequences of not managing channel conflict. Its program for protecting its solution providers' sales is a reflection of the best practices exercised by many vendors. One significant example is its opportunity registration program.

"Opportunity registration is a program where partners register an opportunity as soon as they discover it, and they're rewarded by Symantec. Getting that customer to actualize [on the sale] is the hard work," Parrish explains. "There's cost in the up-front process. A Symantec partner is set up for success, because we're helping on the front end and on the back end."

Symantec, like other top-tier vendors, offers VARs that find and nurture potential customers lower pricing on products, so they can outbid their competition.

Chuck Robbins, Cisco's vice president of U.S. and Canada channels, acknowledges the success and popularity of such opportunity registration programs.

"We tell them, 'We give you--the VAR--and only you, an incremental discount so you win the business.' Even with any discount the VAR gives the customer, our discount should still enable the partner to make a profit," Robbins says.

Sometimes driving profitability is about ensuring opportunity. Partnerships between solution providers, facilitated by vendors, is one way of combining complementary skillsets, capacity and market reach, which leads to more sales and profits. Cisco's Solution Incentive Program (SIP), for instance, supports collaboration among solution providers, application developers and ISVs.

"Solution providers submit a solution with Cisco, a sales plan and go out and sell that solution with Cisco product. SIP provides recognition that partners are doing more work when pursuing more complex solutions," Robbins says. "They're getting into different elements of a customer's wallet, where Cisco might not have been before."

Other vendor programs target specific technologies, often those that are regarded as complicated or particularly technical. Microsoft Dynamics CRM is designed to encourage adoption of third-party CRM tools that can quickly and easily augment a solution provider's offerings, enhance value to the customer and drive up the value of deals.

"Many partners work hard to identify talent to bring in," Deshaies says. "It's very costly. So we have road shows with partners throughout the United States to build a pipeline of competencies, whether in sales, technology or marketing."

Profitable Relationships

Most important of all, perhaps, is that these vendors understand the crucial role the channel plays in their own profitability.

"Profitability is not just about growing margins," Cisco's Robbins says. "We've expanded our view on how partners can be profitable. We're doing things that aren't adding to costs, like showing them how we can help them get paid by their customers. And we engage third-party consultants who [teach partners how] they can be more efficient." Cisco just completed 160 partner engagements with a third party that will determine what best practices can be shared among them.

Developing a win-win climate between vendors and VARs is crucial. When profitability is important to both parties, dynamic products and programs are developed with the bottom line in mind. That focus translates into targeted solutions for the end customer, and a satisfied end user is the ultimate goal.