Partner Profile: Considering Profitability over Size

In a channel distribution network, it is important to remain steadfast and above all, smart in making decisions and executing strategies. Getting smart with distribution implies looking at potential channel partners in relation to their impact on profitability and not just their revenue generation. To look at profitability means to consider a partner's ability to increase and transform traffic into actual sales as well as their future growth. With the help of a partner profile, parent companies can arm themselves with important information such as these and make informed, thoroughly considered choices about the allocation of precious resources to channel partners in order to make substantial and relevant improvements in profit in a given year.

A common mistake that companies make is that they assume that their largest partner is also the most important and profitable within a channel. However, the truth is that larger ones more often than not generate little to no profits. They may have the potential to grow while the smaller customers with greater profitability and potential are overlooked. Instead, these companies should fully allocate profit-and-loss statements by affiliates that transcend the superficial, high-level transfer cost analysis. It is always important to remember that no organization or company can afford to allot resources to a stagnant channel partner.

If one combines profitability and growth, an extremely useful picture emerges that allows a parent company to draw a matrix that groups channel partners into four quadrants which are:

Red Ink Partners - Those that fall under this quadrant are considered below average and their profitability ‘dilutes' the business. If ever a company uses such a partner that returns no profitability at all to increase its business, then it will erect a major barrier that hinders much-needed growth. Higher-ups should convert the "red ink" to black, or in order words, find the strength to decrease business with those that fall under this category.

Re-purpose Partners - The partners in this quadrant fall below average profitability but represent a milder pressing problem if their business with the manufacturer is stagnant or dwindling. However, they still inhibit growth by wasteful consumption of staff time, promotional funding and other precious resources that could be used more productively. Diverting resources away from this quadrant will improve growth without costs that are incremental.

Stalled Partners - These are those who have profitable accounts with low growths and are contributing productively, but need to "jump start" their businesses in order to come up with growth that is of greater value.

Next-generation partners - In this quadrant is where parent companies can find the partners who are profitable and still growing. In short, these are partners with ideal partner profiles and are everything one can ask for in an account.

Determining the best amongst a set of partners for the distribution of products and services can be a challenging task. It is important to analyze partner profiles carefully, talk to existing customers who can vouch for their reputations, and consult with other companies who have had experience doing business with them before. Remember that in any industry, knowing and working with the right people are critical components to success.