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WHITE PAPER
What is Partner Relationship Management (PRM),
and Why is the ROI so High?
WHITE PAPER
What is Partner Relationship Management?
Partner Relationship Management (PRM) software
applications are Web-based solutions to improve
processes for reaching customers through indirect
sales and distribution channels. PRM applications
automate the lifecycle of channel management and
coordinate the exchange of information between
sales, marketing and service organizations.
Depending on industry, between 30 percent and
70 percent of all sales worldwide flow through
channels, allowing businesses to lower costs, expand
more aggressively into new markets and offer more
valuable solutions to customers.
“If you boil PRM down to its
essence, what you’re left with are
very effective applications that
streamline how indirect channels
are created, managed and
harvested for maximum returns.
PRM is full of applications that
deliver value quickly and in hard
dollars.”
AMR Research
This white paper will outline the ways in which companies using PRM strategies and technology
can create significant, measurable return on investment (ROI) by increasing channel sales
revenues, reducing channel management costs and scaling channel networks without having to
increase support infrastructure.
PRM solutions, which are sometimes labeled CRM for Indirect Channels, Collaborative CRM,
Channel Relationship Management, or Demand Chain Management, give companies that sell
through third parties a single, integrated system to market, sell and service their products more
effectively, in a fashion that traditional sales applications cannot easily support. These partners
can include resellers, distributors, VARs, agents, dealers, OEMs, ISVs, systems integrators,
franchisees, brokers, influencers, analysts, manufacturers’ reps, customers, or retailers.
Partner Relationship Management in the Enterprise
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Why PRM?
While traditional CRM software suites focus
on managing internal sales processes, PRM
solutions provide a more complete approach to
selling through the channel by enabling go-tomarket strategies with partners and customers.
For companies that sell through channels, PRM is
more effective than CRM because these solutions
specifically address the challenges of selling
through partners. Selling through indirect channels
presents unique challenges and opportunities; PRM
helps companies turn these distribution networks
into a major source of competitive advantage.
“Enterprises that understand
sooner than others the strategic
value of partner relationship
management (PRM) technology
to achieve dramatic increases in
revenue, productivity, and customer
satisfaction will have a significant
lead on their competitors that lag in
the adoption of this technology.”
The Yankee Group
The ROI of PRM
Indirect channels play an invaluable role in the sales processes of many companies. Partners
establish customer relationships and ultimately provide the products and services essential to
their customers’ success. However, because businesses generally have less influence over partners
than direct sales representatives, managing the channel can be difficult. Partners are independent
businesses and their participation in a company’s selling program will always be voluntary.
As a result, channel management is often given less attention than other sales initiatives, even
by companies that rely heavily on indirect channels. Traditional enterprise software sales
applications have focused on direct selling relationships, ignoring the unique collaborative
requirements inherent in managing partner relationships. As a result, there has been a shortage
of technology solutions to help companies manage their indirect channels. This has forced many
organizations to rely on outdated, inefficient, manual processes, such as makeshift, homegrown
systems, spreadsheets, email, phone calls and faxes to support partners.
PRM solutions are custom-built to improve channel management practices. Since many
companies’ existing channel management infrastructure is deficient, PRM often produces
substantial improvements in short order. A Gartner, Inc. Research Note published in 2003
reported that deployments of PRM solutions had the highest rate of demonstrable return on
investment of all automated sales applications:1
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1
Source: “Multitier Sales Groups Claim Highest ROI for CRM Sales”, Gartner Inc. Research Note M-19-6131, by Robert
DeSisto, April 1, 2003.
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GARTNER RESEARCH: PRM SHOWS UNMATCHED ROI.
Question: Have you received demonstrable ROI from your deployment?
Yes
No
PRM
66%
34%
CRM Sales Suites
48%
52%
Gartner Survey, n=54 sales organizations implementing sales applications, December 2002
Incentive Compensation
45%
55%
Gartner Survey, n=25 sales organizations implementing sales applications, December 2002
Sell-Side
Commerce
50%
50%
Gartner Survey, n=52 sales organizations implementing sales applications, December 2002
Direct Sales
55%
45%
Gartner Survey, n=38 sales organizations implementing sales applications, December 2002
Sales Configuration
61%
39%
Gartner Survey, n=95 sales organizations implementing sales applications, December 2002
PRM = partner relationship management
ROI = return on investment
CRM = customer relationship management
Source: Gartner survey of companies using sales applications, December 2002
Primary Benefits of PRM
The Gartner report itemized the following
specific benefits from deploying PRM software
solutions:
§
§
§
§
§
§
§
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Improved effectiveness in delivering timely
information to selling partners
Stronger partner and customer service
Cutting partner ramp-up from two weeks to
two hours
More efficient price quoting
Shortening order placement and tracking
time from weeks to real time
Reducing communication, channel
management and technology costs
Making it easier for partners to do business
with vendors
“PRM solutions are more
important than ever, as they are
going to be even more critical in
building optimal relationships”
Gartner, Inc.
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What does PRM do?
Most companies have defined practices for
managing their partners, but many rely on
manual processes and basic tools to support these
relationships. These companies use spreadsheets,
email and phone calls to manage vital activities
such as recruiting new partners, tracking lead
referrals, training partners to sell products,
managing co-marketing funds and processing
orders. Supporting partners through manual
processes is resource-intensive and requires
companies to add staff members as channel
business increases. Manual processes also cause
gaps in customer service, when untrained partners
work with customers and communication delays
result in lost business opportunities.
“AMR Research sees PRM as
a competitive weapon in both
low- and high-growth industries,
as the performance of channel
partners is increasingly what
many companies rely on for
accomplishing their revenue and
profitability objectives.”
AMR Research
Some companies have recognized the need to automate these indirect sales processes and have
created custom software solutions or modified existing applications to meet the needs of their
channels. However, the high cost of creating, integrating and maintaining custom applications
has made it difficult to expand or scale these initiatives.
PRM software resolves these challenges by providing companies with Web-based solutions for
collaborating with partners and for providing them with the services and support they need to
drive business. PRM software provides a single platform enabling companies to recruit, train,
plan, market and sell with partners. In turn, these partners are able to market and sell to and
service end customers more effectively. PRM solutions also enable companies to eliminate the
costs of maintaining custom software.
Without PRM
With PRM
Staff
Large
Small or same staff managing more partners
Business Processes
Manual processes
Automated best practices
IT systems
Disparate systems
Integrated systems
Partners
Not fully engaged
Loyal and productive
Customers
Not fully served
More satisfied
Competitors
Access to partners and customers
Locked out
Results
Losing business
Winning business
PRM software solutions allow companies to increase channel sales without increasing channel staffing costs, by replacing manual processes and disconnected IT systems with an integrated platform and solution to drive best practices and
more profitable sales channels.
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How does PRM drive ROI?
PRM drives ROI results in three ways:
1.
Helping companies increase revenue through the channel.
2.
Helping companies reduce channel management costs.
3.
Helping companies create the scalability to ramp up channel networks without having to
increase staff and infrastructure.
First PRM ROI category: increased revenue
Increasing channel revenue is one of the primary ROI benefits of PRM solutions. PRM helps
companies ensure that partners have access to the service and support they need to drive business.
PRM can give partners the same access to tools and support as direct sales representatives.
Examining some of the main revenue-increasing drivers of PRM:
Revenue Increases: ChannelWave helps partners get the service and support they need to
drive business
Area of
Improvement
ROI Driver
Reduce partner
ramp-up time
Accelerates timeto-revenue
Improve partner
planning
Increases visibility
into partner performance
Target partner
communications
Improves partner
access to sales and
support materials
Closed-loop lead
management
Increases close
rates
Partner training
Equips partners
to sell more effectively
Customer Results
·
·
·
Automated the on-boarding process and
recruited and ramped-up over 400
revenue-producing partners in three
months
Increased lead management efficiency 100%
Reduced sales cycle time from
weeks and months to days and hours
·
Automated and enhanced lead management
and agent communication processes,
helping agent program to achieve 128%
of target revenue in current year
·
BTW (BEA Training Worldwide), powered
powered by ChannelWave, has delivered
over 12,000 courses to partners and internal
employees.
Many of these revenue-increasing improvements have both a push and pull impact:
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1.
Push impact: PRM makes it easier for companies to support their partners. This improved
support provides immediate impact.
2
Pull impact: PRM thus makes it easier for partners to do business with companies.
Businesses thus earn increased mindshare with their partners, which leads to repeat
business. This increased mind share provides long-term impact.
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Second PRM ROI category: decreased costs
Another major ROI benefit of PRM is the ability to reduce channel management expenses. Many
companies manage their channels using a collection of disparate applications, which can be costly
to integrate and maintain and which a PRM solution can replace. PRM solutions can also redirect
many manual communications and transactions toward low-cost electronic processes.
Examining some of the main cost-reduction drivers of PRM:
Cost decreases: ChannelWave automates partner support to reduce costs
Area of
Improvement
ROI Driver
Partner self-service
Reduces support costs
Electronic communications
Reduces communications costs
IT infrastructure consolidation
Reduces IT costs
Customer Results
· Reduced partner communication
costs by 50% and overall channel
management costs by 30%
· Redeployed three full-time channel
support staff after replacing manual
lead management processing
· Combined four partner databases
into one, saving ongoing
maintenance and staffing costs
Third PRM ROI category: channel scalability
The ability to achieve scale quickly, without having to add costs, is the main reason why
companies choose to sell through indirect channels. One of the major benefits of PRM is that
it can provide companies with the infrastructure needed to add large numbers of partners to
their channel networks in a short time frame, without having to add channel support staff. This
scalability provides significant business model flexibility.
Examining some of the main scalability-enhancing drivers of PRM:
Improved scalability: ChannelWave helps create flexibility for business models
Area of
Improvement
ROI Driver
Process templates
automation
Provides reusable
partner best-practice
templates
Internationalization
and localization
Reduces manual processing
Web-based architecture
Extends support to international partners
Requires no IT investment for partners
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Customer Results
· Increased from 5 to 175 active
partners and increased channel
share of total revenue from 15% to
23% without increasing headcount
· Partner Zone portal delivers sales
support to 8,500 partners across 37
business units and North America
and Europe
· Increased channel share of total
revenue from 20% to 80% without
hiring additional staff
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Measuring the ROI of PRM
The ROI impact of a PRM deployment can be projected beforehand, or calculated postimplementation. An effective approach is to group the benefit calculations by three major
categories of benefit: increased revenue, decreased cost and increased scalability. The next step is
to identify the key business process benefit sources within each category, and break each of these
down by its component drivers. Before (without PRM) and after (with PRM) calculations identify
the bottom-line benefit generated.
Below are sample calculations for common PRM benefits based on real-world experience, using
the case of a representative mid-market size, channel-oriented company. This company has the
following details:
PRM modules deployed:
· Partner profile management
· Partner recruitment and ramp-up
· Partner business planning
· Partner program management
· Partner training
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· Partner communications and document
management
· Sales opportunity management
· Sales pipeline forecasting
Item
Value
Notes
Time length of model projection
2 years
2 years is a conservative assumption for the length of
use of a PRM application.
Number of partners
100 in Year 1, rising by 25
per year
Annual channel revenue
$25 Million
Gross profit margin
50%
Gross margin is generally the most appropriate
measures of the benefit of increased revenue:
Using simple total increased revenue overstates the
benefit, as it neglects costs. Using net income likely
understates the benefit, as this measure includes
unrelated factors such as depreciation and sunk costs.
80/20 rule
Applies
The top 20% of the company’s partners typically
produce 80% of total channel revenue.
Average length of time required to
ramp-up a new partner
5 months
Percentage of an existing partners’
sales that an average new partner can
be expected to achieve in first year
25%
Cost of capital
15%
Number of sales leads assigned by
company to partners, per year
200
Average partner follow-through rate
on distributed leads
60%
Most companies have partner lead follow-through
rates of 50% or below.
Lead close rate
3%
Of the leads that are followed up on, 3% can be
expected to close.
Average partner deal size
$10,000
Average monthly communications
cost, per partner
$25
$25 in communications costs per month per partner is
a standard benchmark across a variety of industries.
Costs consist primarily of printing and mailing paperbased materials.
Number of front-line channel
management staff employed by the
company
5
These are the employees who spend most or all
of their time working with partners or on partnersupport issues.
Required to be able to project cash flows out into the
future.
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First category: Increased revenue calculations
PRM functionality: Partner recruitment and ramp-up
Benefit: Reduced new partner ramp-up time
For companies that are increasing their number of channel partners, the ability to get those new
partners up and selling more quickly can have a substantial impact on the bottom line.
Many companies report that ChannelWave’s partner recruitment and ramp-up application has
enabled them to reduce the time required to get new partners up-to-speed and selling effectively
by several weeks or months.
Online recruitment tools automate the application registration, qualification and program
enrollment processes, and partners are moved through the ramp-up process automatically. Based
on the assumption of a 40% reduction in ramp-up time, the calculation of this benefit is as
follows:
Monthly benefit of automated
partner recruitment and ramp-up
Without PRM
Average number of new partners
Ramp-up time, in months
Average annual saler per new partner
Difference
2.1
2.1
-
5.0 months
3.0 months
(2.0) months
Effective increase in selling year
Average annual sales per current partner
With PRM
0%
17%
17%
$250,000
$250,000
-
$62,500
$62,500
-
$0
$10,417
$10,417
50%
50%
-
$10, 851
$10, 851
Additional sales per new partner
Average gross margin
Total additional monthly margin
A 40% reduction in ramp-up time for new partners results in a projected gross monthly margin
benefit of $10,851. To calculate the benefits of PRM over the lifetime of the project, (assumed to
be two years in this case, as noted above) this calculation must be run for each month, using the
relevant inputs each time.
PRM functionality: Sales opportunity management
Benefit: Increased lead follow-through and close rates
Nearly all companies without strict lead management processes have significant lead loss (“drop”)
rates. The process for converting leads to sales covers multiple steps, including qualification,
assignment and follow-up. Each of these steps is a potential point of failure where a lead may be
mishandled or dropped. Leads get lost for a number of factors. The Yankee Group summarizes the
concept of lead drop with this graphic:
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Yankee Group: Causes of Lost Leads2
As shown above, The Yankee Group estimates that companies typically lose between 40% and
80% of all sales leads because of inefficiencies in their business processes. Gartner, Inc. puts the
average lead drop rate at 70%. ChannelWave’s lead management module can significantly reduce
drop rates, because all leads are managed and tracked from within a single system. This reduces
the opportunity for loss resulting from the confusion caused by using multiple, disparate systems
to manage leads. Business process rules, such as automatic notification of a lack of account
activity, further ensure that all leads receive appropriate follow-up by partners. Distribution of
leads is automatic and immediate, addressing the need for timeliness. And leads are targeted to the
most appropriate partner, as determined by the information contained in the PRM partner profile
database, greatly reducing the problems of poor qualification and incorrect assignment.
In addition to reducing drop rates, the second major ROI driver of lead management is
improvement in the average close rate, which is the percentage of leads that are eventually
converted into sales. PRM can improve the timeliness and accuracy of lead distribution, resulting
in a higher close rate. Combining the reduction in lead drop and improvements in lead close rates
can result in significant monthly margin increases:
Monthly benefit of closed-loop
lead management
Without PRM
With PRM
Difference
250
250
-
- lack of timeliness
10%
5%
5%
- poor matching
10%
5%
5%
- poor handling
20%
10%
10%
60%
80%
20%
Total number of leads distributed monthly
Leads drop rate
Net lead follow-through rate
Lead close rate
Average sale size
Margin
Total monthly margin
3.0%
3.3%
0.3%
$10,000
$10,000
-
50.0%
50.0%
-
$22,500
$33,000
$10,500
Note: Companies with larger lead distribution programs could expect to see larger returns from this aspect of PRM.
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2
Increase Revenue by Optimizing Lead Management, Sheryl Kingstone, The Yankee Group, August 2002
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Second category: Decreased cost calculations
PRM functionality: Partner self-service
Benefit: Reduced partner communication costs
PRM enables companies to offer partners a comprehensive set of support tools over the Internet.
As a result, partner self-service replaces some more costly phone or fax support inquiries.
Monthly benefit of targeted
partner communications
Without PRM
With PRM
Difference
100
100
-
Average number of phone/fax support
inquiries per partner per month
4
2
2
Processing cost per phone/fax inquiry
$10
$10
-
$4,000
$2,000
$2,000
Number of partners
Total monthly support costs
This benefit of PRM can result in very significant cost savings for organizations with large
numbers of partners.
PRM functionality: Partner profile database
Benefit: Reduced IT costs
Many companies have fragmented partner support processes, and as a result, use multiple
unconnected applications to help run their indirect channels. ChannelWave provides a single,
centralized database of all partner profile information. As a result, ongoing maintenance costs are
reduced.
Monthly benefit of automated
partner support
Without PRM
Number of partners support applications
With PRM
Difference
3
1
2
Processing cost per phone/fax inquiry
$1,000
$1,000
-
Total monthly application maintenance costs
$3,000
$1,000
$2,000
PRM functionality: Electronic document distribution
Benefit: Reduced partner communication costs
ChannelWave’s electronic content management and distribution solution allows companies to
create on-line content libraries, often reducing the need to send out paper-based materials to
partners.
Monthly benefit of targeted
electronic document distribution
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Without PRM
With PRM
100
100
-
Average monthly cost of distribution
materials, per partner
$25.00
$17.50
$7.50
Total monthly document distribution costs
$2,500
$1,750
$750
Number of partners
Difference
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Third category: Increased channel scalability
Channel management staff efficiency increases
One of the main benefits of PRM is that it can help a company’s channel management staff
become more efficient, by replacing many time-consuming manual tasks with automated
processes. This increased efficiency gives companies significant flexibility in the structure of
their business model going forward. Companies growing their channels or adding new types of
channels must consider how to support these additional partners. Unless a company is prepared
to add new channel management staff, it must find ways of managing larger numbers of partners
with the same number of people. By increasing the efficiency of existing channel management
staff, PRM can help companies avoid adding staff as their channels ramp up.
The first step in projecting the scalability benefit of increased efficiency is to break down how
channel management staff spend their time by business process, and then to estimate the impact
of PRM on each of those processes.
Every company’s processes are different, but a typical breakdown would be:
Channel management staff time allocation by business process
Without PRM
With PRM
Difference
Partner profile management and maintenance
10%
5%
5%
Managing distribution of marketing collateral to partners
10%
5%
5%
Managing sales opportunities
30%
20%
10%
Other communications with partners
20%
15%
5%
Recruting new partners
10%
7%
3%
Business planning with partners
20%
15%
5%
Other activities
10%
10%
0%
Total:
33%
The next step is to estimate the impact that these projected efficiency improvements are likely to
have on staffing requirements. One important measure is the ratio of channel management staff to
partners. This sample company has five channel managers and 100 partners, for an initial ratio of
20:1. Applying the 33% efficiency gain described above yields a new effective ratio of 27:13.
Thus, given a 33% efficiency increase, this company’s channel managers will each be able to
manage an average of 27 partners, as opposed to the current level of 20, with no deterioration in
service quality or productivity. So the five existing channel managers together would be able to
manage 133 partners, an increase of 33 from the current level.4
As well as providing companies with the scalability to ramp up indirect channels without adding
headcount, this increased efficiency also allows channel management staff to spend more time on
high-value, sales-generating activities, thereby contributing to the revenue gains discussed above.
3
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4
The calculation is (100 partners * (1+0.33))/5 channel managers
Please contact ChannelWave at roi @channelwave.com for complete discussion of the complex issue of modeling
scalability benefits.
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Putting it all together
Once the appropriate individual PRM gains have been calculated, all that remains is to sum up the
different benefits, subtract costs, and project the series out over the life of the deployment.
Revenue Increases
Note: These revenue and cost
figures reflect the PRM benefits
for a mid-market company with
$25 million in annual channel
sales. Enterprises with higher
channel sales would see correspondingly greater results.
Increased revenue source
Reduced partner ramp-up time
Improved results among top-performing partners*
Monthly Increase
Total Over 24 Months…
$10,851
$238,722
$9,840
$216,480
Improved results among bottom-performing partners*
$16,420
$361,240
Improved lead management**
$10,500
$231,000
$47,611
$1,047,442
Total:
…Project
length is 24 months, but benefits are assumed to accrue for 22 months, allowing two
months for system deployment and partner adoption.
*These items relate to the 80/20 rule, whereby the top 20% of the company’s partners produce
80% of total channel revenue. PRM can help top-performing partners make additional revenue
gains, while also providing a means of re-engaging some under-performing partners and helping
them to increase their sales productivity. Please contact ChannelWave for further discussion of
how PRM applies to the 80/20 rule.
**Companies with larger lead-management programs could expect to see more significant returns
in this area.
Cost Decreases
Monthly Savings
Total Over 24 Months…
$750
$16,500
Reduced partner support costs
$2000
$44,000
Reduced partner support application costs
$2,000
$44,000
$4,750
$104,500
Decreased cost source
Reduced document distribution costs
Total:
…Project
length is 24 months, but benefits are assumed to accrue for 22 months, allowing two
months for system deployment and partner adoption.
PRM Costs
Software investment and deployment costs must also be calculated. Software deployments can
typically have several cost components, including setup, license, maintenance, hosting, staff
time costs and periodic code upgrades. As this example ROI calculation is based on a mid-size
company, ChannelWave’s Midmarket product costing will be used.
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One-time and ongoing cost items are listed in the table below. Ongoing cost items are carried
out over the length of the expected life of the PRM solution. Two years is a safe estimate for this
length of time.
PRM Investment Cost
Amount
Total Over 24 Months…
Setup
$50,000 one-time
$50,000
License
$7,750 per month
$186,000
Maintenance
Hosting
Staff time
Periodic code upgrades
Included
-
Included, if applicable
-
5
$1,542.50 per month
$37,500
Included
-
Total:
$273,500
ROI Summary
The final step is to add revenue gains and cost savings, and subtract software investment costs,
to yield net benefits.
Item
Amount
Total revenue gains
$1,047,442
Total cost savings
Total benefits
$104,500
$1,151,942
Total costs
$273,500
Net benefits
$878,442
Net benefits - discounted *
$778,950
IRR**
Projected payback timeframe
(with two month ramp-up period)
41%
5 months
*Discounting
refers to including the time-value of money in a calculation of net benefits. All
projects with cash inflows and outflows stretching out in the future should be measured on a
discounted basis, to facilitate correct decision-making. Net benefits for this company have been
discounted using an interest rate of 15%, which is the company’s cost of capital, as stated in
the initial data points above. Discounted cash flows can be easily calculated using standard
spreadsheet applications or financial calculators. Please contact ChannelWave Software for
further discussion around this topic.
**Internal
Rate of Return is computed using standard financial calculators or software
applications.
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Based on the assumption that maintaining a ChannelWave PRM application would require 25% of the time of a full-time
business user costing $75,000 annually. Large ChannelWave customers such as AT&T EMEA report that they require
one-quarter of a full-time resource or less to use and maintain their ChannelWave applications. The calculation is (25% x
$75,000)/12 months = $1,562.50 per month
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Conclusion
By using PRM solutions to help build more productive relationships with selling partners,
businesses can extend their reach and build stronger, more profitable long-term relationships with
end-customers. As a result, businesses can turn their distribution networks into a competitive
advantage by making it easier for partners to work productively with them, streamlining
inefficient manual processes, improving channel visibility and building more profitable
selling channels. As Gartner recently wrote, “At the heart of enterprises that are successful in
today’s increasingly competitive business environment is a recognition of the value of partner
relationship management (PRM).” 5
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5
Source: The Evolution of Partner Relationship Management Gartner, Robert DeSisto, June 2002
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