Over the last decade or so, a new category of software called partner relationship management software or PRM software has been evolving rapidly. What’s the primary driver behind this evolution? Organizations are recognizing the need to build a direct sales force that can increase their reach and drive sales at a lower cost. PRM software tends to address four basic areas of partner lifecycle management: partner recruitment, partner engagement, partner enablement and partner management.

In this article, we will explore how to effectively manage incentive programs that are designed to enhance partner behavior and performance. As part of that discussion, we’ll examine the core requirements and capabilities of PRM software in more detail. But before we begin to specifically address incentive management, let’s talk a bit about channel management, and why it’s so complex. (For a more detailed discussion of the challenges of channel management, please refer to our on the topic.)

Challenges

At a high level, when a company is selling through an indirect reseller channel or a franchise network in multiple cities or even countries around the world, it will likely have to deal with various types of partners who sell into different segments and verticals, and these partners may have different sales philosophies. Some may sell a lot, some may sell a little and some are in between. Different organizations may have different sales requirements. Most importantly, the sales programs may also be changing on a quarterly basis. As an organization introduces new products, and as it acquires new companies and capabilities, it may have to drive sales by launching new programs designed to change behaviors and by offering rewards for specific behaviors. Just as employee incentives are critical in driving performance within the organization, partner incentives are an essential element in driving the performance of partners.

There are basically three types of incentive programs that companies need to manage:

* Market development funds (MDF). These are funds that are given to a partner—usually based on their sales volume—to engage in additional marketing activities to generate demand.

* Rebates. These are provided when a partner’s sales exceed a specified level: the higher the level of sales, the larger the rebate and the better the partner’s margin.

* Sales rewards. These are typically given to individuals who achieve large sales volumes. The goal with these rewards is to ensure that each sales rep or technical rep is financially incentivized to drive adoption of certain products and solutions.

Interestingly, most vendors today still manage these incentives using email or Excel files or other types of tools, and they lack an automated infrastructure to drive the process. Because these tools are not integrated and not designed specifically for handling partner relationships,