Pivot resellers role in a recurring revenue model
November 12, 2020
Recurring revenue models are here. We’ve come across companies that are increasingly adding as-a-Service offerings to their traditionally up-front set of offers in order to transform lumpy transactional sales (based on seasonality and cyclic markets) to steady recurring revenue streams. You’ve noticed that many companies especially high tech hardware-focused, have strong existing reseller and distribution channel partners. Understanding how to activate a reseller partner network to drive deeper customer relationships, and what role your partners should play in a recurring revenue model depends on your business goals and growth strategy, as well as your existing Partner ecosystem.
The role of the reseller channel
To give you a bit of background, “product” companies have historically started by selling, installing, and integrating their products themselves through their direct sales distribution channel. Over time, distribution was increased through resellers and tiered distributors. Hardware companies benefited by having Partners with specialized domain, installation and configuration expertise.
That brings us to recurring revenue models, the extended sales reach, installation and configuration services, and ongoing account management shifted. Think about it, cloud-based subscription offerings - whether software, hardware, device, or data - changed the game. For starters, let’s say the company (the “provider”) now hosts their product (the “offer”) in the cloud. This means customers no longer pay up front, they now pay either as a recurring subscription, or on a consumption basis. In either case, it’s imperative that the customer continually derive value in order to increase propensity to renew. It’s a win-win: customers benefit from ongoing interactions to ensure they realize success, and providers benefit from the predictability of a renewal.
Keep in mind that a recurring revenue model can likely transform your go-to-market strategy, including sales skills, operational systems support, compensation, and renewals.
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Sales skills
Most as-a-Service providers have direct customer-facing teams that are responsible for the initial customer subscription, as well as cross-selling and up-selling. It is common to think of resellers in the same light: that they too have “hunter” teams that are extension of your direct salesforce responsible for customer acquisition and account growth for your as-a-Service offers.
The challenge is finding resellers that are interested, qualifying their ability, and selecting and then enabling them. It may be a familiar challenge. As is the case with existing direct sales teams, some existing resale partners may not want to resell your as-a-Service offer. Are they lacking people, skills, infrastructure of just the ability to incorporate as-a-Service offerings into their model? Will they continue selling your non-subscription products or continue to be a valued partner to drive profitable revenue for you in the future?
Operational systems
In a recurring revenue model, the provider - not the Partner - hosts the offer. Think of it this way, even if the offer is sold by a Partner, the customer gets their service directly from the provider. The Partner, in turn, requires timely quoting, ordering, and billing support.
You’ll need to establish if you will bill the customer directly, or via your Partner. This decision can have an added layer of complexity if the customer has multiple contracts, each with different end (termination) dates. Companies that issue a single consolidated bill, with the same end dates, can likely end up with more satisfied customers.
Compensation
Creating the right compensation model is critical in this new recurring revenue economy. Traditional unit-sales resellers and distributors (and direct sales for that matter) historically have been paid up-front at the time of the sale. In a recurring revenue model, however, paying on recurring revenue rather than the total contract value help ensure that the sales team is motivated to provide continual customer satisfaction and success for the duration of the initial term. Refreshed compensation systems will need to be in place to pay your Partners, and your Partner reward program will need to be modified accordingly.
A common (and important) question tied to compensation is around who maintains account control, specifically, and who gets paid on the subsequent renewals after the initial contract term expires. That leads me to renewals.
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Think about it, cloud-based subscription offerings - whether software, hardware, device, or data - changed the game.
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While both direct and partner “hunting” teams drive initial subscriptions, most providers turn to their own “farmers” for ongoing account management, including customer success activities. Customer Success Managers (CSM) help customers look at their usage information and ensure they continually derive value from their subscription. The reward for a satisfied customer is ongoing renewals after the initial subscription term expires.
The provider’s cloud platform houses customer feature and usage information, and the operational systems (CRM, support, entitlement, billing) provide historic customer data. Together, these tools better enable CSMs to help provide a superior customer experience expected of cloud providers.
In cases where Partners maintain account control of cloud-based subscription offers, the same information and tools provided to CSMs should be extended to the Partner, ideally through a custom-built partner portal. The cost of this upfront and ongoing extension, along with the cost of commissions paid on renewals, must be carefully modeled in a business case to ensure profitability for all involved.
What Comes Next? Empowering the Move to Subscription
As-a-Service offers have changed how customers buy and derive value. They have also changed how companies think of go-to-market and go-forward strategies. Historical transactional go-to-market models have been replaced by ongoing relationship models, affecting direct and indirect sales. Resellers of existing offers will need to adapt just as direct teams do in terms of skills, operational systems, compensation, and account management functions. Your business goals will determine to what extent resellers and distributors will play at each step, and what corresponding investments you will need to make.
As you look to redefine your existing reseller relationships, consider what behaviors you need to drive across that ecosystem, such as ongoing account engagement, customer satisfaction, and continual value realization. Ask questions aimed at understanding how the current reseller model will empower and scale a recurring revenue model, benchmark what you have today against what is working in the market already.
Once you’ve explored the partner structures relevant to your business goals, determine how to execute your plan, whether that be in-house or through a partnership.
Disclaimer: This document is intended for general informational purposes only and does not take into account the reader’s specific circumstances and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals.
