MSPs' New Needs Call for New Incentive Programs
By Christopher Becwar
As the number of managed service provider businesses continues to grow, so do the challenges for manufacturers to incentivize them. MSPs are increasingly being brought on to manage cloud-based solutions, meaning their businesses focus on subscription value for clients, not on hardware installs. That should flag manufacturer attention as their business focus is likely the opposite.
There are also differences in priorities between MSPs and other partner types, and most vendors haven't teased out how they're going to best engage with, support and incentivize MSPs. Instead, manufacturers are trying to fit a square peg in a round hole, using incentive programs designed for VARs and other partners to try to entice MSPs.
It's not working.
Many aspects of the MSP business model are unique, including its motivations and drivers for success. Given that, MSPs in the technology arena basically act as an outsourced, on-call IT department. Unfortunately, the whims of the end customer can far outweigh the influence of your channel team. To develop mutually beneficial MSP relationships and maximize their value, manufacturers must design incentive programs to satisfy the specific needs of the MSP.
MSP Business Model in the Modern World
Traditional incentive programs fail to address the MSP business model. MSP interests vary drastically from those of a traditional vendor. When assessing potential partner merits, MSPs are more likely to focus on the quality of the product and the level of support provided by the manufacturer, and less on most incentive approaches (compared to traditional VARs).
There's also an inherent disconnect between MSPs and the manufacturer reps trying to engage them. MSP staff is very technical; they want conversations about products, features and field support—criteria that will ultimately affect their clients' success and satisfaction. When manufacturer reps come in touting incentive benefits for new sales performance, the message falls flat with MSPs.
That lack of interest poses problems for manufacturers. First, MSPs don't tend to participate in incentive programs at a rate desirable to the manufacturer. Second, it underscores the general economic shift away from "buy and build" products to "rent for access" services. And third, it forces the manufacturer to figure out how to forgo the one-time sales incentive model and find new ways to incent ongoing subscription purchases.
But where there is challenge also lies opportunity. To stay competitive, manufacturers can gain an edge by crafting new programs to support the unique needs of MSPs.
MSP Incentive Programs: 5 Fundamentals
Given that the MSP model is relatively new, few case studies are available to show successful MSP incentive program examples. As manufacturers continue to test different scenarios, they should note that every program serving MSPs should include the following fundamentals:
--The basic business relationship must be defined, solidified and mutually understood before even focusing on incentives. This conversation should work out the product and business support elements required for the MSP's clients.
--Any incentive program must lead heavily with triggers around the renewal component. Shifting away from a hardware focus will be critical for success.
--The program must also include a strong subscription-oriented pricing and licensing model. The option to incent on one-time sales is irrelevant for MSPs.
--Key performance indicators, or KPIs, should be clearly defined, with measurement procedures established. Awards will focus less on volume but instead on depth of account penetration, up-sell and cross-sell performance.
--Incentive schemes must also relate to end-customer satisfaction, and partners' ability to prevent customer churn. Manufacturers must design discounts, tiered rebates and reward points to pay out based on metrics like average Net Promoter Score, their customers' average long-term value (LTV) and annual renewal rate.
Addressing these elements is key to laying a solid foundation for your program, but there's no one "right" way to offer incentives. Cisco, for example, has been experimenting with MSP models based primarily on customer satisfaction ratings; other top suppliers in the software space are doing the same, aided by the fact that it's much easier to deliver an uncompromised survey to an end customer if you can deliver it yourself within your own software-as-a-service platform. What works best for you will be unique to your business and your MSP partners.
Incentives for MSPs
Incentives can be offered in many forms, but manufacturers must first begin by defining who's being targeted within the MSP. With most other partners, it's often the sales rep or company owner who's rewarded with sales performance incentive funds/bonuses, points or merchandise rewards. But with MSPs, the decision-makers are usually the technical account managers and solution engineers. Ask: How do I motivate both the technical staff and the sales people? Are those rewards the same or different?
Customer satisfaction ratings and churn rates will also likely be popular incentive metrics, but the biggest issue will be figuring out which incentive options apply to MSPs. Even many of the top, most innovative cloud companies aren't doing enough to incentivize the partner for the life of the customer relationship; rewards only for first-time revenue are still frighteningly common.
Given the subscription focus of MSPs, manufacturers will need to create incentives that span beyond the first deal close—similar to how channels have been run in more subscription-heavy industries like insurance and telecommunications. Incentives must recur throughout the life of the customer relationship and award MSPs beyond the first year of customer use.
The ball is in the manufacturer's court. The nature of the channel partner has fundamentally changed. IT has changed, too. And everything is more complicated.
But change creates opportunity. MSPs have capitalized on it, and now it's up to manufacturers to determine how they can find stability in subscriptions. Properly incentivizing the MSPs selling your solution is a good place to start.
Christopher Becwar, a veteran channel and software management leader, is currently director of product management of channel solutions for Revitas, which specializes in contract, revenue and compliance management solutions.