When Is It Time to Fire a Channel Partner? Consider the Costs of Keeping Non-Performers

Let's be honest. At least 20% your channel partners probably need to go ... now.

Unless you are among the lucky few who aren’t dealing with the Pareto principle, at least 80% of your organization’s revenue comes from 20% of its partners. So, why are you holding on to underperforming or non-performing channel partners?

Yes, the hard costs associated with keeping a partner that is not meeting your organization’s performance expectations are relatively low, but the opportunity costs can be significant. Also, while partner termination is a serious issue with potential business and legal ramifications, these risks can be mitigated with the right offboarding process. 

Why not just disengage with non-performing partners?

Firing a partner is not the easiest or most pleasant task channel sales leaders face. However, when you have a bad partner on your hands, inaction could lead to any one of the following situations:

• Lower productivity.  Whether an underperforming partner is supported directly by the supplier, distributor or master agent, they can take up valuable time, effort and resources that would deliver a higher return being invested with partners with growth potential.
• Lower customer satisfaction. Even if an underperforming partner develops a qualified lead, they typically lack the knowledge and experience required to recommend, close and implement the product or service to the supplier’s standards. This can hurt customer relationships and cause the loss of key accounts.
• Disclosure of confidential information. Although this is unethical, some partners sign up for a supplier’s program simply to gain access to their content and then use this content to sell against your organization. This can result in lower close rates and margins (e.g. remaining partners are forced to compete on price).
• Erosion of partner trust. Many suppliers have terminology in their partner agreements that provides them the right to terminate a partner due to behavior issues, such a failure to pay invoices or illegal behavior. Failing to follow through with termination under these circumstances can affect brand reputation and creditability with partners. It can also make it extremely difficult to terminate another partner under the same situation.

How can potential termination risks be mitigated?

Terminating partners comes with some risk. Liability for wrongful termination of a channel partner under the antitrust laws can be substantial.  However, suppliers can mitigate risk through the following actions:

• Plan ahead.  The most effective way to mitigate business and legal complexities is to work with the organization’s legal counsel at the start of the partnership to ensure the right points are discussed and included in the partner agreement. Key examples include establishing an objective performance standard; outlining the specific grounds for termination; documenting how much advance notice the partner will receive prior to the final agreement termination; outlining responsibilities of both parties after termination; and avoiding indefinite term agreements and automatic renewals.
• Have a process.  A clearly defined offboarding process ensures that a partner leaves the relationship in the best way. The five key stages in the SiriusDecisions Partner Offboarding Framework are: 1)  root-cause analysis, to validate that the problem doesn’t lie within your own operation before calling out a partner for poor performance; 2) corrective action, to ensure the partner knows they are at-risk of termination and how to avoid it; 3) formal internal approval, to validate that the termination rationale is legal, ethical and prudent, with the right documentation in place; 4) partner notification, formally notify the partner of the intent to terminate, in writing and 5) deactivation, to protect your company’s assets and IP.

When is the right time to consider parting ways with a partner?

When a channel partner meets one or more of the following criteria, it is time to initiate the offboarding process:

• The partner’s customers are complaining. Partners who can’t close deals is one problem; customer complaints are another. Once you receive continued negative complaints about a partner, and they fail to take the steps to turn things around, it’s time for them to go — never let a partner’s problems ruin your company or brand’s reputation.
• The partner fails to meet minimum sales requirements. If a partner has not produced any measurable revenue for at least two back-to-back quarters and has no significant pipeline for the next two upcoming quarters, has not responded to coaching and counseling, and provides no value outside of sales, they are wasting the company’s effort. It’s better to dedicate time and effort to partners who are capable and willing to grow sales of the company’s offering.
• The partner has broken the partner agreement or code of ethics policies. The breaking of supplier policies by a partner can lead to ruining your company’s reputation in the marketplace (e.g. failure to comply with training and support requirements), lower profitability (e.g. non-compliance with payment terms), lower creditability and trust with existing partners (e.g. violating territory restrictions) or even lead to legal penalties. You cannot allow a partner who does those things to negatively influence your reputation or the commitment of other partners you want to keep.
• The partner fails the “re-recruit test.”  The partner you needed a few years ago is not always the partner you need moving forward. Regular and objective partner assessment and segmentation is imperative (SiriusDecisions clients should see the Core Strategy Report “The Channel Partner Segmentation Matrix”). If a partner does not align with the business model and competencies you need in a partner moving forward and has no plans or interest to get there, it’s probably time to let them go.

All good things must come to end, and letting a partner go should not be taken lightly.However, if the time comes, don’t put it off. Ensure your organization does it in a way that allows the relationship to end on good terms. Although boomerang partners are not that much of a concern, you will most likely be doing business with many of those terminated partner’s employees for years to come.