Risks of the Recurring Revenue Model in the Channel Partner Relationship

The old transactional model of selling a solution, closing the deal and moving on to the next customer is evolving. The recurring revenue model relies on ongoing relationships with customers that your partners need to be ready to service—and that you need to be able to track how well they’re servicing.

The ability to transition to a recurring revenue model can be a real boon for vendors, and it’s good for the VAR since they have a more attractive financial commitment than with a transactional model.

Once the partner understands this – that the vendor can offer the more lucrative recurring revenue arrangement – vendors, especially small start-ups, are able to differentiate themselves from larger companies the VAR may be considering.

But there are risks for vendors too: namely, that you need to know your customer relationships are not put at risk from offering a service your partners may not be able to fully support. Implementing an effective partner relationship management system is key to identifying channel partners that are reliable and can provide the right fit for the vendor’s customers.

This is an area where the commandment to “know thy partners” is paramount. If the VAR isn’t truly managing the account, you’re getting very little return for the discount you’re providing to the VAR for each customer re-up.

The recurring revenue model means missed opportunities are even more expensive. Vendors need access to current data about partner-customer relationships, what sorts of servicing the partner has provided, how often they’re in contact, how/if the partner is growing the account, etc. They need to use this info as the stick to motivate partners to earn that discount.

Pay close attention to who your partners are, how they’re doing, how dedicated they are to you as a vendor. That way, you can make sure you’re minimizing any risks you could be incurring in the partner relationship under the recurring revenue model.

We’d love to hear from you.  Are you looking at moving your company to the recurring revenue model in the next year? How will you ensure your partners are the right fit for this new approach?