How to Use Partner Lifetime Value™ vs Partner Economics
Oak trees, as large as they are, only grow their roots down about eighteen inches before expanding laterally, and even sometimes merge with the root systems of nearby oaks to share resources. If this doesn't occur the tree might not survive, even if it looks healthy above ground.
The same is true of partnerships. Many partner professionals make the mistake of measuring the success of a partnership by what can be seen on the surface level, i.e. the revenue the partner brings to the company. But, in thinking of a partnership ecosystem, we have to ask ourselves: what does this term really mean and how do we measure its health?
Some conventional wisdom suggests that looking at the close ratio of a partner is the most crucial metric in measuring the value a partner is bringing to your business. However, new research suggests that there is much more to the story. Partner Lifetime Value™ and Partner Economics are two different, albeit overlapping, frameworks you can apply to measure the success of your programs. They take into account a much bigger picture and offer ways for you to better understand the inner workings of your partnerships and how to nurture even more value for both you and your partner.
What is Partner Lifetime Value™?
Partner Lifetime Value™ (PLV), a term coined by AchieveUnite, emerges from the concept of Customer Lifetime Value, and essentially, it’s a way of measuring how fertile the ground is for mutual growth across the lifespan of a partnership. AchieveUnite worked with the University of Glasgow to implement a survey on long-term partnerships and to better understand the stages of partnership evolution. You can read the full report here. According to the study, there are four stages of partnership:
- Recruitment success: during this phase, you might create an in-depth and well-conceived partner persona. Through this, you’ll ensure that your recruitment efforts are well-spent.
- Early ramp to revenue: this stage may include training, signing an NDA, and other onboarding activities. During this phase, it’s important to give your partner all the tools they need to succeed.
- Partner collaboration: during this stage, you might create joint marketing materials, exchange ideas, and hold meetings with the sales teams from both companies.
- Partner legacy: a mature and seamlessly running partnership will continue to add value to your business. At this stage, a high level of trust is present, and partners can create long-term strategies together.
These stages can be thought of as consecutive tiers, and throughout these phases, a partnership can appreciate its value.
There are also six interrelated domains of PLV:
These domains create the acronym, “ACTIVE,” and each one is part of the PLV strategy. Looking at this list, which one would you rank as the most important?
The data in the PLV report demonstrated that, contrary to popular wisdom, loyalty and brand allegiance aren’t the most definitive factors in the value of a partnership over time. The study concluded that the engagement factor is the most important to PLV. So, while many businesses value partner loyalty and are investing in increasing it, those efforts would be better applied to increasing partner engagement.
These findings, and the framework and language of Partner Lifetime Value™, can also be connected to creating strategic KPIs as opposed to only financial ones for your partnerships. Financial KPIs will help you measure one slice of partnership health, but the right strategic ones can show you the whole pie. Thinking of ways you can measure indicators of your strategy in action can paint a more holistic picture of the long-term potential of a partnership and help you calculate PLV.
Tip #1: Pave the way for high-quality partner engagement by investing time in your partner during the earlier stages of the partnership. Maintain open channels of communication, and be receptive to their feedback! Create strategic KPIs to measure partner experience and partner effort.
Pros & Cons of Using PLV
There are both pros and cons to using PLV, which is a long-term and growth-oriented strategy. Consider the following potential benefits and drawbacks of this framework.
What is Partner Economics?
Partner Economics (PE) is a lot more than just partner profitability. If PLV is your oak tree’s height, health, and potential, PE is the underground network that sustains and nourishes it. PE enables you to measure trends and adjust your compensation structures and training methods according to your needs, ensuring a healthy root system.
In a 2021 study from PartnerPath, the data revealed four trends important to understanding Partner Economics:
- Consider new types of compensation: Have you considered how you might bring value to your partner apart from direct compensation? Training and increasing your partner’s capacity can also be an appealing incentives.
- Incent through the entire customer lifecycle: You can reward your partner for more than just closing deals or sending qualified leads your way. You can incentivize, for example, creating customer interest and brand awareness.
- Understand ROI: Develop an understanding of your partner’s business model in order to ascertain their return on investment in your partnership. Having this information and communicating about it can help you earn their trust.
- Increase Partner Account Manager’s financial acumen: This trend points to the efficacy of seeing your Partner Account Manager (PAM) as a strategic business partner who understands partner business models and can help them develop. Check out these 7 skills essential to a successful Partner Manager, a crucial team member in Partner Economics.
Tip #2: Understand your partner’s motivations and incentivize accordingly. For example, if your partner is running really strong social media campaigns, you can reward them for this activity, by incentivizing an earlier stage in the sales cycle. Understanding their strengths will help you bring more benefit to the partnership and increase partner engagement.
Pros & Cons of Using Partner Economics
There are both benefits and drawbacks to using Partner Economics to measure partner success and build out your programs.
Use Case: When to Use PLV
Imagine the following scenario: You have an IPP that helps you strategize your partner recruitment efforts. However, you notice that, over time, the majority of your partners aren’t doing as well as you’d hoped, and they don’t seem to be very engaged. You may ask yourself, what went wrong here? Surely, you’ve done your due diligence in the recruitment stage, and your programs are well-structured, so what could it be?
Using the PLV method can help you gain new insight into your old IPP and processes. By returning to PLV's four stages of partnerships, you can find where your objectives and efforts are misaligned.
For example, it could be useful to revisit your IPP, and get even more specific. You can use our free IPP template to help accomplish this. Performing a case study of your well-performing partners can help you fine-tune your IPP (looking at factors like region, company size, business strategy, etc.) in order to make your recruitment efforts even more precise and create Partner Lifetime Value™.
Tip #3: Conduct case studies to add depth and substance to your Ideal Partner Profile (IPP).
Use Case: When to Use Partner Economics
Let’s look at a use case for a Reseller Partner. Say you have a product that costs $9,000, Your reseller gets a 30% discount and buys your product for $6,300. Then, they sell your product at a 15% discount to entice customers to purchase the product, which would be $7,650. In this example, your partner earns a gross profit of $1,350.
Apart from sounding a bit like a word problem in math class, this view of partner profitability doesn’t take into account potential factors such as software subscriptions, or what happens if the customer purchases directly from the vendor. Calculating discrete transactions in this way doesn’t always give an accurate picture of how partnerships function in the B2B SaaS space.
Tip #4: Measure partner engagement for a more accurate picture of profitability. For example, measuring partner portal logins is a great way to measure engagement, particularly right after onboarding. It can give you information about how to nurture even more partner activity and troubleshoot any barriers to engagement.
Using Partner Economics and Partner Lifetime Value™ in your partnership strategy can help your business move away from the transactional and towards the transformational potential of cooperative channel partnerships.
A partnership can be more than just the sum of its parts, and the metrics you use to measure its success ought to reflect this potential. Whether you’re using PLV as a way to create strategic KPIs or employing Partner Economics to rethink the way you measure profitability, these frameworks can support you in building partnerships that add more value, quality, and customer satisfaction to your business over time.