Your organization invests in channel incentives for a reason. Channel incentive programs are not merely vehicles for spending money. You want something in return for every dime you spend. And how do you ensure you’re getting what you want? By measuring return on investment (ROI).
ROI can be measured in any number of ways depending on how the principle is applied. When it comes to channel incentives, keeping things as simple as possible is the name of the game. Unnecessary complications only make it more difficult to get a clear picture of channel incentive effectiveness.
The 4-Step Process
Your organization may have its own way of measuring channel incentive ROI. But if not, here is a common 4-step process used by organizations in a variety of industries:
Step #1: Define Objectives and Metrics
The first step is to define objectives and metrics. They should be clear and well aligned with your organization’s business strategy. But be careful. Without a clear understanding of what you are trying to achieve, you can end up chasing objectives and metrics that don’t matter.
What do you hope to achieve with your incentive program? What KPIs will clearly demonstrate success or failure? Common examples above channel incentive goals include revenue, lead generation, cost per lead, and conversion rate. There is plenty more to consider.
Step #2: Calculate the Cost of Your Program
The two basic components of ROI are cost and benefit. Therefore, the second step is to calculate the total costs of your incentive program. Total costs include:
- Partner incentives
- Training and support
- Deployment and administration
- Infrastructure expenses
Calculating costs may not be an exact science, especially when multiple incentive programs overlap. For instance, you might have the same group of people administering multiple programs. The administrative costs related to the work they do may not be consistently spread across all programs. You may have to estimate.
Step #3: Calculate the Benefits
Next is calculating the financial value of program benefits. One of the benefits might be increased revenue from partner sales. It is easily measured. Other benefits could include cost savings, customer acquisition, or even a broader market reach.
Some of the perceived benefits may not easily be quantified with a monetary value. Nonetheless, understanding the true ROI of a channel incentive program requires numbers as accurate as you can come up with.
Step #4: Do the Math
The fourth and final step is simple math. The basic formula for calculating ROI begins with subtracting your total costs from your total benefits to arrive at a number that represents your return. Then you divide that number by your total costs and multiply it by 100. Here it is in a nice, neat formula: ROI ratio = (benefits – costs) / costs x 100%.
If your calculated ratio meets or exceeds your target, the channel incentive program has been a success. If not, any further action is largely dictated by how far off the ratio is. Missing the target by a little isn’t the end of the world. Missing it by a lot suggests it might be time to rethink how you approach channel incentives.
Are You Measuring ROI?
How you measure channel incentive ROI is less important than the fact that you do it. If your organization utilizes channel incentive programs and you are not measuring their ROI, it is time to change things up.
Measuring ROI tells you everything you need to know about whether your channel incentives are working. You need them to work, or your organization is essentially throwing money down the drain. That’s not a very good business objective.
