In 2017, 11% of small businesses and 14% of midmarket firms preferred business outcome-based, customer success-driven pricing from their channel partners and cloud solution providers. In 2021 the percentages have doubled to 22% and 28%, respectively. On the managed services side of the equation, SMBs have a very definitive view of managed services pricing. From a current payment method on a per-device/per-seat basis, they want to transition to a company-wide, fixed recurring fee. This type of payment takes the uncertainty out of the picture. However, similar to outcome-based cloud solution deployment pricing, 29% of SMBs prefer incentive pricing tied to performance levels guaranteed by the MSPs. Data also shows that 78% of SMBs want to work with suppliers who can connect business challenges with technology and design, architect, deploy and manage technology solutions that deliver business outcomes. The data speaks for itself. Contracts will need to specify the anticipated benefits resulting from technology implementations. Supplier rewards, at least above some nominal run-rate level, will need to be tied to achievement (or extended via over-achievement) of these objectives.
Writing is on the wall. Business outcomes-based, customer success-driven pricing is imminent.
It is essential for channel partners and their vendor suppliers to move beyond trusted partner status to becoming, in a meaningful sense, a partner of the customer, invested in the client's business success. Channel partners have to snap out of being trusted advisors to becoming a meaningful customer partner. Unfortunately, this is yet another way that the emerging channel imperatives upset business-as-usual practices. Meaningful customer partner demands that the channel change its approach to structuring customer contracts, measuring progress on agreements, and billing for services. In essence, the channel should shift from a tactical approach to solving a customer problem to a more strategic focus on delivering customer success.
Channel partners looking to establish positions as meaningful partners will need to deliver solutions that drive innovation within their customers' operations to share the benefit resulting from technology-enabled business improvement. Once again, Techaisle's research data shows that only 9% are helping their customers drive innovation.
My channel partners' discussions reveal that most do not argue too strenuously with changing the label from advisor to partner. They, however, push back on its implications. An advisor has privileged insight into a customer's business. In contrast, a partner has an immediate financial tie to business results, which has an enormous contract structure implication. Advisors are paid on effort, while partners on outcomes. The nature of the sales relationship will be a critical determinant of channel success. When all channel partners call themselves advisors, there will be no differentiation left across partners; focus on being a meaningful customer partner delivering customer success.
The transition will be jarring for the IT supplier community as a whole, including the channel: traditionally, the real performance risk associated with technology solutions has devolved onto the customer, not the supplier, and purchase arrangements that tie receivables to outcomes will be challenging to navigate. Channel partners and vendors with advisory relationships will need to understand the business impact of technology in ways that they currently do not understand to support risk positions associated that are not connected with component delivery but with user adoption and benefit. Suppliers with a transactional approach will have to develop consultative niches or get excluded from outcome-based contracts.
However, the vendor perspective on the transition from advisory to outcome-based, shared-risk engagements may be less optimistic. As per Techaisle channel partner survey research, roughly one-third of partners look for sell-with relationships with their vendor partners. A similar proportion prefers sell-to relationships where the vendor product/service integrates into the partner's solution. In both cases, outcome-based contracts pose a receivable and reputational risk for the vendor. Ecosystem partner management executives will need to be sure that their channels can back advisory relationships with a real understanding of the nature and extent of the user benefits gained from solutions to ensure that they can profit from having a well-connected channel.
Business outcomes-based, customer success-driven pricing is imminent – ready or not.
The change is one in a series of several imperatives for the NEXT channel. To download a free copy of the Techaisle infographic, please click here.
If you want to read Techaisle's 28-page POV on the NEXT channel, please send me an email from your work email address.