Programs

The pros and cons of vendor incentive programs (and whether they’re really worth it)

By Jessica Larson, SoloprenuerJournal.com

Managing your channels can often require rotating between a delicate touch and a heavy hand with your partners. However, when investing your time, effort, and funds in maintaining these partnerships, you need to know if your resources are being well spent.

Supplier incentive programs are an example of in-depth outreach. There are many iterations and examples of incentive programs. However, to maximize the effectiveness of each incentive, you must first examine your specific vendors and study the incentives themselves. So, here are some pros and cons of vendor incentives to help you decide: Are they worth it?

The Purpose of Supplier Incentive Programs

The purpose of any incentive program is simple: to increase the sales. Regardless of the model, incentive programs work by increasing sales through some means, such as vendor discounts or reductions in the original purchase price.

Some incentive programs have shown impressive returns on investment. Incentive plans such as development fund investment can ensure continuous development. Additionally, Sales Performance Incentive Funds (SPIFs) can reward your salespeople directly. However, each situation will be different. A particular program that works for one provider may cause hassles and headaches for another.

Providing a portfolio of incentive plans can often help ensure profitable relationships. Each relationship will require individual attention. Plus, a variety of choices can help kick-start that relationship.

Other incentive methods to include in a portfolio include:

  • Sales Discounts: Reimburse specific percentages of sales to encourage further promotions and sales.
  • Activity-based incentives: Partners are rewarded once specific goals and milestones have been achieved.
  • Incentives for creating contracts: Partners receive a portion of the successful deals they were part of.
  • Personalize: Work with your partners to create tailored programs for mutual gain. This may even include sending a representative to work with your suppliers.

Other changes within the chain often influence incentive programs. Upstream discounts and savings can be passed on to your downstream partners and suppliers.

Start small. Optimize your use of USPS, UPS and FedEx services. Optimizing your shipping methods can save you time and money across the channel. Then transfer these savings to your suppliers in the form of development funds that directly benefit them.

Of course, the real world is rarely so cut and dry. In some cases, programs and vendor relationships may need to end at some point. Whatever the decision, start by determining the pros and cons of a vendor incentive program.

Benefits

When they work, incentive programs can drive sales and increase the reach of your products. They can even get more product experts to share your brand. Your products and services can grow and adapt to customer needs with appropriate reinvestment in your suppliers.

Market development funds are often touted as among the most effective programs. Some vendors will save these funds for large events that attract hundreds of customers. Others will turn these funds into additional development. This can be of particular interest to VAR vendors, as it allows them to continue improving your original product.

Incentives also help publicize your business and products. Discounts and other incentives build brand awareness through organic marketing, assuming the incentives are worth the seller’s effort, of course.

Likewise, incentives can be passed all the way down the channel, even reaching customers. When customers can take advantage of discounts or other benefits, they will feel closer to the product. In other words, customers and suppliers who want to take advantage of the incentives are already brand-attached.

The inconvenients

For many, the negatives of incentive programs can outweigh the benefits. In some situations, incentive programs can go nowhere. These days, you’ll need to have enough on offer to keep up with the game’s many enthusiastic new players. Maximizing vendor relationships often comes down to how much you can sweeten the deal. While this has its merits, you will need to provide these funds.

Make sure your business finances are in top shape, as well as your personal numbers. If you’ve been struggling with pandemic-related outages in recent years, don’t neglect your credit. examine secured credit cards to help you rebuild and strengthen your personal and professional credit. This will translate to more than you can offer your suppliers to work with you compared to the competition.

Other common grievances include:

  • Neglected and unused MDF.
  • Low use of discounts.
  • Confusing or overly complicated incentive programs.
  • Difficulties in making the link between the initial objectives and the objectives of the supplier (for example, market shares versus sales figures).

Strong partnerships also require a lot of communication and relationship building. Finding suppliers to learn, sell and improve your product can consume your time and energy. And, when salespeople and sales managers have an average 2-year turnover, it can be difficult to establish the necessary relationship.

In today’s markets, competition is on the rise. Partnerships can be formed easily, but quality relationships still take time and research. Incentives can help, but they can often mask a supplier’s true value. Specifically, without testing the incentive program for a period of time, you won’t know if a vendor will measure up.

Finally, all too often, a supplier can only provide a as much as the competition. Without innovation and additional investment, growth can be rare.

The essential

Supplier incentive programs can yield great results. Healthy relationships and open communication channels are essential. Incentives can drive growth, drive sales, and spread organic marketing. However, this can take time and work.

Once you find vendors worth incentivising, make it worthwhile. Offering a diverse portfolio of incentive options can help solidify a beneficial relationship. Once providers and vendors are working towards the same goal, incentives can help strengthen the professional bond. Ultimately, this makes incentives a worthwhile investment of time and money.

About the Author

Jessica Larson is a midwestern married mother and solopreneur. She creates online courses for students, and she has started and run several other businesses over the years. Her goals are to support her family while spending time with them, to act as a business model for her two daughters, and to share what she has learned through the Solopreneur Journal.