Sell-through allowance programs (STA’s) are a great way to protect your dealer’s margins and the overall price integrity of your products, but they have had a bum rap in some circles recently. The reasons for this are plain to see: some programs pay out way too infrequently to be effective, some tie up much-needed dealer cash, and some simply don’t pay out in a way that incents more purchases of your merchandise. Driving more sales of your product is the “big why” for your program in the first place, right? Right?
Many companies run channel marketing programs where they as the vendor are accruing incentive dollars and the accruals are being held back to pay for merchandise, trips or year-end cash back. Sounds nice, but the more I travel (a dozen trade shows so far this year!) and the more folks I have spoken with in 2013, the more I see that the will seems to exist to move to a more formalized system for nearly everyone.
Look, I’ve been in this space for much of my career and it strikes me as a real shame to see any sales incentives program falter in the digital age. It simply isn’t necessary.
So let’s look at the above-mentioned system of accruals. Typically a company might offer a 2% sell-through allowance to their channel partners in the form of one of these accruals. Over the course of a year’s worth of sales cycles the accruals become liabilities to the vendor, meaning the accrual goes on the books. Since it now lives on the books, it does, in fact, need to get paid out and get off the books.
Since the amount needs to get paid out anyway, why not simply make your program work better with more frequent payouts? With all the technology available today, there is no need for this to be a painstaking exercise and the benefits to more frequent payout stack up quickly.
- Making monthly payouts frees up more cash for the customer which your customers will certainly appreciate.
- Sacrificing a bit of your cash flow to pay it out now provides support and reinforcement to the dealer and ties the money more easily to more purchases of your goods.
- Paying monthly gives you the opportunity to say “thank you” twelve times during the year instead of just once at the end of the year.
From your CFO’s perspective, adding sell-through allowance as a layer to your overall sales incentive program gives the benefit of holistic reporting to establish true marketing ROI with each of your customers.
So, if you’re doing rebates and sales spiffs, why not layer STA’s into the rest of your incentives program and reap the rewards of happier, more engaged channels while adding some channel marketing effectiveness and metrics that you can really use?