Funded Head Experiment Yields Positive Results

Last year I wrote about the advantages, disadvantages and my skepticism about use of a "funded head" at a distribution/reseller partner. The term "funded head" refers to paying a portion of a sales rep's salary at a partner with that person functioning as a surrogate employee. To review, the advantages are: no employment contract, lower cost than hiring your own person, increased mindshare from the sales partner and a way to incrementally invest in a market with a lower budget. The disadvantages: less control, less loyalty/focus than hiring your own person and less equity accrual to the manufacturer/publisher.

As an experiment, we went ahead and signed a contract with Sigma Software Distribution in the U.K. for a partial funded head. (My client, a software company with a long history as a leading Internet driven sales & marketing company, had never done this before but was interested in selling larger licenses through international channels.) We paid a portion of a sales rep's salary on a quarterly basis and in return the Sigma sales rep focused a commensurate percentage of his time on our software evangelizing resellers and assisting them upsell larger licenses to corporate and government accounts. Because of our investment in Sigma and willingness to put "skin in the game" we gained increased mindshare from Paul Jackson, Sigma's talented and experienced Head of Business Development (who guided the more junior Funded Head) and Sigma's executive management.

The results: although the U.K. saw a double-digit decrease in sales from our client's pay per click on-line sales during the last 12 months, Sigma (with the Funded Head) increased sales of the software by 40%. While the client's on-line sales are mostly to individual end users and consumers, Sigma's growth came primarily from an increase in the number of corporate and government accounts sold to by resellers, and follow-on upsells of larger licenses to accounts the Funded Head penetrated more deeply. The sales increase was approximately 5X the cost of the Funded Head. In other words, the Funded Head's cost was 20% of the increased revenue. No other marketing expenses were paid by the client for Sigma during this time, so growth is attributed primarily to Sigma's and the funded head's activities. Although a cost to revenue ratio below 10% would have been preferred, given the overall decline in the UK market in the last year for software products in general and the client's software, the return on investment was favorable and supported a profitable business model.

Another important "control variable" in this experiment is the client's other U.K. reseller, which received neither support for a funded head nor marketing funds. This reseller was able to maintain its level of sales compared to the previous year, but unable to significantly grow its business.

For anyone using or considering a funded head, I strongly recommend treating the surrogate as you would any other member of your sales team with respect to training, providing sales resources such as WebEx and employing your standard metrics and analytics to measure the sales pipeline and performance.

In conclusion, the investment in funding the partial salary of a distribution partner's sales rep yielded a positive return without cannibalizing or interfering with the client's core on-line business.

What has been your experience?

Dan Griswold: Free Trade Is A Main Street Issue

San Diego, CA (Dec. 10, 2009) --Daniel Griswold stood before members of the World Trade Center holding a Swingline stapler in one hand and an iPod in the other. The stapler was manufactured a 15-minute subway ride from Manhattan, NY. The iPod, designed in California by Apple, produced in China. "The value added in China is a few dollars," said Griswold, while the remainder of the price paid goes to Apple and the retailer who sold it. His point: most of the value from the design and sales of the iPod goes to American firms, while the consumer benefits from the lower price of producing it overseas. He rhetorically asks, holding both products in his hands, would you rather live in a society that designs staplers or the iPods?

Griswold is the author of "Mad About Trade: Why Main Street America Should Embrace Globalization" and Director of the Center for Trade Policy Studies at the Cato Institute. His research shows that American consumers are the biggest beneficiaries of world trade, and the money saved by main street from lower prices from the global economy is far greater than any Washington stimulus plan. Globalization elevates the quality of life of everyone. "Consumers are the biggest winners from free trade," he said. "Working families benefit from lower prices." And while he expressed for workers who have lost their jobs to factory closures, according to his research "imports are responsible for 3% of joblessness. For every one person who looses their job to trade 30 people loose their jobs for other reasons." As an example, thousands of people from Kodak lost their positions because of the rise of digital photography -- a technology shift -- not because of the imports of digital cameras. And while 4-million manufacturing jobs have were lost to trade (prerecession), his research indicates 18 million service jobs were created from economic growth with pay higher than manufacturing wages. "Globalization is in the interest of Americans," he said.

Griswold recounted a globalization moment that occurred while doing a case study of his closet. Of the 120 items he inspected--mostly clothes--10 were made in the U.S., and 9 of those were neckties. Of particular note was an item from Mexico labeled: "Hecho en China."