Balancing a vendor's desire to maximize profitability by not offering excessive margins to channel partners is countered by the desire to see those same partners increase the company's sales and profitability. Finding the right balance is an art, but not rocket science.
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On the one hand, a software publisher can marginally increase its revenue and profitability in the short term raising a distributor price and lowering distributor margins to 5%. On the other hand, how much is the publisher foregoing by not providing its international value added distributors with margins that would motivate them to proactively push its software?
Finding the right margin may be an art, but not an impossible task. From my observation of this case, given the genuine interest of the UK distributor, the software publisher could significantly increase its revenue by giving its reseller strategy a tuneup and to provide margins that motivate channel partners to proactively sell.