Uncovering the True Value of Partnerships
Revenue is often deemed the primary benchmark to evaluate the success of partnerships. It’s the easily quantifiable element management teams turn to for assessing a partnership’s viability. The reflex isn’t ill-directed, as revenue is indeed a consequential part of the equation. However, partnerships are about more than just enhancing the bottom line, and an overdependence on revenue forecasting can cause businesses to overlook vital benefits from alliances.
Evaluating and planning partnerships based solely on revenue has three major drawbacks:
1. Ignoring the autonomy of partners: Partners have their own incentives and KPIs. They operate autonomously and are not under our direct control like internal sales teams. So, should our forecasting solely rely on something we can’t control? The answer is no. It’s more practical to focus on indicators we can control or influence when required, which ultimately lead to additional revenue or cost reductions.
2. Ignoring efficiency gains: A revenue-centric evaluation overlooks a partnership’s broader contribution to overall business objectives. Partnerships often provide substantial efficiency gains. They can reduce sales cycles, lower customer acquisition costs (CAC), increase market reach, lift brand reputation, and introduce innovative solutions at high speed. These benefits might not translate or be measured in revenue but significantly contribute to long-term profitability and sustainability.
3. Ignoring ecosystem leverage: Partnerships can enable businesses to achieve results that would be impossible to do on their own. For example, increasing the market reach without hiring and training many new full-time employees or gaining access to new customer segments that require specialized knowledge or features that a business does not have internally. There are many ways that partnerships can multiply a business’s capabilities beyond what it could achieve through solely organic growth.
A sole focus on revenue misses the upside of partnerships. It also overlooks potential value left untapped without pursuing alliances. A broader view is required to assess partnerships fully.
Insisting on using a broader “Impact Forecasting” does the job. Revenue remains a key component of partnerships, but it stems from other multiple meaningful impacts that different partners bring to the business.
How to measure the potential impact?
Revenue forecasting tends to be the comfort zone for management teams, primarily due to a lack of knowledge about more fitting methods, especially for partnership strategies. The challenge with partnership-appropriate forecasting is to identify and quantify tangible and intangible benefits across factors like cost, efficiency, access, revenue, and innovation. Tracking and quantifying these impacts where possible and as early as possible is essential to understanding the actual value derived from each partnership.
Here’s a table illustrating how different categories of partners generate different impacts:
* Also consider “proportionally lower” costs while increasing market presence or developing new features.
**Check here for “Deciding Between Build, Buy or Partner”
The specific impacts can vary greatly depending on the partnership types, terms, and objectives. When entering a partnership initiative, you should follow these steps to prepare impact forecasting:
1. Identify the overall business objectives your partnerships should contribute to. Consider goals around revenue growth, cost reduction, operational efficiency, expanding capabilities, etc.
2. Select the partner category and type based on which one can best help achieve those objectives. Check here for an overview of Partner Types & Categories.
3. Define the appropriate impacts achievable with your partner selection. Brainstorm the potential benefits aligned to your four impact categories — cost savings, efficiency gains, access expansion, and revenue increase.
4. Estimate or project the magnitude of each impact. Assign tangible targets around cost reduction, increased revenue, etc. where feasible.
5. Track and measure impact over time. Continuously evaluate performance on impact KPIs vs. projections. Refine partnerships to maximize value. Learn more about Performance measurement here.
6. Communicate impacts internally. Report on partnership value beyond just revenue for greater buy-in.
7. Use impact forecasting to guide partnership strategy. Identify new opportunities to fill gaps and continually expand positive business impact.
And last but not least, you should also consider the potential costs of not leveraging the ecosystem. This includes missed opportunities from being late to market, failing to reach key customer segments, lagging behind in product development, or inability to scale efficiently.