6 Red Flags from Your Next Potential Vendor Relationship

Your vendor is more than just a supplier.

They train you on their products and share top sales tactics. Their experts drop into your sales cycles to help out and their technical team fixes your ongoing issues. They’re your partner. When one of you succeeds, you both succeed.

At least, that’s how it should be.

Some vendors are content to hand you the keys to their product and walk away. Others will sell you on an eye-catching offer before switching out unfavorable terms. A few will let you do the hard work of winning a customer, and not work alongside you to build the lifetime value of that customer.

For every great vendor, there’s a handful of bad ones. In this blog, we’ve collected six red flags for vendor relationships. If you see them, run the other way and find an organization that sees you as a partner, not just a cheap buck.

#1 Partner enablement means a PDF

The vendor-partner relationship is simple: The vendor provides a product and the partner sells it. But the reality is much more complicated. To get the most out of a relationship, partners have to understand their products and how to sell them.

Great vendors will empower their partners to get the most out of their products. Sometimes that means providing sales enablement collateral. Other times, it means running product and sales training. At the very least, you should expect your vendors to run delivery workshops and ongoing refreshers so your engineers can roll out products without a hitch.

When a vendor’s partner enablement program is a simple PDF or Word document, that’s a bad sign. It’s clear they see themselves as an arm’s length provider, rather than a collaborative partner.

Instead, look for vendors with dedicated enablement programs, including documentation, training, and even consulting. When your business thrives, your vendor benefits, too.

#2 Higher margin requires more work

Gross margin is a constant topic of discussion for partners. Some boast industry-leading rates of 70-80%. Others complain that they’re stuck in the average band of 40-60%.

Wherever you fall on the margin spectrum, one thing is for certain: Your vendor should help you increase, not decrease, your margin.

Unfortunately, the only way to increase your margin with some partners is to ratchet up your own workload. Worse, some vendors bake traps into their licensing models. When partners become dependent on their product, they’ll tweak the contract to trigger an increase in fees and charges. Often, it’s couched in language to make it sound like the vendor is helping the partner. In reality, it’s often a blatant money grab.

Instead, look for vendors with business models that incentivize partner growth. As your customer base expands and you become more valuable to your vendor, expect nothing less than more competitive pricing.

#3 Rising monthly minimums

Growth is good. More clients means more revenue means more profits. You can employ more people and introduce new product lines. It’s not just good for your business, it’s good for your vendor partners, too.

To “encourage” growth, some vendors have implemented rising monthly minimums. In other words, when your monthly or yearly bill increases, that becomes your new minimum. Ideally, that would be fine. You’d keep growing and never look back. But real life doesn’t always go to plan.

If you have a large client go under, your billing will decrease. If the economy tanks, your billing will decrease. If you change strategy and mothball underperforming service lines, your billing will decrease.

A rising monthly minimum doesn’t account for that. It forces organizations to pursue growth—even when it’s not in the best interest of their company.

Instead, look for a partner with flexible billing. Expect some form of monthly minimum but ensure they’re stable, reliable, and trustworthy.

#4 They’re more focused on giving you dead leads than helping you build your marketing

When you’re burning money on Google AdWords, email lists, and direct mail campaigns, getting leads from your vendor can feel like a freebie. The vendor frames the leads as the most important piece, glazing over the fact that they have nothing in place to help you build strong marketing programs for quality leads. A lot of business owners don’t factor in lead quality when vendors offer “free leads” - because they’re free!

However, as we all know, not all leads are created equal. An inquiry from someone with budget, authority, need, and timeline is worth far more than a tire kicker. Worse, some leads aren’t just low-quality, they’re dead. They’re for companies that have gone under or from people who no longer work there. Working those leads will block your sales funnel and waste your time.

Instead, if a vendor’s pitch is that they provide free leads, ask for an SLA detailing what sort of leads they will send to you. Better yet, look for vendors that offer free programs to help you market and grow your business, including masterclasses, webinars, and easily rebrandable materials.

#5 Poaching your customers

In recent years, we’ve heard about vendors bypassing their partners and competing for customers. This is particularly frustrating for MSPs who select a vendor on promises that they “only sell through.”

There’s no excuse for this. The partner-vendor relationship is based on trust and cooperation. When a vendor intentionally goes behind your back, it’s tough to rebuild the relationship.

Instead, look for vendors who are “channel-first”, with clear competition and cooperation policies such as renewal protection. Don’t be afraid to ask how they handle overlapping markets.

#6 Two- or three-year commitments

Consider how different the world was just 18 months ago. There was no social distancing and no work-from-home orders. The COVID-19 pandemic hammered home how quickly the world can change and how responsive businesses must be. That’s a problem for organizations locked into lengthy two- or three-year contracts.

In fairness, it does cost a significant amount of money for a vendor to sign, onboard, and train a new partner. By locking in a partner for 12 months, vendors can be reasonably certain that they’ll recoup their investment and start to generate a profit. But when contract lengths venture up to 24 or 36 months, that doesn’t hold.

Instead, look for vendors with a variety of contract commitment options to honor how you prefer to engage. If a partner asks for a two- or three-year deal, ask them why and don’t be afraid to walk away. Multi-year contracts should come after the vendor has proven they are trustworthy.

Stay vigilant and protect your business

We can’t cover every last vendor warning sign. At the end of the day, vendor selection comes down to you. You need to do your due diligence—ask for references, check online reviews, and review service documentation.

Remember that your vendor forms the foundation of your business. Choose the right partner and you’re setting yourself up for success. But make a mistake and you’ll be dealing with the consequences for months, if not years.