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Best Practices for Channel Partner Commission Structures
August 17, 2021

There’s no question that incentives drive sales. How you choose to incentivize your channel partners will depend on the product, industry, and method of revenue generation. Selecting the right commission structure for your partner ecosystem can increase partner engagement, quota attainment, and overall sales performance.

Partner Revenue Share – The Most Common Channel Commission Plan

Revenue sharing as a commission structure symbolizes an ongoing relationship in which the channel partner receives consistent revenue share as long as they keep selling for your company. The more deals partners close, the more the partner earns monthly.

 

For example, if a channel partner generates a net revenue of $1,000, and your Revenue Share is based on 40%, then the commission will amount to $400.

Most partner programs offer a commission plan that is a percentage of the total deal. However, not everyone agrees on who should be paid and how much. As a channel manager, you can distribute a share of the revenue to the partnering company and/or the sales rep who closed the deal. Our recommendation would be to structure a commission plan that rewards both. This way, the organization would benefit from designating time for their sales teams to onboard within your partner portal, and the individual has a personal incentive to incorporate your products into their pitches. Simply put, this particular channel commission plan enables everyone to win.

 

How much of a revenue share should you award partners? The best way to answer this is reconnaissance work into your competitors’ commission plans. Also, consider how “easy” your products are to sell (and be honest). Let’s say you aren’t yet an industry leader with significant brand recognition. Perhaps the average lead turnaround time is longer than average, or your onboarding process requires significant upfront time investments. All the scenarios above suggest that you should reward partners accordingly for their extra efforts to sell your services.

Another way to determine if your commission structure is fair? Consult with partners, particularly those who chose to leave your channel program. Politely schedule an exit interview to find out how you can improve overall. Don’t be surprised to hear some grumbles tied to money and/or effort. While one complaint isn’t enough to justify a complete overhaul of your commission structure, a recurring theme should be enough to make you pause and reconsider.

Elevate Your Partner Revenue Share Plan With Performance-Based Tiers

Tiered commission structures incentivize channel partners to keep activity levels up; the more partners sell and engage with the program, the greater their revenue percentage.

 

However, rewards don’t always have to come in the form of pure profit. Higher performance can unlock access to MDFs or leads you distribute, as well as promotion through your website and digital marketing.

 

Consider how you’d want to measure and tier partners. While revenue is a popular KPI, other options include overall engagement, certification completion, the total number of deals, win-ratio, annual contract value, and accumulated long-term value. 

You don’t need to necessarily limit yourself to relying solely upon a single metric when determining your commission structure’s guidelines. However, the more complex you make your tiered plan’s qualifications, the more energy you must invest in making sure they’re clear to partners. Otherwise, partners’ confusion could turn into dissatisfaction. 

When choosing which KPIs to utilize within your tiering plan, ask yourself the following:

– What weaknesses do you observe when auditing your sales funnel? If the top of your pipeline is heavy but few leads fail to convert, including win-rate within your criteria could motivate partners to improve their selling techniques through training. However, if you aren’t getting enough leads, a KPI like win-rate could backfire as partners only pursue “sure thing” prospects rather than aspirational wins. 

– At what stage do partners commonly jump ship? A churn rate is inevitable, no matter how strong your channel may be. However, a strategically structured commission plan can motivate partners to stay engaged. Do partners find onboarding too arduous? Tie the completion of a particular training track to a higher share of the revenue. Do partners fade after a year or two? Keep them motivated by factoring lifetime earnings into the channel commission structure.

Another Plan in Your Toolbox – SPIFF Campaigns and Bonuses

Tiered partner revenue share plans are fairly set in stone. If you change the qualifications and subsequently hurt partners’ earnings, you can expect significant backlash. This isn’t the case with awarding bonuses and utilizing SPIFF campaigns. Both options are flexible, but below are some ideas to motivate partners further:

– Award a $5,000 bonus each year to the top sales rep

– Create a SPIFF reward in which the revenue share of a particular product is temporarily greater than it would be otherwise, spurring partners to promote it

– Create a SPIFF campaign during a crucial time of year, whether it’s when business is traditionally slow or when customers make long-term budgetary decisions

 

The upside and downside of such campaigns are that they’re flexible. You can implement (and deactivate) them as needed. However, their temporary nature limits the impact they will have on partners’ long-term behavior and engagement.

4. Straight Commission Against a Draw

Like the straight commission plan, channel reps get paid commission based on a percentage of their sales. When commissions are “against a draw,” reps receive a promised minimum payment from their companies regardless of the amount they sell. The draw amount is essentially an advanced payment to the rep.

This commission structure is especially useful when hiring new channel partners or building a brand new territory. When it comes to draws, there are two distinct payout options: recoverable and non-recoverable. For recoverable draws, the rep agrees to pay the money back once they begin to gain traction in their territory. A non-recoverable draw does not require a repayment option.

It’s important to note that this particular commission structure is fairly rare amongst channel partner programs.

Empower Partners to Earn

When your business relies on partners, it’s vital to empower them to sell better and more efficiently. Allbound is a flexible SaaS platform that helps businesses of any size recruit, onboard, measure, and accelerate growth through sales and marketing partnerships. Make every engagement between you and your partners—and between your partners and their prospects-simpler, productive, rewarding, and engaging.

Schedule some time with an Allbound Channel Expert to discuss your biggest challenges in the channel. We’ll share insight and success stories from the successes we’ve witnessed from automating channel management.

Ali Spiric