Best Practices for Channel Partner Commission Structures
September 3, 2020

 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.

1. Revenue Share

Revenue sharing as a commission structure symbolizes an ongoing partnership where 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. 

Revenue Share Commission Example for SaaS Sales:

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 that is a percentage of the total deal. For SaaS companies, recurring commissions are a popular way to ensure alignment with partners and referrals.

2. Tiered Model

Tiered commission structures incentivize channel partners to keep activity levels up. This method directly ties the actions taken within a portal to the amount of commission a partner receives. 

Activity levels are significant because while your partner leads may close at a much higher rate than other sales channels, not every lead immediately turns into new business. Nonetheless, consistently generated leads are valuable and, therefore, worth a small incentive to recognize and encourage partner engagement. Down the line, when a partner lead finally closes, you should provide them a larger commission.

3. Straight commission

Straight commission is one of the more straightforward commission structures. With a straight commission model, reps are paid a percentage on their total sales for the previous period minus their commissions earned for any product returns. There is no guaranteed income with straight commission. If reps sell, they earn a commission. 

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.

5. Base plus commission

Base plus commission structures are common in the SaaS space, especially for longer sales cycles. This is because time goes in to developing a process, familiarizing themselves with your product, building relationships, etc. well before a deal comes to fruition. Providing salary plus commission promises a minimum income with an added commission that’s based on the percentage of sales. 

6. Salary plus commission plus bonus

Adding a bonus to a rep’s salary is the same structure as #5, but with additional opportunities to earn bonus income. Bonuses are usually a fixed dollar amount (versus a percentage) for hitting goals.  

This structure differs from the typical salary plus commission structure in that reps are incentivized to hit goals, not necessarily for making sales. Bonuses are a method of incentivizing other business growth activities beyond sales. Bonuses are typically paid quarterly or annually.

7. Backend bonus

Backend bonuses refer to additional commissions earned when reaching particular sales goals. For instance, a manufacturer can pay an additional 5% commission to partners if sales exceed a set revenue goal for the quarter. Regular commissions would be earned during the quarter, and the extra backend bonus is paid after the quarter’s sales are totaled.

Empower your partners.

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 any size business 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