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Best Practices for Channel Partner Commission Structures

In this article, we explore the ins and outs of various compensation plans commonly used by partnership programs and dive deeper into what should factor into your selection. Plus, you can download our free commission plan template.
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Partner Revenue Share – The Most Common Channel Commission Plan

Commission Example

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, Bonuses & Lead Incentives

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.

Incentives to Motivate Partners

Design a commission structure for your partners that not only recognizes partners for successful closed/ won business but also grants an extra bonus for each eligible lead they contribute. Typically, this bonus consists of a predetermined fixed amount and is awarded when the submitted lead is deemed a suitable fit for the business. Implementing such a program can serve as a powerful tool to encourage positive behaviors.  

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.

Deciding Which Commission Plan is Right For Your Partnership Program

Choosing the most suitable commission plan for your business requires careful consideration of various factors. While there’s no one-size-fits-all approach, there are a few steps you can take to understand which compensation structure is the right one for you.

Understand your business model

First and foremost, look at the overall set up of your business, in addition to the product you are selling. Pay close attention to the length of your sales cycle and the average contract value of your product before deciding upon a commission structure for your partners.

For example, if you have a low ACV product, the revenue share may not be as compelling.  Therefore, supplementing with a dollar amount per lead plus some type of revenue share might be the best commission structure to help keep partners motivated during the longer sales process.

Analyze industry best practices

When determining the channel compensation plan for your partner program, it is crucial to consider the prevailing market rates of commissions offered by other partner programs, including your competitors.

In a competitive landscape where your partners likely collaborate with multiple companies, you must offer a commission structure that is on par with or exceeds what others are providing. Failing to do so may result in losing the interest and commitment of your partner sales teams.

To illustrate this point, let’s consider a scenario where you have a channel partner who works with both your company and your competitors. While your program offers a commission of 15%, your competitor provides a generous 30% revenue share for every deal closed.

Even if your solution may be superior in quality, sales teams are primarily motivated by financial incentives. Consequently, offering a lower commission structure than your competitors may lead to a decline in mind share among your partners.

By aligning your channel commission plan with market standards and ensuring it remains competitive, you can effectively motivate and retain the engagement of your partner sales teams.

Assess partner engagement

Another consideration when selecting a commission plan? Your partners’  levels of involvement in the overall sales process.

In certain scenarios, partners not only close the initial deal but also play a significant role in managing and renewing customer relationships. This extended involvement should be taken into account when designing the commission plan.  

In situations where partners are heavily engaged in both the initial sale and the ongoing management and renewal of customers, it may be worth considering a commission structure that includes a revenue share for each future renewal. This recognizes the value and effort they contribute to maintaining long-term customer relationships.

By acknowledging the partner’s extended role and incorporating appropriate incentives, you can create a commission structure that aligns with their involvement in the entire sales lifecycle.

Seek partner feedback

To determine if your commission structure is appealing to partners, one of the simplest methods is to seek their input. Once you have developed an initial structure, it is important to present it to your partners and gather their feedback.

If you receive a lukewarm response from your partner counterparts, take the opportunity to engage in a discussion about how the commission structure can be improved to make it more compelling. While there are limits to what can be offered from a commission perspective, it is crucial to address any concerns or suggestions raised by your partners.

It is vital to note that failing to entice partners initially with your commission structure or proposing a structure that deviates significantly from industry standards may result in a strained relationship and hinder any progress or momentum you could have with the partner.

By actively seeking feedback and making necessary adjustments, you can ensure that your commission structure aligns with the expectations and needs of your partners, fostering a positive and productive relationship.

Pilot and Iterate

Implementing a commission structure for your partner program is a substantial undertaking, but it’s important to embrace the idea of piloting an initial structure and conducting evaluations down the line.

If your partnership program is running smoothly and yielding positive results with the initial revenue share structure you have put in place, it may be best to maintain it as is.

However, if you’re experiencing slow growth and seeking ways to accelerate progress, consider experimenting with lighter adjustments such as SPIFFs or exploring commission payment options for lead generation as discussed above.

Run the modified structure for a month and assess whether it has brought about actionable changes in your partner program.

By continuously assessing and testing different approaches, you’ll be able to refine and optimize the commission structure, ultimately finding the perfect fit for your partner program.

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.

Additional Reading to Shape Partner Commissions & Operations

Guide to SaaS Reseller Commission Plans Some partner types naturally lend themselves to more partner involvement than others. Find additional guidance on how to shape your commission plan for reseller partners, specifically.

Channel Partner Go-To-Market (GTM) Strategy — Your partner commission plan is only one of dozens of different decisions you’ll have to make as you evolve your program. This guide highlights the many strategic levers at your fingertips that influence the success of your program’s launch or expansion.

What a Fair Lead Distribution Process Looks Like — A topic that goes hand-in-hand with handling comissions is lead distribution. Use this article to ensure that your own program’s policies are airtight and clearly communicated, sparing yourself and partners from future confusion and frustration.

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