Mark: Hello and welcome to the Partner Strategy Network podcast. I'm Mark Sochan and I'm here with Wesley Coelho How you doing today?
Wesley: Hey mark. Doing well. What's the topic for today?
Mark: Well today, we're going to talk about partner incentive rates. When people get started with partners, they often want to know what's the going rate for how much to pay your partners. So you don't pay too little or too much. first off, how do you get information about this?
Wesley: Well, it's not exactly easily available public information. You need to put this together from multiple sources. There are some books out there that provide some guidance and you can find some rates online. But the best source is to look at actual partner guides from enterprise software vendors. And so I happen to have a collection of those that I've come across. These are some great examples from some of the biggest names and some of the strongest brands in the business.
Mark: Okay, well, it's great to have that as a resource to draw upon. Now, the typical incentive rates are going to be specific to the type of transaction or partnership deal that you're working with. Let's start with resale transactions. What's the typical incentive for a reseller?
Wesley: So for resales, the most common range is around 20% to 30%.
Mark: Okay. So that means your partner gets 20 to 30% margin on your deals.
Wesley: Not exactly. And actually that's a common point of confusion. This means the partner is entitled to a 20% to 30% discount off of the list price of the software. That's how the majority of these partner programs are structured. And then what they sell it for, and therefore what the margin is, that's up to them.
Mark: when you say 20% to 30%, what determines if you're at the lower end or the higher end of that room?
Wesley: that depends on usually where you are in the program. So if you're brand new in the program and you have no sales history, you're likely to land around the 20% range and then for a number of programs. As you have more sales, you've delivered a significant amount of business. you're able to earn a higher discounts like 30%.
Mark: that makes sense. Now let's turn to referral transactions. So in referral transactions, the partner isn't involved in the actual transaction, but they've made an introduction that kicked off the sales cycle and led to a sale. Is that right?
Wesley: That's right?
And in this case, it's really common for the referral commission to be around 10%, some offer more, some offer less, but 10% is around the middle. It's also worth mentioning that in this case, we're not talking about a discount off of list price. This is a percentage of the final deal price that you made with your end customer.
Mark: Okay. So what happens on renewal?
Wesley: for referrals, that's a low effort thing on the part of your partner who makes the introduction. It's on you to do the heavy lifting of the sale. And in most cases, those referral commissions only apply to the first year.
Mark: And so what about professional services? How does that play?
Wesley: professional services almost always have a much lower incentive rate. Obviously there's lower margins on professional services. And so, for example, if you're doing a resale transaction where the license component is providing a 25% discount to a partner, the services discount, or the discount on the services component of that deal might only be 10%.
Mark: so this is great guidance on these rates. any other tips to end with?
Wesley: Yeah, one thing I'll add is that these rates really apply to value added resellers who know your business and they're providing additional value. If you're working with a reseller that’s more of a pass through or per fulfillment transaction reseller, they’re really providing a purchasing service to your customer and not adding much value to your deal. These incentives shouldn't apply in that case. And ideally you're not giving any incentive at all. They're just collecting their fee from their customer, for the purchasing service that they're providing.
Mark: that's a good point. So to learn more and contribute your own experience or ask questions, join us at the Partner Strategy Network LinkedIn group.