Building an effective sales channel is crucial for SaaS companies looking to scale growth. While direct sales teams drive core revenue, partners like resellers can extend reach into new markets and customers. According to Gartner, indirect channel sales account for between 30-70% of revenue for most SaaS firms.
However, to fully leverage resellers, SaaS providers need strategies to recruit, enable, and incentivize the right partners. A key component is designing a win-win commission structure that drives sales but also maintains healthy margins.
With the SaaS market projected to grow at nearly 15% CAGR through 2025, competition for channel partners is increasing. To attract and retain the best resellers, your commission rates and terms must align with industry standards. Striking the right balance between motivating partners and profitability takes careful planning.
This guide will cover essential tips for SaaS companies to build a compelling compensation model for resellers. You’ll learn best practices for setting commission rates, choosing payment terms, managing tiers and bonuses, and tuning incentives over time. With the right commissions approach, you can expand your market reach by tapping into indirect channel sales growth.
How do SaaS resellers get compensated?
Resellers are typically compensated for closed deals through commissions based on a percentage of the total sale price or a fixed fee per transaction. The commission structure is outlined in the reseller agreement and may include tiered rates based on sales volume or revenue thresholds achieved. Larger deals or special promotions may qualify for higher commission rates. Commissions are paid on a periodic basis, such as monthly or quarterly, once the revenue from the sale is received.
Typical Partner Commission Structure for SaaS Resellers
- Upfront Commission – A percentage (usually 10-20%) of the first year contract value paid when the deal closes. This compensates for the upfront work of acquiring the customer.
- Residual Commissions – A percentage (5-15%) of ongoing subscription revenue paid monthly or quarterly as long as the customer continues to renew. This compensates for ongoing account management and renewal efforts.
- Tiered Commission Rates – Higher commission percentages paid for incremental growth or sales above a certain threshold. This rewards resellers for growing accounts over time.
- Renewal Commissions – A commission (often 50% of new business rate) paid on renewal sales. This provides an incentive to retain and expand existing accounts.
- SPIFFs – Lump sum bonuses paid for selling certain products/services, hitting volume targets, or closing large deals. Used to incentivize focus on key offerings.
- MDF Funds – Market development funds provided to support demand generation, marketing and sales efforts for a vendor’s solutions.
- Non-cash incentives – Things like paid trips, gifts or points can be used to motivate and reward top performers.
SaaS Reseller Commision Rate
SaaS Reseller Commision Rate
The industry standard for the commission rate for SaaS resellers usually falls between 10% and 50%. The most common commission rate for resellers is about 20%.
The average SaaS reseller commission rate tends to fall in the 10-35% range. However, the final rate depends on several factors, with the commission rate for a warm lead being 10%, 20% for a lead that is ready to buy, and 25-40%+ for a customer that has been closed by the partner.
SaaS Sales Commision Rate
The standard commission rate for SaaS sales typically stands at around 10%. This rate is average for the industry and can either increase or decrease based on a variety of factors.
Distributor Commision Rate
The standard commission rate given to distributors normally ranges from 45% to 55%. This is an average figure and usually includes a sub-reseller margin. The specific figure could be more or less depending on factors such as the size of the distributor’s network and their level of involvement in the sales process.
|Commission Rate Type||Range||Average|
|SaaS Reseller||10% – 50%||20%|
|SaaS Reseller (Warm Lead)||10%|
|SaaS Reseller (Ready Lead)||20%|
|SaaS Reseller (Closed)||25% – 40%+|
|Distributor||45% – 55%|
Understanding these rates can help in deciding how to compensate partners accordingly.
However, organizations should not solely rely on these average figures. Thorough competitive research should be carried out to understand how other organizations in the same space compensate their partners.
Who Should Calculate SaaS Sales Commissions?
Calculating SaaS sales commissions requires attention to detail, math skills, and the ability to explain complex compensation plans.
In small companies, non-commission sales roles like Sales Support Specialists may handle commissions part-time. But this can lead to burnout with added admin work.
Accountants are skilled with calculations but may get overwhelmed balancing commissions and other accounting tasks.
Dedicated sales operations or commissions teams are ideal for larger SaaS firms. They focus solely on quota tracking, commission calculations, and reporting.
Automated commission software is emerging to remove manual work across roles. But oversight is still needed to validate deals and configure payout rules.
No matter who manages the process, SaaS firms must ensure accuracy, transparency and timeliness in commission payments to motivate sales teams.
How Much Commision Should You Give to a SaaS Reseller?
Determining the right commission for a SaaS (Software as a Service) reseller involves intricate analysis. Typically, the industry standard ranges between 20-30% and is generally used as a guideline. However, several factors influence this rate, each of which plays a vital role in the final decision.
Firstly, it’s crucial to assess the value offered by the reseller. The extent to which they can enhance your sales through their expansive reach and established relationships directly impacting this rate. Resellers that can significantly boost your product’s popularity often deserve a higher commission, usually between 25-35% or higher. Conversely, those providing less should receive a lower commission.
Another factor is your SaaS product’s overall margin. Higher-margin products facilitate a more flexible commission rate, fostering a more appealing proposition for potential resellers. Yet with lower-margin products, it’s essential to strike a balance between reseller appeal and your profit margins.
The exclusivity of the reselling arrangement also has a bearing. Exclusive resellers usually command a higher commission, often more than 30%, given their commitment to your product alone. Non-exclusive resellers selling competing products are comparatively less valuable and may thus receive a reduced commission.
You can also provoke motivation through volume incentives, furnishing tiered commission rates based on sales volume, thus inspiring resellers to strive for higher sales targets.
The investment required by resellers in terms of time, money, and resources to promote your product also plays a part in determining the commission. The more resources needed, the higher the commission.
Lastly, some resellers, especially the larger ones, possess considerable negotiating power, enabling them to secure higher commissions. However, it’s important to balance this against your profit margins.
To sum up, a recommended model could be:
- Non-exclusive, small resellers: 20-25% commission
- Strategic resellers: 25-35% commission
- Exclusive, large resellers: 30% or higher commission
So, the commission you should give to a SaaS reseller relies on your strategic evaluation of these various factors, aiming for a balance between competitiveness, reseller motivation, and profitability.
SaaS Reseller vs Internal SaaS Sales Rep Commission
Two key players in this field are SaaS resellers and internal SaaS sales representatives. Both have unique roles and commission structures that contribute to the overall success of a SaaS business.
A SaaS reseller is an individual or company that purchases SaaS products from a provider and then sells them to end-users. They play a crucial role in expanding the reach of a SaaS product, especially in markets where the original provider may not have a strong presence.
Internal SaaS Sales Representative
On the other hand, internal SaaS sales representatives are employees of the SaaS provider who sell the product directly to customers. They typically handle new customer acquisition, upselling, and customer retention.
Differences in Commision Structure
When it comes to commissions, there are some differences between these two roles.
The standard commission rate for SaaS sales typically begins at 10%, according to Jason Lemkin, CEO and Founder of SaaStr.
He suggests that a sales rep needs to generate 4-5x their total compensation to make the business model work. This 10% commission rate is common among most B2B companies at scale.
However, SaaS reseller commission rates can vary, typically falling within the 10-35% range. These rates depend on several factors, including the competitive landscape and the specific agreements between the reseller and the SaaS provider.
The commission structure for inside sales can also vary. For instance, if an inside salesperson is responsible for closing the sale, the commission could be as high as 40-60% of the total deal value.
This is higher than the commission available to top-of-funnel reps, reflecting the increased responsibility and effort required to close a deal.
In conclusion, while both SaaS resellers and internal SaaS sales reps play vital roles in selling SaaS products, their commission structures can differ significantly.
Understanding these differences is crucial for SaaS providers when designing their sales strategies and compensation plans.
Managing Internal Conflicts with Resellers
Managing internal conflicts when collaborating with resellers can be a complex process, particularly when it pertains to disputes about lead ownership and sales commission. Given that multiple stakeholders are involved – each with their vested interests – it is important to devise a robust conflict-resolution strategy that caters to all parties involved fairly and transparently.
- Create Comprehensive Partnership Agreements: One way to avoid potential conflict is by crafting meticulously detailed partnership agreements. These documents should clearly demarcate the roles and responsibilities of both your internal sales team and reseller partners, including how leads are sourced, shared, and tracked, and how commissions will be managed in case of potential overlaps.
- Incentivize Your Sales Team: One of the effective ways to navigate this situation as suggested by Jason Ashman from SaaS Labs, is by incentivizing your sales team appropriately. Instead of reducing the commission of your sales reps when a deal comes through a reseller, consider offering the full commission or even an additional bonus. This strategy could motivate your sales reps to collaborate more enthusiastically with reseller partners.
- Implement a CRM System: A customer relationship management (CRM) system can help streamline lead attribution between internal teams and reseller partners. It can also track the progression of each lead and thereby prevent any potential conflicts arising from the same lead being engaged by various entities.
- Promote Open Communication: Encourage regular, transparent communication amongst all parties involved. This can not only foster a harmonious working relationship, but also quickly identify and resolve any misunderstandings or disagreements.
- Continuous Education and Collaboration: Regularly educate your team about the benefits of working with resellers, making sure they understand the value of these partnerships and the potential benefits to the organization. Use success stories and case studies to illustrate this point.
Remember, the goal is to turn potential internal conflicts into collaborative opportunities, with all parties working in unison towards the achievement of shared business goals.
What Is the Duration for Paying Saa S Reseller Commissions?
SaaS reseller commissions are usually paid out for a minimum of two years following the closure of a deal. However, the commission rate can vary based on your business model, with a common practice being a higher percentage for the initial year, followed by a reduced percentage for subsequent years.
How Does Compensation of Value-Added Resellers (va Rs) and Resellers Differ?
Value-Added Resellers (VARs), who provide extra services in addition to reselling your solution, generally receive a higher percentage of commission. This acknowledges their additional effort to close and sustain a deal.
When Is the Ideal Time to Pay Reseller Commissions?
The optimal time to pay reseller commissions depends on your business model. While some firms pay out as early as a deal is finalized, others, like Salesforce, make payments 30 days post the quarter-end, which could result in a waiting period of up to four months for resellers.
How Should a Reseller Commission Payment Schedule Be Communicated?
The reseller commission payment schedule should be clearly stipulated within the reseller partner agreement to ensure shared understanding and expectations.
What Are the Risks Associated with Paying Reseller Commissions Immediately After a Deal Is Closed?
Paying reseller commissions immediately following the closure of a deal may pose financial risks, potentially straining operational resources if a business fails to maintain adequate cash flow.
Should the Commission Rate for Saa S Reseller Commissions Remain Constant Over Time?
SaaS reseller commissions do not mandate a constant commission rate over time. A differential rate, such as a 25% commission for the first year and 15% for subsequent years, is common practice.