We asked our Strategic Advisors how they structure sales commissions and compensation for channel sales representatives. Here’s what they said.
Chris Selland, Unifi Software
Love this answer? Connect with Chris to talk through your channel program.
My channel rep team is an overlay team – their objectives are based on channel revenue but they are not commission.
The direct reps get paid on channel revenue – so we’re not double-commissioning but they are compensated to cooperate (not compete) with the channel partners. They get paid only on the discounted revenue we receive from the channel partner, and based on whose territory the end customer is located in.
Scott Edison, Bench.co
Love this answer? Connect with Scott to talk through your channel program.
Level check: channel rep compensation is hard
Depending on the maturity of your channel program the answer is different. Many of the companies in the Cloud Software Association (Bench included) are in the early stages of building out the foundation for an indirect sales channel and the leads generated from channel partners is not very reliable/consistent.
On-target earnings: commissions or not
For my reps I choose to pay ~70% in base, 30% in quarterly variable comp.
Why skew to base?
A lot of the work required is developing process, cementing relationships, and setting expectations both inside and outside the organization. For these reasons I believe a channel rep should earn 70-80% of their OTE in salary and the rest in a bonus tied to achieving revenue/channel sales targets on a quarterly basis.
Your impact on channel sales velocity
Trying to measure/pay monthly is false precision since the priority and urgency of the CSR doesn’t usually translate to the same priority/urgency on the channel partner side; which means channel activity and revenue lags the effort/inputs.
I also use a tiered system where the variable component is only available if the rep delivers 70% of target (this would mean a payout of 70% of 1/4 of the annual payout. If they rep delivers 100-119% of target they earn 100% of their quarterly payout of 1/4 of the annual payout. If they achieve 120% or more we pay them 1.2X.
So to illustrate, I’ll use round numbers.
|CSR Rep Annual OTE:||$100K (target)|
|Variable||$30K at 100% (e.g. 100 units sold/year)|
Say in Q1, the rep sells 20 units out of the quarterly target of 25 units (80%). In this scenario the rep hit the minimum threshold of 70%, but missed target. The payout would be 70% X $7500 = $5250.
Say in Q2, the rep sells 25 out of 25 target units (100%). The payout would be 100% X $7500 = $7500.
Say in Q3, the rep sells 29 out of 25 target units (116%). The payout would be 100% X $7500 = $7500. There is no incremental payout until the rep hits the stretch goal of 120%
Say in Q4, the rep sells 35 out of 25 target units (140%). The payout would be 120% X $7500 = $9000.
Actual earnings: $99,250
I have tried a true commission structure that scales with more sales but I find that it changes focus to very short term and I don’t like the behaviors associated with this short term emphasis. It also leads to a lot of time spent calculating and challenging payouts.