What is the incentive for a Channel Partner sales rep to close business for any of the lines they sell?
Follow me as I blog my way through my book: 99 Questions to Jump Start Your Partner Channel Brain.
Remember Maslow’s hierarchy of needs pyramid? If you recall, it describes how all other needs build upon (and on top of) basic physiological needs like food, water and sex (not necessarily in that order). It’s probably something you covered in your first psychology class. Good stuff.
What’s Maslow have to do with incentives for Channel Partner sales reps? Plenty. If you’re planning some kind of super duper promotion involving people who don’t work for you (i.e., your Channel Partners), it’s wise to first understand how these people put bread on the table for their families. Once you understand this, you will be better equipped to select the right incentive based on how your reps are compensated by their employers and your competitors.
You’re probably familiar with the term, “total compensation.” It includes all the monetary and non-monetary, current and future streams of income. While you, personally, may be paid a salary plus some kind of bonus based on you and your company’s performance, most Channel sales reps are not.
Here are a few of the more popular compensation plans and options:
1. Straight commission
Reps are paid a percentage of their total sales for the previous period minus their commissions earned for any product returns. There is no guaranty. Sell, you make money. No sales, no money.
Side note-1: Some reps are paid when the customer’s check is received and cashed, while others get their commissions when the customer is invoiced. Paying upon customer receipt (or collection), while beneficial to the company, turns the rep into an overpaid collection agent. File this under: stupid.
Side note-2: If you see a company pay its sales reps in this way, run. And btw, this shortsighted payment structure is not limited to Channel Partners. Even Data General in its hay day did this… hmmm…. look where they are now.
2. Straight commission against draw
Like #1, reps receive commissions for a percentage of their sales. In this case, however, reps receive at least a promised minimum payment from their companies. This is especially useful when hiring new reps to “prime the pump.”
There are two important options when it comes to draws, recoverable and non-recoverable draws. In recoverable draws, the rep agrees to pay the money back once he/she begins to hit stride in their territory.
Non-recoverable draws have no such repayment option.
3. Straight commission comparison
Here’s a comparison of these options. I’m assuming the same commission rate for each option, which may not always be the case. Commissions are calculated on prior month’s sales. Customers pay in 30 days (remember, it’s just an example… not real life!). Draw is $500/mo.
(10% of sales)
|sales rep earnings|
Straight comm. invoice
Straight comm. collection
Straight comm., invoice, recoverable draw
Straight comm., invoice, non-recoverable draw
*sales rep begins to pay back the draw
4. Salary plus commission
This option guarantees a base income with an added commission on top of the base. The longer the average sales cycle the more common you will see this form of compensation.
5. Salary plus commission plus bonus
Same as #4 with the additional possibility of earning a bonus, usually a fixed dollar amount (vs. a percentage) for achieving a goal and may not necessarily be for making sales (e.g., holding an internal training class or publishing an article in an industry trade publication). Bonuses are paid quarterly or annually.
6. Backend bonus
“Backend bonuses” refer to additional commissions paid when a particular sales goal is reached. For instance, a manufacturer offers to pay an additional 2% commission if sales exceed a set revenue goal for the quarter. Normal commissions are earned during the quarter and then the additional commission (i.e., the backend bonus) is paid after the quarter’s sales are tallied.
7. Commissions tail
I’m only including this for the sake of completeness, as only a tiny fraction of Channel Partner sales reps would have a commissions tail in their plan…although it would be a good idea for them to do so.
A commissions tail is an agreement for the payment of commissions to the rep for a period of time—sometimes years—for sales to their clients even after the rep has resigned or been fired.
Commissions tails are common for higher-end executives who bring clients and/or a large Rolodex of contacts with them to a new employer. Knowing commissions will be paid, ever after they leave, provides a level of comfort without worry that they would merely be turning over their database and never have any hope for benefiting from it.