Partner commission models

The five structures

Almost every partner commission scheme is one of these five, or a combination of two. The useful question is not which is best, it is which behaviour you are paying for, because a commission structure is an instruction and partners follow it precisely.

Recurring revenue: the decision people get wrong

For a subscription business this is the single most consequential commission decision, and it is frequently made in a sentence on a call without anyone modelling it. There are three defensible answers and one that causes trouble.

• First year only. Simple, bounded, and the easiest to forecast. The cost is that partner attention moves on the day the customer renews, which is exactly when you might want their help.
• Fixed multi-year window. Two or three years. A reasonable middle ground that keeps the partner interested through the risky early renewals without an open-ended liability.
• Lifetime, with conditions. Defensible when the partner keeps doing work, for example first-line support or account management. Attach it to continued activity rather than to the original signature.
• Lifetime, unconditional. This is the one that causes trouble. You are committing indefinite margin for a one-time act, and it cannot be unwound later without a fight, because the partner priced their business around it.

Clawbacks and refunds

The uncomfortable case: you have paid a commission and the revenue goes away. A refund, a chargeback, a customer who churns in month two, or a deal that turns out to have been fraudulent. If your programme has no written answer, you will improvise one under pressure and the partner will experience it as a change of terms.

1. 1Define a holding period. Commission is earned at close but payable after a stated window, commonly aligned to your refund policy. This resolves most cases before money has moved.
2. 2State the recovery method. Almost always netting against future commission rather than invoicing the partner. Asking a partner to send money back is a relationship-ending event for a modest sum.
3. 3Cap the lookback. Say how far back a clawback can reach. Unbounded exposure means a partner can never treat any payment as final, which distorts how they value the whole programme.
4. 4Separate fraud from churn. A customer who cancels is ordinary commercial risk. A partner who manufactured the transaction is a different matter and should sit under a different clause with different consequences.

Multi-currency, where the quiet errors live

Currency handling is where partner payments go wrong without anyone noticing, because each individual error is small and none of them produce an alert. They surface as a partner who has been running their own spreadsheet and arrives with a reconciliation you cannot immediately refute.

• Fix the rate at a named event. Usually the date the commission is approved, not the date it is paid. Then store the rate you used on the commission record itself, so the number can be reconstructed years later.
• Never let a rate float between calculation and payment. If approval and payment use different rates, every payout differs from the amount the partner was shown, always in a direction they will notice.
• Respect minor units. Not every currency has two decimal places. JPY and KRW have none, and BHD, KWD and TND have three. Code that assumes cents underpays or overpays by orders of magnitude in those currencies.
• Round once, at the end. Rounding at each intermediate step compounds. Calculate at full precision and round only at the payment boundary.
• Say who pays the transfer fee. In the agreement. A partner expecting 1,000 and receiving 982 will read the difference as a short payment rather than a bank charge.

Setting the actual number

Benchmarks are a sanity check, not an answer. Two companies in the same category can justify very different rates depending on gross margin, sales cycle and how much work the partner genuinely removes. Work from your own economics and use benchmarks only to notice when you are far outside the range.

1. 1Start from gross margin. Not revenue. Commission comes out of margin, and a percentage that looks modest against revenue can be most of the margin on a low-margin line.
2. 2Subtract the work you still do. If your team still runs the demo, negotiates and implements, the partner introduced an opportunity rather than delivering a sale, and the rate should reflect that.
3. 3Compare against your own CAC. Partner-sourced revenue should cost less than the same revenue through your most comparable direct channel, once programme overhead is included.
4. 4Sanity check against the category. Referral programmes commonly land between 10 and 20 percent of first-year value; reseller margin usually runs higher because the partner carries pre-sales and often delivery. Being outside that is fine if you can say why.
5. 5Leave room to move up. Raising a partner's rate is a good conversation. Lowering it is close to impossible without losing them, so launch nearer the bottom of your defensible range.

Frequently asked questions