The three structures and when to use each
- Percent of first-year ACV. Most common for SaaS. Rate range: 10-20% for referral, 20-40% for full channel resale. Scales with deal size, easy to explain, aligned to vendor revenue.
- Flat fee per closed-won. Use when ACV is tight and predictable, or when partners are not commercially sophisticated. Range: $500-$5,000 per close.
- Flat fee per qualified lead. Use when you need top-of-funnel volume and you can define "qualified" tightly. Range: $100-$1,000 per qualified lead. Highest fraud risk; use only with strong qualification gates.
Hybrid models (flat per lead + percent on close) usually create accounting confusion and partner frustration. Pick one shape and stick to it.
The break-even math
The math that decides whether your commission rate is sustainable. For a SaaS product with 75 percent gross margin and 90 percent annual gross retention, a 20 percent one-time referral commission is recovered in roughly month 3 of the customer subscription. A 35 percent reseller margin compounded over the customer lifetime (assuming 3 years average retention) is recovered against gross margin in year one.
The trap to avoid: paying commission on revenue that has not been collected. Partners should be paid on cash receipt, not on contract signature. Otherwise you fund partner cash flow on uncollected receivables.
Renewal and expansion commission
The two questions every commission plan must answer:
- Renewal commission. Does the originating partner earn on the customer's renewal? Common patterns: full commission year 1 only (lightest), full year 1 + 50% year 2 (balanced), full commission until partner relationship terminates (heaviest). The middle pattern is most common because it rewards partners for landing customers that retain without creating perpetual obligation.
- Expansion commission. If the customer adds seats or upgrades, does the partner earn on the delta? Common pattern: full commission on expansion for 12 months from initial close, zero thereafter. Without an expansion clause, partners stop investing in customer growth once the deal is closed.
Tiered commission for channel programs
For full channel programs (not referral), commission should tier with partner level. The standard pattern: base margin per tier (e.g., 20% Silver / 25% Gold / 30% Premier) plus accelerators on specific behaviors (Q4 deals, multi-year terms, new logo vs. expansion). Accelerators are the lever that gets partners to do what you want them to do; use them deliberately. Common accelerator targets: new logos (5% bump), 3-year terms (3% bump), strategic verticals (5% bump).
Common mistakes
- Commission on bookings, not cash. Pays partners on revenue you have not collected.
- Identical rate across all deal sizes. Either too generous on enterprise or insufficient on SMB. Use tiered rates or accelerators.
- Perpetual renewal commission with no decay. Creates a long tail of partner obligations on deals you can no longer attribute to current partner effort.
- Manual commission calculation. Wastes finance hours and creates disputes. Use the Commission Tracker template or commercial PRM.
- Hidden caps not in the agreement. Partners will discover them and lose trust. Disclose all caps in writing.