Q:  Should we deduct partner referral fees from our sales people’s commission?

This is an important question and the answer is generally No.  Not only do you probably have to pay your sales reps on the full dollar amount closed, but you probably end up paying them and your partner in essence double fees to close a deal.  These deals may seem to cost more to close than your own inbound leads.

At first, this will confuse you as a founder. If I have to pay a partner, say, 20% of a deal, and they do a lot of the work — why do I also have to pay my own sales rep a full commission?

You have to pay full commissions because what we all find is that, at least for a long time, if you don’t provide a commission to everyone working the deal, there is (x) too much conflict and (y) more importantly, no one is motivated enough to help the other if they don’t get a full commission.

So yes, at least for a while, with many partners you may in essence need to pay a double commission. One to the partner, and one to your own sales team. It’s OK if it gets the deal done. Especially, if the customer stays for years and years.

Later, you may develop a team that manages your channel.  Once you do, if the revenue from a channel is large enough, you can often pay lower commissions than you do for your direct sales team.  E.g., perhaps a channel manager can own a $2m quota, vs. $500k for an AE.  But even there, it’s two commissions.

And really, partner fees are a marketing expense.  You’ll likely find in the end if you think of them that way, they aren’t that expensive of a channel. Especially if the prospect is brought to you fairly qualified.

A related post here:

We are a SaaS company. A larger partner of ours who sells a complimentary product wants to have their sales reps sell our product alongside theirs. They want 25-50% of the first year’s revenue. Should we do it?

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