The key to establishing a “fair margin” for your resellers is to pay them for what they do – and don’t pay them for what they don’t do.
For on-premise software, the traditional partner discount off list price is 40 percent. If you are paying your salespeople upwards of a 10 percent commission – the reseller margin might seem high.
Realize that just like you, resellers need to make a profit. Most on-going, successful software companies build a budget that produces a pre-tax profit of 15-to-20 percent. A reseller’s profit margin may not be that high…but they need to make money to survive.
The 40 percent partner discount breaks down as follows:
• 20 percent to cover sales and marketing costs
• 20 percent to cover overhead (support, billing/collections etc) and profit margin
This explains why a 30 percent margin isn’t effective for those who invest in sales and marketing. It doesn’t give the reseller enough to cover their costs.
The reality is, most resellers don’t invest in sales and marketing – they want you to do the lead generation for them. In which case you shouldn’t be paying them 40 percent.
You may want to consider having two tiers of pricing:
• 10-to-20 percent for resellers that rely on you to do the marketing
• 40 percent or more for resellers who are self-sufficient.