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Setting the right margins or
discounts for partners is one of the biggest issues for software
companies. Pay them too much, and you are leaving money on
the table but pay them too little, and they don't have the
incentive or budget to invest in marketing and selling your
There are three key considerations:
Most partners are going to prefer getting a margin on the actual
sales price because that means that you are sharing any discounts
to the end user with them. This can be an option if there is
a small number of large, complex transactions that all end up being
The biggest challenges with margin-sharing are:
In general, using a list price with a discount is the best
option. You will always know what you get from each
transaction, and it is up to the partner how they price it to the
end user. Do they want to maximize their margin from the
solution, or do they want to discount it in order to win a large
For on-premise software, the traditional partner discount off
list price for enterprise solutions 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 ongoing, 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
The 40 percent partner discount breaks down as follows:
This explains why a 30 percent margin often isn't effective for
those who invest in sales and marketing. Unless there is a
significant services component that generates additional gross
margin, it doesn't give the reseller enough to cover their
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:
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