• You run a Product Business, either Initial Licence Fee (ILF) OR Software as a Service (SaaS) model, and are seeking partners in a foreign market to sell your products, then how much commission should you pay?
• Do you pay ‘the standard’ amount, if you can find one?
• Do you know what a Lead is worth to you OR what a completed delivered sale is worth?

For Product companies, for simplicity we are assuming there is small effort required to implement or configure your solution for a customer. The complexity of the sales process for Software Product sales can vary so much with the price, scale of the product, the problem being solved etc. For simplicity we will assume an initial price of €50,000.

1) What are the costs in your direct sales process?

a)     If a partner is selling your product for you then it saves you having to do it and thus saves you money in generating the business yourself. So, what are the costs in executing your sales process?

b)     Now, we can’t just assume that every Lead becomes a Client Win, so we need to consider the average cost in winning a new client, based on your success rates in progressing along the sales process. So, what are your success rates in progressing an opportunity from each stage to the next?

c)     From this we can calculate the average costs to generate a Lead and then to Sell to the client.

The following table shows a possible Software Product sales process with an example base cost for effort in executing on the process:

This table shows that it costs the company €4,375 for a Lead and a staggering €21,061 for a Client Win. You’re gasping in disbelief about now, and thinking “it can’t surely cost that much, can it?”

Much depends on what costs you have entered for each stage and I’m being very ‘efficient’ on the costs associated in the above table. If you need to travel to a foreign market, then the costs pile up very quickly. Then how many meetings does it take and do they need to be face-to-face meetings? How much does relationship matter in the sale and what does it cost to do this?

2) What are the costs of your Sale with respect to the Value of the sale?

a)     What typical revenue do you expect from a new client with the first year? Let’s say €50,000

b)     What typical revenue do you expect from a new client over its lifetime? Let’s say €200,000

The following table shows sales costs against Sales values?

The calculation shows a Lead is worth 8.75% and a Sale is worth 37.55% of Year 1 Sales Value.

There are a number of other factors affecting the partner sales commission rate, such as:

3) If the Partner gains Service Revenue business by you winning a new client, then commission could be reduced.

4) Tough competition in the marketplace for your type of services, then the effort increases and you may pay more.

5) The Partner may help you meet Strategic Goals and thus you may pay more to meet those goals.

6) If the Partners effort is in winning the new client then you may pay according to Year 1 sales only.

7) The Partner may have a part in the Year 2 business and thus you may reduce commissions on Year 2 sales.

8) If you’re doing other things to make it easy for the Partner to sell: good general marketing or have a good brand, marketing budgets for cooperative marketing with the Partner – then the commissions could be reduced.

9) Etc…..