What is commission?
Commission refers to the monetary incentives that business partners earn for selling your product or service. Often, it’s a percentage-based commission on the sales price or a fixed rate per sale or referral. Commission-based incentives are the most obvious and important way to incentivize your partners to prioritize your offerings over competitors and drive greater sales.
For example, a software company might offer a 15% commission to its referral partners for every new license they sell. If a partner secures a new customer who pays $1,000, the partner receives a $150 commission.
Depending on your industry or partner strategy, you’ll see different commission models and standard rates. The most common models include:
- Percentage-based commissions in which partners earn a percentage of sales they generate
- Fixed-rate commissions with a set a flat fee for each successful referral or sale
- Tiered commission structures with higher payment rates based on performance levels
- Recurring commissions, such as ongoing payments for subscription-based sales
- Performance-based bonuses that reward partners for achieving specific targets or milestones
- Cost-per-action (CPA) which pays your partners for specific actions, like sign-ups or leads
- Profit-sharing commissions in which your company shares a portion of profits with partners
- Residual commissions that pay partners commissions on recurring sales over time
- Multi-tier commissions that reward commissions for referrals made by sub-affiliates
Most commissions are performance-based. This means the more your partner sells, the more they earn. It’s a great motivator for your partners to actively promote your products or services.
Commission structures must be valuable enough to inspire your partners’ efforts and also aligned with your business needs. Striking the right balance in commission rates can play a vital role in your company’s profitability and growth.