In B2B ecosystem, indirect sales are no longer just about “moving product.” They’re a fight for partner mindshare – attention and priority. A reseller, distributor, or system integrator typically carries dozens of vendors in their portfolio. Why should they recommend your solution to the end customer?
The answer lies in how your channel incentives are designed. These aren’t just simple discounts; they’re tools of behavioral engineering, built to align a third party’s financial objectives with your growth strategy.
Channel incentives are monetary or non-monetary reward programs aimed at third-party sales partners (Distributors, Resellers, VARs, MSPs). Unlike direct sales commissions paid to employees, channel incentives operate on two distinct levels:
Company-level (to the partner entity): Discounts, marketing funds, or rebates that improve the partner’s overall margin.
Individual-level (to the partner rep): Direct bonuses paid to the partner’s salespeople to push a specific product – often referred to as SPIFFs.
To build an effective channel program, it’s essential to distinguish between back-end incentives (paid after the sale) and front-end incentives (support provided before the sale).
1. Rebates (performance-based cashbacks)
Rebates are the most powerful performance-driven incentives. The partner buys at list price (or standard discount) and receives a cashback once specific targets are met.
Volume rebates: “Hit $1M in revenue and get 3% back.” Simple, but they reward size more than loyalty.
Growth rebates: “Grow 20% year over year and earn 5% on total revenue.” A CFO favorite, because they only pay for new value.
Product mix rebates: Designed to push partners beyond flagship or commodity products, encouraging the sale of higher-margin services or add-ons.
2. MDF (Market Development Funds)
While rebates reward past performance, MDFs are investments in future growth. Vendors allocate these funds to partners for demand-generation activities such as events, webinars, or LinkedIn campaigns.
The challenge: MDFs often go unused (known as breakage) because request and approval processes are too bureaucratic. A modern partner portal should make MDF access fast and frictionless.
3. SPIFF (Sales Performance Incentive Fund)
SPIFFs are bonuses paid directly to individual partner reps – for example, $100 for every demo booked.
A word of caution: SPIFFs are tactical, not strategic. They’re great for clearing inventory or launching a new product, but overuse turns them into a crutch that undermines consultative selling.
4. Deal Registration (Margin Protection)
Not a direct payment, but often the most appreciated incentive. The partner who registers an opportunity first receives exclusive protection – typically an additional discount (e.g., +10%).
Purpose: To protect partners who invest in presales activities from “box movers” who swoop in at the end with a lower price.
Incentive structures vary dramatically depending on your business model.
Scenario A: Hardware & Manufacturing
Margins are thin, volumes are high.
Focus: Inventory turnover
Key incentive: Stocking allowances – discounts for partners who buy large quantities upfront, shifting inventory risk from vendor to partner.
The trap: Watch out for the gray market. If incentives are too aggressive in one country, partners may buy there and resell in unauthorized regions.
Scenario B: SaaS and Cloud (Recurring Revenue)
Here, the real value isn’t the initial deal – it’s renewal and expansion.
Focus: Customer success and adoption
Key incentive: Don’t overpay commissions on first-year ACV. Instead, reward renewals and usage-based growth.
Golden rule: Incentivize partners to retain customers, not just acquire them.
One of the most common pitfalls in channel programs is complexity. If a partner needs an Excel spreadsheet to calculate discounts or rebates, they’ll sell a competitor’s product that’s easier to quote.
This is where integrating Sales Performance Management with offer configuration and quoting systems becomes a game changer:
Real-time visibility: Once a deal is closed, partners instantly see their expected margin and accured incentives.
Guided Selling: The system can suggest actions like: “Add a 3-year warranty to unlock Gold-level rebates.” This turns average reps into top performers.
Automated Claim Management: No more emails with attached invoices. The system tracks sales and automatically calculates the incentives owed.
It’s about timing and intent.
MDF (before): Forward-looking marketing funds to help partners find customers.
Rebates (after): Retrospective rewards on revenue, designed to boost partner profitability
Revenue alone isn’t enough. The right metric is program yield.
If you’respending heavily on MDF but partner pipeline isn’t growing, you’re subsidizing operating costs – not investing in growth.
Channel conflict is the number-one enemy. If your direct sales team earns more by stealing deals from partners, your channel program will fail.
Best practice: Partner-neutral compensation.
Internal sales reps earn the same commission whether the deal is direct or partner-led. This motivates collaboration instead of competition.
"Set and Forget" programs: Launching an annual incentive and never communicating it again. Incentives need weekly reinforcement.
Unreachable thresholds: If rebate targets are too high, partners disengage immediately.
Slow Payments: If you promise a SPIFF, pay it within 30 days. An incentive paid six months later has zero behavioral impact.
