Commissions or bonuses: Which is best for channel sales compensation?

I have found that a hybrid solution gives the sales leaders the flexibility of measuring on specific channel results which are historically difficult to measure systematically. This solution works best particularly when the channel teams primary job function varies drastically based on their geographical location. Best practice with channel, if you can't or have not historically proven you can measure systematically, it should be part of an MBO component in their plans. Once the measurement processes can proven and accurate quotas can be set, only then should those components be added as a results based measurement.

In my view, commissions are a powerful motivator in sales. Having been a staunch supporter of commission-based compensation, I’ve observed firsthand how it directly drives performance. It’s a system that rewards effort and results, making it clear that the more you sell, the more you earn. This clear, tangible link between action and reward can inspire salespeople to excel. While there are challenges, like potential conflicts among partners or complexities in administration, the core idea of paying for performance aligns interests and often leads to more vigorous efforts to meet and exceed sales targets. Properly structured and managed, commission systems can truly optimize sales results.

Bonuses can motivate channel sales by rewarding specific behaviors, such as acquiring new customers or completing training. However, they can also lead to a short-term focus, diverting attention from core sales activities. If not clearly defined, bonuses can be perceived as arbitrary, creating mistrust among partners. Over-reliance can foster an expectation culture, making future adjustments challenging. Additionally, they can introduce budget unpredictability. While bonuses have their merits, they need strategic implementation to avoid potential pitfalls.

A blend of Commission and MBO bonus plan is the best choice for Channel Partners. Example, Commission can be paid on revenue generated from the channel and MBO bonus on development of short/long term plans to achieve strategic objectives.

Commission-only plans are best for simple products with transactional sales. Paying on every deal drives the focus on closing at all costs. Complex solutions sales need more balance - bonuses reward long term vision, customer success and team collaboration. Commission-hungry reps will sacrifice customer experience for their own gain. Big payouts on individual sales encourage bad behavior - overpromising, churning, and mercenary mindsets. Customers suffer from this short term greed. Visionary leaders consider value, not just sales volume. Bonuses on customer retention and satisfaction metrics build relationships. Yet dull enterprises cling to commissions, breeding ruthless hunters focused on the next paycheck, not client needs.

I think if you have measures/data to set a quota for the channels team & you want to focus solely on revenue then commissions should be the go to option. If you don't have measures/data to set the quota right now go with MBO that drives the required behaviour. The final way with which most of the Sales Compensation Professionals will agree is the Hybrid model, where quota can be set for revenue generation & MBOs can be set to drive organisational behaviours.