Microsoft is changing the way it compensates resellers of its Dynamics applications, offering higher margins for partners that emphasise sales growth and bring in new customers.
The shift could mean a 5-10 percent reduction in the base compensation partners earn, but it offers the chance to earn margins 25-30 percent above the base if resellers meet high growth targets, said Jeff Edwards, director of Dynamics channel strategy, in an interview.
Overall, aggressive partners could earn up to 20 percent more margin than the maximum under today's compensation plan, according to Edwards. "So without growth, you'll make less. With growth, you'll make more," he said. "We want to reward partners that are investing to grow."
Microsoft has some 5,000 solution providers actively selling Microsoft Dynamics ERP and CRM applications. Edwards said the new compensation plan has been well received so far by channel partners Microsoft has briefed on the change. "The people who want to grow the business see it as a positive," he said.
Compensation today is based on the total amount of revenue partners generate for Microsoft through license and maintenance contract (Microsoft calls the latter "enhancement") sales. But that volume formula doesn't make any allowance for how much of those sales are to new customers or expanded sales to existing customers, Edwards said.
NEXT: Measurement Criteria For Performance
"There wasn't a lot of motivation to drive new customer sales and growth," he said. While Microsoft is a major player in the market for ERP and CRM applications, Edwards said the vendor generally has less than 10 percent market share and the changes are designed to address that.
Under the new "pay for performance" model, license and maintenance contract revenue will be separated with each having its own compensation tiers.
Compensation for license revenue will be calculated based on three metrics: Year-over-year license revenue growth to new and existing customers; two-year sequential license revenue growth to new and existing customers; and year-over-year license sales to new customers.
Edwards declined to reveal specifics about the compensation formula and the actual margins Microsoft pays to its partners.
The compensation plan will apply to all applications sold under the Dynamics price list, including all Dynamics ERP applications and some Dynamics CRM applications. CRM application sales covered by volume licensing plans will not be impacted by the changes.
NEXT: Timetable For New Compensation Plan
Microsoft will begin compensating partners under the new plan in 2012. But the two-year metric will be based on 2010-2011 sales and the one-year metrics based on 2011 sales, so channel partners have to start thinking "performance" right away, Edwards said.
The changes will likely result in a 40-percent spread between the margins paid to high and low channel performers, a "more significant gap" than today, Edwards acknowledged. On the maintenance contract side Microsoft also will reward high performers with lower support costs.