Reseller Pricing: Static and Dynamic Model
Overview Statics vs. Dynamic Reseller Pricing
This guide outlines different pricing models and formulas to consider when recruiting and working with resellers (channel partners. Effective pricing policies are essential for building successful partnerships.
Summary:
- Static Reseller Pricing: Sets a fixed partner discount for a recommended retail price. The purchase price is static regardless of any negotiations on the selling price. Good for mature market and strict pricing policies.
- Dynamic Reseller Pricing: Provides more flexibility for partners to negotiate pricing with clients. The vendor sets a recommended retail price and partner discount. Partners have an additional negotiation margin when required.
- You can apply Tier Pricing on both models
- Vendors can consider competition, market maturity, client negotiation power and partner abilities when applying static or dynamic pricing for their resellers.
Static Reseller Pricing
Good for matured markets or markets with relatively inflexible pricing
The Partner Margin depends purely on the negotiation skills of the partner
Additional growth discounts (kick-back) on overall partner yearly revenue can be given to give an incentive on growth strategies.
Principal offers framework conditions with a Recommended Retail Price (RRP), with or without tiering, on which the partner is granted a Partner Discount (PD).
The Partner clients, tend to accept the market pricing. Negotiations are possible in a certain range, permitting the partner still a margin from the Partner Discount.
The Purchase Price (PP) remains stable. A case-by-case discussion would be necessary to modify the Purchase Price. In case that happens regularly, it is suggested to use Dynamic Reseller Pricing.
Dynamic Reseller Pricing
Permits the partners maximum flexibility with tough negotiating clients
Gives Partner Manager a similar price policy control as direct sales
Makes negotiation a joint operation
Principal offers framework conditions with a Recommended Retail Price (RRP), with or without tiering, on which the partner is granted a Partner Discount (PD).
The Partner clients, usually Enterprise clients, tend to negotiate on pricing. When dealing with these clients directly Principal’s Sales team has a Manager or Director discount.
The Partner has an additional dynamic Negotiation Margin (NM) (depending on the Partner Status) which applies in these negotiations.
Similar to the Manager or Director Discount the Negotiation Margin helps the Principal and Partner to participate fairly in the negotiation until reaching a Minimum Price (MP).
Dynamic Reseller Pricing Formula
RRP - Recommended Retail Price DD - Dynamic Discount PD - Partner Discount
NM - Negotiation Margin SP - Selling Price PP - Purchase Price
Tier Pricing
In addition to the pricing models above, vendors often use tiered pricing based on the volume of licenses purchased. For example:
- 1-10 licenses: $100 RRP
- 11-100 licenses: $90 RRP
- 101+ licenses: $80 RRP
This sliding scale incentivizes larger purchases with better discounts. The same partner margins and dynamic purchase price adjustments would then apply based on the tiered RRP.
Tiered pricing allows the vendor to drive higher volume sales through resellers to end customers. The partner also benefits from better discounts at higher tiers that support bigger deals. This pricing approach can be combined with either the static or dynamic reseller models.