Partner Economics

Partner Economics

Model one partner relationship as a small P&L - attributable revenue net of every partner cost, against partner CAC, ramp, and incrementality - to decide sign, scale, renegotiate, or prune. Two structural facts frame the whole exercise; state them plainly rather than paper over them:

• No canonical "partner P&L" template exists. Practitioners converge on the same revenue and cost components, but vendors publish incompatible definitions, and any claim to _the_ standard (PARTNERNOMICS-style certification included) is a proprietary product, not industry consensus.
• Most widely quoted partner benchmarks are vendor marketing, not research. The famous "80% of channel revenue from 20% of partners / only 11% hit incentive goals" figures are untraceable; so are the "most partners never transact" claims. Label every number's evidence class; quote nothing as settled fact without a named source. Read references/benchmarks-and-figure-grading.md before citing any figure: the graded benchmark set, plus the untraceable figures to refuse.

What the field genuinely offers:

• Hans Peter Bech's channel-partner P&L - model the PARTNER's own 3-5 year economics, because "it is crucial that the channel partner takes ownership of the P&L." The single most articulated practitioner method for one relationship.
• Spengler's double marginalization (1950) and the two-part tariff fix (Jeuland & Shugan 1983; McGuire & Staelin 1983) - the peer-reviewed root of margin stacking.
• Blake, Nosko & Tadelis (2015, Econometrica) - when eBay halted brand-keyword ads, 99.5% of clicks were retained, the canonical proof a channel can show strong attributed revenue while being nearly non-incremental.
• Dyer & Singh's relational view (1998, AMR) - "relational rents", profit neither firm could generate alone - and Gomes-Casseres' Third Law (_Remix Strategy_, 2015): the value split must motivate both parties to keep contributing.
• Dyer, Kale & Singh (2004, HBR) ally-vs-acquire, plus Anderson & Schmittlein (1984, RAND J. Econ.) and the 2006 AMJ TCE meta-analysis - peer-reviewed grounding for whether a partner channel is even the right mode before any economics get modeled.

Interview

Ask before modeling anything. One question per message; offer multiple-choice options; skip whatever the user already answered.

• Partner type: referral/agency, reseller/VAR, distributor/two-tier, MSP, OEM/embed, ISV tech alliance/co-sell/marketplace, or affiliate/creator?
• Whose economics: your side, the partner's own P&L (Bech's point - the partner must own theirs), or both? The ranked answer is in Brainstorming the model; the three questions below decide which rung applies.
• Which decision must this model serve - sign / don't sign, scale, renegotiate, prune/exit - and what go/no-go threshold applies? Who signs off?
• By what date must the verdict land - a signature deadline, a board or QBR slot? Anything inside a few weeks rules out both the dual-sided P&L and any incrementality experiment; each needs partner disclosure or a read-out window.
• One-off decision, or a model re-run at every QBR? A re-run mandate promotes the dual-sided P&L and a written assumption register; a one-off promotes the vendor-side contribution model alone.
• Effort ceiling: analyst hours available, whether a finance reviewer is assigned, and whether the partner will open its own numbers? No finance reviewer, or a partner that will not disclose, caps the work at the vendor-side model whatever the decision needs.
• What is your current direct CAC, and the average deal size it buys? Step 6 compares against both; without them there is no threshold to test.
• What is product gross margin, and the churn rate or average customer lifetime for this segment? Lifetime value is computed on margin, so guessing either one silently sets the verdict.
• Revenue mechanics: fee as % of first-year ACV or recurring, discount off list, royalty, revenue share, CPA?
• What stacks on top: rebates, SPIFFs, MDF commitments, deal-registration uplift, marketplace listing fee?
• Costs to recruit, enable, and serve: account-manager time, training/certification delivery, portal and tooling, support load?
• Contract shape: exclusivity, term, deal registration, clawback, MDF commitments, minimums?
• Ramp expectation: time to first revenue, and who funds the double-cost period?
• What data actually exists: CRM attribution with sourced/influenced tagged, marketplace disbursement reports, finance systems - or estimates only?
• B2B channel/alliance or B2C affiliate/creator?

Workflow

1. Run the Interview. Fix the decision the model serves and its go/no-go threshold before computing anything - a model built without a threshold produces a flattering number, not a verdict.
2. Pick the partner-type economic model; money flows and margin math differ sharply by type. See references/partner-type-economics.md.
3. Separate partner-sourced, partner-influenced, and partner-attached revenue; never blend them. Cap influence credit so attributed revenue can never exceed total revenue - uncapped influence ends the conversation with finance immediately and permanently.
4. Build the fully-loaded cost stack: discount off list, rebates/SPIFFs, MDF, marketplace fee, account-manager time, enablement and certification delivery, support, portal/tooling allocation. A $2M partner net of $500K discounts, $200K MDF, $150K account management, and $100K training/support contributes $1.05M, not $2M.
5. Compute partner-adjusted gross margin and annual net contribution. Compute lifetime value on gross margin, never on revenue. See references/metrics-and-formulas.md.
6. Compute partner CAC fully loaded, then compare it to direct CAC on a like-for-like basis: acquisition cost per $1 of net revenue, never per customer. Per-customer CAC prices different goods whenever a discount lowers revenue per partner deal.

Two conventions are internally consistent; state which one you used and never mix them:

• Book revenue gross and charge the discount to acquisition cost.
• Book revenue net of discount and leave it out.

Do not rank the two conventions: on the per-$1-of-net-revenue basis they produce the same number, so an ordering would be false precision. If partner cost per $1 of net revenue is not below direct's, the channel thesis is broken; say so in the memo.

1. Model ramp and payback. The first 6-12 months are a double cost - funding the partner's enablement and your own team simultaneously. State time to first revenue and the month cumulative contribution crosses zero.
2. Test incrementality explicitly: how much of this revenue would have arrived through direct anyway? Attributed is not incremental (Blake, Nosko & Tadelis).

Start with the assumed-rate band, never with an experiment - efficiency: assumed-rate band > matched holdout > geo split > channel pause. Buy an experiment only when the verdict flips inside the plausible range.

That order starves the channel pause, which buys the strongest evidence available and costs the most. Promote it only when incrementality is the entire verdict; delete it outright where exclusivity or minimums in the agreement forbid suspending the motion.

Evidence strength, effort and compliance exposure are ranked separately in references/metrics-and-formulas.md.

1. Run sensitivity on the 2-3 assumptions that actually move the answer - usually deal volume, effective discount, and ramp length. Report which shifts flip the verdict.
2. When modeling both sides, build the partner's own 3-5 year P&L (Bech) and test the Gomes-Casseres Third Law: does the value split motivate the partner to keep contributing?