I'd like to get some input on appropriate commission structures for a hardware vendor re-selling my company's add-on software that works with their products. I've read a bunch of the commissions questions on this site, and I understand why the answers are all over the map. I'll provide some detail in hopes that may narrow down the responses somewhat.
My startup is building analytics and data viz products for a specific (unnamed) field. In our field there are two primary hardware vendors, both of whom make lousy, PC-bound software. The vendors know their software is deficient but they want to stick to making hardware. Our software is an add-on tool for data analysis and does not replace the basic functions of operating their hardware.
We are in conversations with both companies, who tell us their customers are asking for software like ours. One of the companies is asking us to propose a commission structure (they insist we make the first offer), whereas the other company so far seems happy to refer customers our way. Many customers own both types of hardware, and our software works with both types of data files. This equipment costs about $100k a pop, and their customers tend to own anywhere from 2 to 40 of them. Through our customer discovery we have learned that customers will pay ~10% of the value of their hardware per year for our software.
We plan to offer a SaaS version of the our product, priced roughly as described above ($10k/yr/machine), as well as an on-site deploy (many customers are highly security conscious) which will cost ~5x more than SaaS. These numbers are obviously approximate and still being worked out.
We clearly want to work with the hardware vendors as it gives us an intro to and legitimacy with customers, and should dramatically reduce our sales expenses. We want to give the vendors incentive to work with us, and align incentives such that we have a mutual interest in having customers continue to license our software on an ongoing basis. We believe this is a big win for the hardware vendors as their products tend to last a long time, so they're eager for another revenue stream.
As a starting point, does 10% of first year revenues and 5% thereafter sound reasonable? 20/10? 20/5? Should it be different depending on type of sale (SaaS vs. on-site deploy)?
We're still working out our business model so I welcome further questions or suggestions as to how we should think about this.
Note: The vendor asking for us to propose a commission structure has ~25% market share, while the one making introductions freely making referrals has ~60%.