the channel price waterfall: from list price to the CISO

The price a CISO pays for your product is the last link in a chain. List price, minus the distributor’s discount, minus the reseller’s discount, minus whatever the reseller gives away to win, plus whatever the vendor’s own direct team or website is quoting to the same customer. Draw that chain for one product, with real numbers, and most arguments about partner discounts stop being arguments about feelings.

the four prices in a two-tier channel

A two-tier channel has three commercial parties between your product and the customer’s budget: you, the distributor and the reseller. Each sets a price, and the customer sees only the last one.

1. List price. Your reference price for the end customer. In B2B security it is rarely public. It lives in a partner price list and anchors every discount.
2. Distributor buy price. What you charge the distributor, usually expressed as a discount from list.
3. Reseller buy price. What the distributor charges the reseller, a smaller discount from list.
4. Customer price. What the reseller charges the customer. The only price in the chain you do not set, and in the EU cannot set.

Each layer’s margin is the gap between its buy price and its sell price. Your discount structure sets the maximum margin available to each layer. Competition decides how much of it survives.

a worked example

Illustrative numbers, no specific vendor. A subscription lists at 1,000 per year.

Step	Price	Who keeps what
List price	1,000
Vendor sells to distributor at 35% off list	650
Distributor sells to reseller at 30% off list	700	Distributor keeps 50, about 7% of its sell price
Reseller sells to customer at 10% off list	900	Reseller keeps 200, 22% of its sell price

Where a list price of 1,000 goes, in the example above

Vendor receives from the distributor650

Distributor keeps50

Reseller keeps200

Customer's discount off list100

To run the same chain with your own price list, use the channel price waterfall calculator. It runs in your browser and needs no email.

Now add competition. A second reseller quotes the same customer at 15% off list. The first one matches at 850, and its margin drops to 150, about 18%.

Now add yourself. Your website, or your direct rep at quarter end, offers the same subscription to the same customer at 800. No reseller can make more than 100 on that customer, and the reseller who found the deal makes nothing if it loses it. A reseller in that position reacts rationally. It stops investing in your product and steers customers towards a vendor whose price it can defend.

The shape is general even where the numbers differ. The vendor’s own lowest price becomes the market price.

what each point of margin should pay for

The most useful question about partner discounts is what each point of margin buys you.

A partner that finds the opportunity, educates the customer, runs the POC, implements, supports and renews is doing most of what your own sales and services team would do. Its margin should be comparable to what that work would cost you directly.

A partner that receives a quote from your team and passes it to a customer it already serves is doing billing and procurement. Its margin should be small.

Programmes that pay both behaviours the same discount overpay the fulfilment partners and underpay the ones building your market. Mature programmes separate the layers: a base margin for transacting, extra margin for registered and partner-sourced deals, and services or incentives for delivery.

the distributor’s margin is thinner than it looks

The only comparable public figures come from listed broadline IT distributors. The 2025 earnings releases of the two largest show gross margins of about 6.7% and 7% of revenue, and non-GAAP operating margins of about 2% and 2.9%. That is the scale end of the business, mixing hardware, software and cloud. None of the large listed distributors reports security distribution separately.

A value-added security distributor carries more presales, training and market-building cost than a broadline one, so it needs more margin than those filings suggest. But the direction holds. A distributor cannot absorb a discount cut from you out of a single-digit margin without cutting the work you were paying it for.

back-end money moves behaviour, if partners understand it

Front-end discounts change the invoice. Back-end incentives are paid later, when a condition is met: volume or growth rebates, payments for new customers or a second product, and market development funds paid against proof of execution.

Vendors like back-end money for good reasons. It can target specific behaviour, it costs nothing when the behaviour does not happen, and the customer never sees it. The weaknesses mirror the strengths. Partners value cash at the time of sale more than a conditional payment two quarters later. Rebate rules nobody understands change nobody’s behaviour. And MDF claim processes can cost a small partner more time than the funds are worth.

the EU sets a hard line on resale prices

Under Article 4(a) of Regulation (EU) 2022/720, you may recommend a resale price and you may set a maximum. You may not fix a minimum or a fixed resale price for independent resellers. The regulation applies until 31 May 2034.

The line also covers indirect pressure. In my reading of the Commission’s rules, the channel practices most exposed are the ones that attach consequences to a reseller’s price: a rebate or MDF payment granted only to partners who do not discount below a level, a cap on the discount a partner may give, slower deliveries or lost partner status for those who price low. Monitoring prices is allowed. Monitoring followed by pressure turns a recommendation into a minimum.

If you sell direct as well as through partners, read paragraph 100 of the Commission’s Guidelines on vertical restraints. Information about the prices a partner intends to quote in future is the kind the Guidelines flag. A shared CRM in which your direct rep can see a partner’s planned quote for a customer they are both chasing is exactly that information flow.

So price discipline in the EU starts with the only prices you lawfully control: your own.

structure instead of price control

Vendors that want stable channel prices without breaking competition law work on structure:

• Fewer partners per segment, so they compete less on price for the same customers.
• Deal registration, which protects the partner that built an opportunity with a better buy price. It changes the partner’s cost and leaves the resale price to the partner.
• Your own direct and online prices at or above what partners can sustain. If your website undercuts your partners, no programme design will save the channel.
• Different packages on different routes, so like-for-like comparison is harder. This works only when the differences are real.
• Paying for services and outcomes rather than for transactions.

the marketplace layer

Cloud marketplaces add a fifth route, and their fees look small. As of October 2026, AWS documents 3% for public SaaS listings and private offers under USD 1 million, falling to 2% and 1.5% for larger contracts, 1.5% on renewals, and an extra 0.5 percentage points for channel partner private offers. Microsoft documents a 3% standard store service fee.

Measured against margin, the fee looks bigger. cloudmagazin’s July 2026 analysis puts it in numbers: a 3% fee absorbs 7.5% of a 40% gross margin and a fifth of a 15% margin. For a distributor working on single digits, a fee of a few percent on a deal can be its whole margin on that deal. That makes fee allocation the first commercial question in any marketplace arrangement involving a distributor.

What draws customers to marketplaces is the budget. Eligible marketplace purchases can draw down a customer’s committed cloud spend, which Microsoft documents for Azure consumption commitments. That turns an existing budget into a payment source for your product. If you route those deals through a channel partner private offer, the partner keeps its margin and stays in the deal. If you sell them directly on the marketplace, you save the uplift and lose the partner.

Central and Eastern Europe adds one more layer of responsibility

In much of CEE the distributor sets the local price list in local currency, runs the partner programme, manages deal registration and signs public tenders in the local language. That makes it a bigger part of your pricing than in Western Europe or the US, and it means its margin pays for more of your market development. A price list copied from your US partner programme and converted at the day’s exchange rate usually ignores all of that.

one question for your next partner review

When a partner asks for more discount, ask back which price in the waterfall it is losing to. If the answer is your own team or your own website, the extra discount treats the symptom and leaves the cause.