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What is a Reseller Agreement?
A reseller agreement is a contractual arrangement between a supplier (vendor/wholesaler) and another party, which agrees to sell products on their behalf. The legally binding agreement outlines the respective responsibilities of each party, including product pricing, quantity limits, and sales strategies. It also sets limits on how much control each party has over marketing activities related to the product and sales process.
Companies often use resellers as a way to increase their product visibility and reach new customers. Sometimes, resellers are completely separate sources of revenue for the company (e.g., white-label products).
In any case, a reseller agreement forms a contractual relationship between the company producing the product and the one selling it on their behalf. When a company uses resellers as a part of its revenue strategy, a legal contract is essential to maintaining consistent messaging, quality, and pricing for the products a company offers.
- Reseller contract
- Resale contract
- Reseller software license agreement
- SaaS reseller agreement
Importance of Reseller Agreements
The reseller model is incredibly advantageous for the parent company. And it creates a business opportunity the reseller wouldn’t have had otherwise. To ensure a mutually beneficial relationship, it’s crucial to iron out specifics ahead of time in a legally binding contract.
Reseller agreements are important for a few reasons:
- Provide legal protection for both parties. Whenever a partner sells products produced by another organization, that organization is concerned with how its products are represented, maintained, and sold. A reseller agreement sets out the terms that both parties must abide by in order to maintain an ongoing relationship.
- Spell out pricing details. Reseller agreements provide a detailed list of pricing rules. That way, the reseller can’t undercut the company’s pricing, and the company can ensure that only authorized resellers are selling its products.
- Set expectations and avoid misunderstandings. Legal agreements help both parties understand their responsibilities in multiple situations, preventing vague interpretations or assumptions that lead to strained relationships.
- Define control over marketing activities. When a reseller represents a company’s product, they need brand guidelines, messaging, and pricing requirements to maintain consistent messaging across all channels.
- Create competitive advantages for the parent company. Reseller partnerships aren’t ‘free marketing’ per se. But they are additional product sales without additional overhead. That’s why many companies choose to partner with resellers — especially if they need more visibility in a specific area or have a large customer base the company can’t otherwise reach.
- They help build trust between the supplier and reseller. A reseller agreement essentially declares, “I won’t take advantage of you, and you won’t take advantage of me.” Both parties can trust each other to abide by the contract and operate according to mutually beneficial terms.
- Guarantee product quality and consistency. Reseller agreements always include provisions about the quality of products that the reseller sells (and how much they sell it for). That way, buyers don’t have a significantly better or worse product experience depending on who they purchased it from.
Types of Reseller Agreements
Reseller agreements are an essential part of any partner relationship management strategy. But there are multiple variations of the reseller model. So, depending on how a company utilizes resellers, its reseller agreement will be different.
Authorized Reseller Agreement
An authorized reseller (also called an authorized dealer) is an entity that has been granted permission to sell the parent company’s products. It operates as a standalone business — usually one that also sells other brands’ products.
An authorized reseller agreement is a merchandising and distribution agreement. It lays out permissions for listing, selling, and distributing products to customers.
It also gives the reseller the credentials to set up these products without the need for the parent company as an intermediary. For example, an authorized reseller for a cell phone company would need permission to set customers up with service plans. Authorized reseller agreements outline the processes for doing so.
White-Label Reseller Agreement
A white-label reseller (or private-label reseller) is a company that sells products under its own brand name instead of the parent company’s. The products are actually produced by the parent company but branded and marketed as if they were created by the reseller.
A white-label reseller agreement is a manufacturing and distribution agreement. It outlines the steps for branding, packaging, distributing, and advertising products that another organization actually produces.
Some white-label reseller agreements allow the reseller to state they use parts or equipment from the parent company. That way, customers know their products come from a reliable source while still being affiliated with the reseller brand. Some parent vendors find this tarnishes their reputation, so they keep it under wraps.
White-label reseller agreements also include limitations regarding the use of trademarks or copyrighted material from both parties — as the parent company doesn’t want its brand associated with any unauthorized products, and the reseller doesn’t want to be accused of copyright infringement.
Software Reseller Agreement
A software reseller is a company that either sells a white-label SaaS product or licenses software from a vendor to resell it as its own.
A software reseller agreement is primarily an intellectual property licensing agreement. It typically includes restrictions on:
- How the software can be used
- Who maintains control over the source code and customer data
- Which versions of the software are for sale or rent
- How much money the reseller earns with each sale
- When and how the reseller gets paid for their sales
The agreement also defines the relationship between the software vendor and reseller. Depending on how much freedom the reseller has, it may range from a simple commission system to a full-fledged joint venture agreement.
Service Reseller Agreement
Service resellers are agencies and professional services firms that use white labeling for some or all of their service offerings. It’s most widely used for productized digital services like SEO and PPC ads — more specifically, full-service digital marketing agencies.
Being a reseller allows them to offer a complete suite of services without building the complicated infrastructure to run it in-house. For example, a digital marketing agency might offer SEO audits as part of a web design package. Since SEO isn’t their main line of business, they send their clients’ info to a reliable SEO partner, which can create them in less than an hour.
A service reseller agreement is a sub-licensing agreement that follows a white-labeling scheme to some degree. It outlines:
- How much the reseller will pay the parent firm for services rendered (most agencies offer a special package for white-label agency partners)
- The services and products supplied by the vendor
- Confidentiality, non-compete, and non-disclosure agreements to prevent the parent agency from soliciting the reseller’s customers
- The process for the reseller to get paid
- Limits on the use of intellectual property and advertising material
Service reseller agreements are somewhat more complicated than many others. Services are inherently more complicated than prepackaged software or products, so the agreement needs to define the terms of collaboration and payment clearly.
Non-Exclusive Reseller Agreement
Any of the above agreements can also be a non-exclusive reseller agreement. A non-exclusive distribution agreement allows a supplier to work with multiple resellers in the same territory or market. It’s a good option for companies looking for more coverage or to expand their market presence to multiple geographies.
In a non-exclusive agreement, the parent company can explore new opportunities and find other partners without being limited by exclusivity clauses. It also gives resellers the chance to work with competitors if they want better terms or access to a different pool of resources.
At the same time, it’s important to be careful and thoughtful about non-exclusive agreements. For instance, resellers don’t always have incentive to promote products if they know the parent company is working with other resellers in the market. This can lead to conflicts, so companies should clearly define their expectations when drafting their agreements.
Master Reseller Agreement
A master reseller is a reseller with overarching control of smaller ‘general resellers’ below them in the distribution chain. They have more authority than regular resellers and are typically responsible for things like training, support, pricing, performance metrics, and customer service.
Master resellers usually have different sub-distributors underneath them who can resell their products. So they don’t always need to be the ones working directly with customers — they just need to manage their sub-distribution network, making sure all resellers are playing by the rules and delivering quality customer service.
A master reseller agreement includes the master’s responsibilities for managing products at all levels of the distribution chain, which are completely different from normal reseller responsibilities. It also outlines how the master reseller will be compensated for their services, as they may have an extra commission or fee structure in place. In some cases, they may have revenue share for contributing so much.
Exclusive Reseller Agreement
An executive reseller or distributor is someone who has 100% exclusive rights to sell a product or service within a given territory. They’re responsible for all sales and customer service for their region and any marketing campaigns they take on.
An exclusive reseller agreement grants the right of exclusivity to said reseller, limiting other companies from selling the same products within the agreed-upon geographic region. It also includes terms on how the reseller will be compensated for their services, as well as delivery times and service level agreements. It also outlines what happens if something goes wrong or the agreement is breached.
Exclusive reseller agreements are beneficial when a company wants to establish itself in a new market but is not yet ready to set up its own business there. It also helps build customer loyalty, as customers recognize the exclusive reseller is the only one to buy a particular product or service from.
Value-Added Reseller Agreement
A value-added reseller (VAR) is someone who takes existing products and adds to them to make them their own. They can upgrade, customize, or even repackage the product to create something that exceeds the customer’s expectations.
A VAR agreement outlines how much freedom the reseller has when it comes to modifying the product. It also defines what support they can expect from the parent company, any warranties offered on the product, and how much control they can have over pricing.
A VAR agreement benefits companies looking to bolster their value proposition to customers without having to build something from scratch. It also allows the company to leverage existing products and services while expanding its market presence.
Stakeholders Involved in Reseller Agreements
Practically every department uses reseller agreements in some regard. As companies increase the scope of their reseller programs, it becomes even more important to keep all teams informed of any changes, updates, or new agreements.
- The sales team issues the reseller agreement and processes order forms.
- The legal team defines the contract’s terms and controls changes and updates to its content.
- Contract administrators manage compliance and execution processes on an ongoing basis.
- The customer success team makes sure customers are aware of their rights and obligations under the agreement and monitors contract compliance.
- The finance department is responsible for tracking payments and reviewing invoices.
- Sales, RevOps, finance, and C-suite execs have approval oversight in the contracting process and are responsible for signing the dotted line.
- Product and engineering team members influence decision-making by weighing in on product development and production bandwidth.
Legal Considerations in Reseller Agreements
Reseller agreements have major legal implications for both sides. How significant these implications are depends on what happens when either party fails to hold up their end of the bargain. It also depends on how severe the breach in contract is.
- Territory — Who has exclusive rights in which geographical areas? What happens if a reseller infringes on another’s territory?
- Intellectual property — Copyright, trademark, and patent protection.
- Warranties — Who is responsible if a product does not perform as expected?
- Pricing — Pricing structure, including discounts, commissions, and fees.
- Payment terms — Payment due dates, methods, and penalties for missed/late payments from the parent company.
- Limitation of liability — The reseller cannot be held liable for certain unforeseen negative consequences that arise from a product’s use or resale.
- Indemnification — In the event of a legal dispute, companies must cover each other’s legal fees.
- Termination — How can either party terminate a contract? What are the repercussions when this happens?
Key Components of a Reseller Agreement
- Introduction and background — Identifies the parties involved in the agreement and briefly describes their respective businesses and roles.
- Recitals — Adds context for the agreement, including the arrangement’s purpose and both parties’ intentions.
- Definitions — Defines key terms and phrases used throughout the agreement.
- Appointment — Establishes the reseller’s authorization as a reseller of the principal’s products or services.
- Scope of authority — Specifies the extent of the reseller’s control, including geographical limitations, customer types, and any exclusivity or non-exclusivity clauses.
- Reseller’s obligations — Responsibilities of the reseller, such as marketing efforts, sales targets, customer support, and compliance with the principal’s policies.
- Principal’s obligations — Parent company’s responsibilities, which include providing product information, marketing materials, training, and support to the reseller.
- Pricing and payment terms — Details the pricing structure, payment terms, and applicable discounts or commissions to which the reseller is entitled.
- Ordering and delivery — Specifies the process for placing orders, order fulfillment, and delivery of products or services to customers.
- Intellectual property rights — Addresses intellectual property ownership and use, including trademarks, copyrights, and product or service patents.
- Confidentiality — Establishes how sensitive information like customer data, client/customer lists, and internal metrics will be handled and protected.
- Contract term and termination clause — Defines reseller agreement duration and the conditions under which either party can terminate it, including any notice periods.
- Indemnification — The parties may agree to indemnify each other against certain liabilities, losses, or damages arising from the performance of the agreement.
- Dispute resolution — Dispute management processes, which may involve negotiation, mediation, or arbitration.
- Governing law — The jurisdiction whose laws govern the contract’s interpretation and enforcement.
- Amendments — A clause describing how modifications to the agreement can be made, typically requiring written consent from both parties.
- Severability — If any part of the agreement is found to be unenforceable, the remainder of the agreement remains valid.
Entire agreement — A provision stating that the agreement constitutes the entire understanding between the parties, superseding any previous agreements or discussions.
People Also Ask
What is the difference between a distributor and a reseller agreement?
Distributor and reseller agreements are sometimes the same contract. The difference is that distributors typically purchase products in bulk directly from the manufacturer or parent company, while resellers don’t always. Distributors cover broader geographic areas and are usually responsible for warehousing, inventory management, and shipping. Resellers may be exclusive or non-exclusive product or service providers in their respective areas, with the parent company taking care of logistics.
What is a reseller agreement vs. a partnership agreement?
A reseller agreement is a contract between a company and an individual or business to act as a third-party agent, selling the company’s products or services in exchange for a commission. A partnership agreement is typically used when two or more companies form a joint venture to share resources, capital, personnel, profits, and losses. While there may be some overlap between the two agreements, each has a distinct purpose.
What is the reseller process?
The reseller process typically begins with a company and individual or business agreeing to the terms of an official reseller agreement. The agreement outlines the parties’ respective roles, rights, and obligations. Once decision-makers sign the agreement, the reseller can sell the company’s products or services in exchange for a commission.
What is a software white-label agreement?
A software white-label agreement is a contract between two entities where one entity, the licensor, grants the other entity, the licensee, permission to brand and distribute their product as if it were their own. This type of reseller agreement often includes customization options like tailor-made branding and features. In exchange for these rights, the licensee pays a fee to the licensor.