Reseller Agreements: What They Are & When to Use Them

Often, tech companies want to leverage their strengths and partner with other companies, such as in the case of referral agreements, which I wrote about in an earlier post. Another type of partnership are reseller agreements, which I’ll discuss today. 

Reseller Relationships Defined

In a reseller relationship, the reseller sells the vendor’s products directly to the reseller’s customers. In a traditional reseller relationship, the reseller sells the vendor’s product directly to end customers with no additional services or products. In the case of value-added resellers, they bundle the vendor’s products or services with their own or with their partners, which can include consulting and implementation professional services. In either case, the reseller earns commission as a % of the retail price of the vendor’s products, often purchasing from the vendor at a discount from the retail price. 

Reseller relationships are territorial and can be exclusive. For example, you can have a particular reseller in the US and a different one for the EU, due to their access to different customer markets. You can also have multiple, non-exclusive resellers in the same region or industry, or an exclusive relationship. 

In terms of overhead, a vendor will have to onboard each reseller via training and other procedures to get their team educated and up to speed on the vendor’s products. And, for SaaS, software, and many other tech products, the end customer is signing a EULA or license for the technology with the vendor, usually on standard terms, and not with the reseller.

Your reputation is also now in the hands of the reseller, so selecting a reputable reseller whose customer base and business practices align with your company goals is crucial.

When to Use Reseller Agreements

Consider partnering with resellers if you’re interested in: 

• Scaling sales revenue without having to expand your sales team or having the sales team directly sell. 
• Entering new markets, either geographically or in different industries, with a lower barrier to entry by leveraging the reseller’s customer base.
• Diversifying your revenue stream, so that not all your business comes from a handful of large customers.
• Boosting your brand credibility by partnering with a more established brand. 

Key Terms in a Reseller Agreement

Here are several of the most common key terms:

• Appointment of the company as a reseller
• Territoriality - is the reseller exclusive, non-exclusive, and in what territory
• Compensation - how the reseller will be compensated, and on what cadence
• Price - links to price lists for the vendor’s products
• Bundling of products - if applicable, such as for a value-added reseller
• Training and onboarding - how the reseller’s team will be trained and onboarded to properly sell the vendor’s products

Other key terms include IP ownership, warranties, and indemnification. A commercial attorney can assist with drafting provisions appropriate to your specific relationship, but these points should give you enough direction to guide discussions with potential resellers.

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