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What is a Software Reseller Agreement?
A software reseller agreement is a contract signed between a software owner and a third party who is the software reseller.
Normally, third parties do not have the right to sell the software owner’s software to others because of the intellectual property rights the software owner has in the software.
However, a software reseller agreement gives third parties the ability to resell (or licence) the software product to others.
There are three parties when we talk about software reseller agreement:
- Software owner: this party owns the software product and allows the reseller to sell it to end users/customers.
- Reseller: this is the party that is selling the software owners software product to end users.
- End User: these are the clients or customers who agree to buy (or gain access to) the software from the reseller.
Examples of software reseller agreements include:
- Reselling of Software as a Service products such as accounting software or marketing automation software;
- becoming a Microsoft or CISCO partner to resell their software products.
Why do I need a Software Reseller Agreement?
You can get access to foreign markets: When you want to sell your software product to other countries, you may have difficulties such as:
- You do not have sales channels;
- You do not know the local language and legal requirements;
- You can’t offer customer support in those countries because you are not physically present there.
By finding a third-party seller in a third country, you can avoid all these problems so your product reaches to those countries.
You are not liable for damages to end users: The third-party resellers are not your employees or representatives and they are independent so that they are responsible for their own actions and thus you are not responsible for their actions. Disputes between the reseller and the end user is none of your business.
It leads to more sales and more profit for you: When you pay commission to the resellers for each sale, the reseller will generally be more motivated to increase the sales so they will perform better. Your employees, however, are probably less enthusiastic to increase sales because their salaries are usually fixed.
Furthermore, the resellers usually have well-established stores and other sales channels to attract customers.
What sort of clauses should be in a software reseller agreement?
1. Exclusivity: A reseller generally wants exclusivity to the software product – as this gives them the greatest chance of making a success of reselling the software.
The software owner however may have concerns about the resellers ability to resell the software and my be unwilling to grant exclusivity to the reseller.
Sales targets, where the reseller has to meet certain sales volumes can satisfy both parties. In other words, the reseller will be granted an exclusive right to resell the software in a country, state or market, as long as the reseller meets its sales targets.
If the targets are not met the contact could either become non-exclusive or even be able to be terminated
It is worth noting that the exclusivity of reseller may be limited to a region (such as a state in Australia) or a sector (such as healthcare).
2. Price of the product: Who will set the price of your software product? Will the reseller have any margin of discretion to determine the price of your product? You can include clauses related to the price to decide on this.
3. Payment terms: Payment to the reseller may be calculated by different methods such as:
- The reseller may be paid a fixed compensation on a monthly or a yearly basis regardless of the number of sales.
- The reseller may be compensated by a commission for each sale that it makes.
- The reseller is paid the difference between the user paid and what it paid to the software owner.
- Or some other method.
Also, where the software is sold on a subscription basis the reseller agreement should state whether the reseller will be paid commission on subscription renewals.
4. Marketing and Promotion of your products: You reseller agreement should state that the reseller has to run advertisement campaigns, run TV ads or put out google ads to promote the product.
Marketing of your product may be especially more important when the reseller has exclusivity for a region. You should also be precise as to how many ads, or how much marketing must be spent and in what period of time.
5. Maintenance and software updates: The end user may need additional services such as maintenance or upgrades for the software. The agreement should address who will provide these services.
6. Export Prohibition: You may grant your reseller the right to resell your software product only in a certain region or country and you may set a different price for every country.
In this scenario, you may want to prevent your reseller from re-exporting your product to another country because this would undermine your price policy. To prevent this, you can include an export ban in your contract.
7. IP Rights: Your contract should explicitly state that the IP rights are not transferred to the reseller and the reseller cannot reverse engineer the source code.
8. Termination: Will the agreement be for an initial trial period to measure the performance of the reseller or for a longer period? Your agreement may describe that if the reseller performs below a certain threshold (such as making fewer than 500 sales), the agreement ends automatically.
Also, you should include a clause about any future payments to the reseller after the agreement terminates.
Another issue to be addressed is the ongoing maintenance services to end users after the contract terminates. Who has to provide those services? You or the reseller?
Plenty to think about, so why not leave the thinking to us so you can focus on growing your business?
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