Software reseller agreement 101— How to protect your rights

Reselling white label software comes with a lot of perks. It can skyrocket your revenue, expand your offer, add to your brand’s credibility, and save you a lot of time and money. The whole white label method seems like a dream come true for any business-savvy entrepreneur. 

Unfortunately, just like any sort of investment, reselling software is not a bulletproof concept. With the good parts also come the bad ones, and in white label reselling business, there are plenty of things that can go wrong. Unclear ownership rights, missed deadlines, and badly defined requirements can turn any business deal into a catastrophe. 

So, while white labeling can help you build your company fast and easy, it can also send your business off the rails if not done properly.

Fortunately, there is a simple way to avoid all this hassle and prevent your white label venture from backfiring: software reseller agreements.

What is a software reseller agreement?

A software reseller agreement is a legal contract that clearly defines the relationship between the company that originally developed the white label software and the reseller. The agreement serves to identify each party’s rights and obligations, as well as to specify the terms of reselling the software to the end-customer. 

This contract is also sometimes referred to as “software distribution agreement” or “software distributor agreement.” 

Why do reseller software license agreements matter so much?

For a white label software deal to work, it needs to be mutually beneficial—both the producer and the reseller should gain something from the cooperation. After all, that is one of the main pillars of this business method: companies complementing one another for economic and marketing gain. Software reseller agreements are there to ensure both sides keep their end of the bargain. That way, these agreements not only serve as guarantees that the job will be done well, but they also help establish high-quality, long-lasting business relationships.

Here at Sell Saas, we recognize the importance of software reseller agreements and pay great attention to them. We do not make them just to protect our rights but also to provide our clients with a guarantee that they will receive the product they need. For this reason, our customers are always familiar with their rights and know what they can expect from us.

Issues a good agreement can prevent

Besides helping business partnerships bloom, software reseller agreements can also help prevent various issues. These issues can stem from simple problems, such as:

1. Miscommunication

2. Unclear rights and obligations

3. Unclear deadlines

4. Badly-defined service or product 

While these issues seem quite simple and easy to solve, they can make or break a business.

Here are some examples of situations that a good reseller agreement can easily avoid:

• The developer doesn’t have the capacity to produce software that the reseller ordered

• The reseller doesn’t have the technology necessary for the successful implementation of the software

• The reseller receives a product that is not what they or their customers need

• The developer can’t deliver the product to the reseller

• The reseller doesn’t have the necessary knowledge to use the provided software

In addition to these issues, software reseller agreements are there to protect both parties from legal issues that can lead to more severe consequences, such as:

1. Fraud

2. Plagiarism

3. Information security related issues

Who are the involved parties? 

The software reseller agreement is a legally binding document. Therefore, it is imperative to pay close attention to the nuances within to ensure you fully comply with it. 

Terms like agent, sales representative, and reseller are often used interchangeably. From a legal standpoint, however, these are three completely different entities, with specific sets of rights and obligations. It’s crucial to make the distinction and clearly define the responsibilities of each party involved. 

Let’s take a closer look at each one of these entities, so you know exactly what rights and responsibilities each of them has.

Agent

An agent is a company’s employee tasked with selling the product. They work directly for the company, and their job description involves contacting potential customers and promoting the product or service of their employer. 

For this, they are compensated through a monthly salary, as well as a range of perks and bonuses. It’s not uncommon for agents to have a relatively low fixed monthly salary that can grow exponentially thanks to the bonuses they receive each time they make a sale. This is an excellent way to motivate them to consistently provide good performance and reward them according to their results.

Much like regular employees, agents typically sign an employment contract that defines their daily responsibilities and compensation. The employer is required to provide them with the means of promoting the product, as well as responsible for compliance with the governing law (based on the jurisdiction the employee is in) and taxes.

Sales representative

Many people confuse an agent with a sales representative. The main distinction between the two is that a sales representative doesn’t have the legal right to execute end-user licenses on behalf of the employer. Their job is to acquire prospects and negotiate the terms with them, but it’s the employer who enters the software license agreement with the end-user.

Most companies prefer sales representatives over agents for obvious reasons—the employer doesn’t have to pay a monthly salary or worry about other employment costs. A sales representative works on commissions. They receive a percentage of every sale they make, so the company takes virtually no risk. 

Even if a sales representative underperforms and scores absolutely no sales—which is highly unlikely—the employer isn’t at a loss since there’s no initial investment on their part. 

Reseller

Software resellers, much like sales representatives, are independent of the employer. They enter an agreement with the original software developer, which allows them to resell their products to customers under their own brand. This is crucial—the end-users are typically unaware of the connection between the reseller and the white label software manufacturer. 

Another key distinction is that the reseller technically buys the product from the developer. At that point, they are pretty much free to do with it as they please. This means that, as a reseller, you can rebrand the software with your name and logo and resell it as your own. It also means that the developer is in no way responsible for your success. If you fail to sell the product to the end-users, you’re the one incurring the loss. 

Resellers also typically choose their own margins. The whole idea behind reselling a white label product is that you get to decide the price point. This gives resellers an opportunity to generate substantial revenue since the difference between the buying and selling price can be substantial.

That said, from a legal point of view, it’s imperative to make the distinction between a reseller and a sales representative. Although some resellers work on commissions, where the software developer enters the agreement with the end-user and provides compensation to the reseller, the key difference is that resellers are completely separate from the developers. 

They can’t advertise in the developer’s name or act as their representatives. If they’re not selling white label products under their own brand, resellers are required to clarify the nature of the relationship with the developer. This means they have to use the title of an independent reseller, rather than presenting themselves as an entity tied to the original developer. 

Software reseller agreement essentials

When it comes to legally binding documents like software reseller agreements, it’s crucial to understand exactly what you’re agreeing to. It’s also good to know what the provider’s responsibilities are, as well as what services they will provide (if any) after you sign the agreement. 

The essentials every software reseller agreement should cover include:

1. Applicable law

2. Ownership terms

3. Intellectual property rights

4. Payment terms

5. Software maintenance and updates

6. Additional services

These are the bare bones of the agreement that you should thoroughly go over before agreeing to become a white label software reseller. You should, of course, take your time to go over the entire document at least a few times to avoid any potential unpleasant situations. 

Applicable law

In instances where the software supplier and the reseller aren’t based in the same country, it’s necessary to define the applicable law. Although the resellers will be selling the products to end-users under their own country’s laws, rules, and regulations, the same rules may not apply to the software provider. 

You should expect the software reseller agreement to be drafted according to the laws of the country the company whose products you’ll be reselling is based in. Some countries may have different laws regarding the selling of online products and services, as well as special restrictions you should be aware of. 

Before you start reselling, make sure you’re fully aware of your country’s laws to avoid any complications.

One thing to note here is that, regardless of their geographic position, the agreement should be in English. In some cases, the agreement may be translated into other languages, but note that the English version will always have precedence over all other versions. 

Ownership terms: exclusive vs. non-exclusive contracts

Software reseller agreements can be either exclusive or non-exclusive. The software provider has the full right to choose which type of agreement they will offer to each individual reseller. 

From a reseller’s point of view, an exclusive agreement may appear much more beneficial since you won’t have to “fight” for every single customer with hundreds of people trying to sell them the exact same product. 

Exclusive agreements, however, do not imply that you are the only one allowed to sell the software. In most cases, they are geographically defined, meaning an individual reseller obtains the right to resell to a specific market, say the United States. In that case, other resellers are free to promote the same product to the end-users in Europe.

Landing an exclusive agreement can be quite difficult, especially if you’re just starting out. Think of it this way—for the company to offer you exclusive reseller rights, they need to be sure you’ll deliver. That’s why the majority of exclusive agreements include performance requirements detailing either the number of products you’re required to sell or the revenue you must accrue on an annual basis.

Non-exclusive agreements are, therefore, much more common. They are a risk-free option for the software developer, since they don’t have to rely on a single reseller’s performance, but rather generate revenue through hundreds of different resellers. 

Intellectual property rights

As we’ve mentioned, it’s imperative to define whether the reseller can use the company’s name, trademark, and other intellectual property when reselling their software and services. With white label solutions, a reseller agreement should give the reseller full right to claim the products and services as their own and market them under their own brand. 

Otherwise, the software developer must define whether the reseller can register domain names, company names, and trademarks on behalf of the supplier. Should they grant the reseller such rights, the agreement must also clearly define what happens with the intellectual property after the agreement expires or is terminated by either side.

The safer, and frankly, the better option for the reseller is the ability to sell the products as their own intellectual property. White label solutions do not require you to credit the original software developer in any way. Instead, you can customize the product as much as you want, resell it as your own, and build your brand while generating revenue. 

This is a win-win situation. The developers don’t have to worry about marketing and intellectual property rights, while the resellers get an excellent incentive that prompts them to sell as many products as they can since they’re building their own business in the process.

Payment terms

Before you sign a reseller agreement, it’s vital to understand how you will be compensated for the sales you make. Typically, a reseller’s profit will come down to the difference in the original price they paid for the software or license and the price they charge the end-users. This is called a margin. 

In some cases, especially with software as a service (SaaS), resellers will be compensated through commissions. Here, you should pay close attention to the percentage of said commissions, since you’ll be receiving a portion of the price the end-user pays the company.

The agreement should clearly define the commissions for every service, as well as state whether the resellers will receive these commissions as a one-time compensation or monthly, whenever the end-user renews their license. You should also check to see if you will be compensated for any future purchase made by the client you secured for the company, and whether you can upsell them on additional products and services from other companies. 

That said, you should also keep an eye on the available payment methods. Unless you’re buying the licenses beforehand, the payments from end-users will go directly to the software developer, and they’ll forward you your commissions afterward. 

Here, it’s necessary to ensure that the payment methods the company provides are the ones your clients will find convenient. There is no worse feeling than letting a sale slip through your fingers because a client is unable to make a payment using their preferred method. 

Software maintenance and updates

If you’re planning on selling SaaS, it’s important to make sure that the provider stays involved even after you’ve made a sale. It’s always great if you have the technical knowledge related to the software and services you’ll be reselling, as that will make it infinitely easier to promote them. 

Still, you shouldn’t be left to your own devices after you’ve made a sale, especially if what you’re selling are recurring services. The supplier should be ready and willing to step in when the end-user encounters a problem with their software or service. They should also be responsible for maintaining and updating the software. Your job, as a reseller, should only be to resell the products and services. 

Although it sounds like common sense, there are suppliers who fail to identify this in the reseller software agreements, leaving the resellers to deal with unsatisfied customers and try to resolve the software issues on their own. 

Additional services

The more you get out of the reseller software agreement, the better. If you’re the one required to help the end-users install the software, provide the training, and offer additional services—you should be aware of this from the get-go. 

If that’s the case, then you should expect to get higher commissions or have higher margins since you’re investing additional time and effort after completing a sale. This is a crucial thing to mention to the customers as well. If all you’re doing is reselling software, they should be aware of the fact that they’d have to implement it and figure out how to use it themselves. 

You’re all set to become a reseller

The key takeaway from this article is that a software reseller agreement is a legally binding document and that you should take your time to go through every single line in the document before you agree to start reselling.

There are software reseller agreement templates out there that you can take a look at, but keep in mind that each agreement is drafted by the company’s lawyers, and they can differ greatly—in both the style and the content. 

That said, we’ll provide you with a software reseller agreement checklist you can reference at any point in time. 

The crucial terms the agreement should cover include:

• Provider and reseller rights and obligations

• Intellectual property ownership

• The type of agreement—exclusive or non-exclusive

• Payment terms and renewals

• Applicable laws

• Software updates and maintenance

• Performance requirements for exclusive agreements

• Terms of agreement and agreement termination

Now that you know exactly what a software reseller agreement should cover, you’re one step away from starting your own SaaS reselling business. All you need now are premium quality products that you can easily rebrand and start selling as your own. 

Here at Sell SaaS, we offer exactly that! 

Check out our wide range of top-tier white label software, find the ones that best fit your business needs, and start reselling them today!