SaaS Referral Agreement: Everything You Need to Know
A SaaS referral agreement is where a company refers new leads to a SaaS vendor. If the vendor negotiates a deal with the lead, they'll pay the referral party. 4 min read
Updated August 03, 2020:
A SaaS referral agreement is a model where a company “refers” new leads to a SaaS vendor. If the vendor negotiates a deal with the lead, the vendor will pay the referral party a percentage of the contract for a designated amount of time. Payments usually span one to two years. However, it primarily depends on what the vendor's business model is and how many or how much in sales was made off the referrals. SaaS vendors are the ones who set the prices; the party making the referral does not.
With these agreements, you have to consider a variety of issues, including tail payments. These are payments the referring party would be expecting if you terminated the referral agreement earlier than anticipated. Some people refer to this as an affiliate deal, while the referral agreement is really more appropriate.
Items to Consider in Your Software Referral Agreement
There are a number of things to keep in mind when you're working on a referral agreement:
- What type of referrals will you pay or not pay for? Don't forget to exclude any transactions that are already pending or don't close within a certain amount of time.
- How will extensions be handled?
- How do you want payments handled? Should payment be after every transaction or at certain intervals like quarterly or monthly? Don't forget about returns and credits, too.
- Your agreement should be drafted using simple and plain English. It doesn't need to be overly long like other contracts, just long enough so your partner understands it and your own sales team(s) understand it as well.
What Are SaaS Reseller Agreements?
SaaS reseller agreements are utilized in situations where a reseller plans to resell the SaaS vendor's services and also collect the money from the customer. In many cases, the SaaS vendor contracts directly with a customer for training and services. However, it may vary based on the vendor's technology and business model.
The reseller will also typically provide level one support, along with implementation services and any necessary training. This is also dependent on the vendor's operating model and available technology.
What Are SaaS OEM Agreements?
A SaaS OEM agreement is utilized in situations where the product is rebranded for an OEM business. The OEM business is the one to provide:
- Level one support
- Necessary training
- Implementation services
The OEM company is the one who determines the pricing and pays a pre-elected price for the vendor's SaaS service. In some cases, the OEM business may commit to something like a minimum spend over the year, or it will train a certain percentage of its own staff on the SaaS product.
How SaaS Partner Programs Are Unique
Compared with traditional channel programs, there isn't a single type of SaaS partner program. The options can be diverse, depending on how “partners” choose to interact. Most SaaS companies are not well suited for a traditional channel like a VAR, or Value-Added Reseller. This is where another company helps sell your product(s) for a commission or profit. They'll have partners that fall under a specific umbrella:
- Referral partners — These are partners who pass leads along and get paid commission on either each lead or sale.
- Strategic partners — These are high-value relationships where you work together to achieve a common goal, which may or may not be a revenue-sharing incentive.
- Advocate partners — These partners may recommend your company or product to their customers, but only when it makes sense to do so.
Benefits of SaaS Partner Programs
New startups often look to create partnerships with businesses that are much larger or are of comparable size. Partnering up provides a number of benefits:
- Leverage with a well-known business name that has higher sales.
- Larger marketing resources.
- A wider network than you currently have.
Partners can prove to be an asset when it comes to getting a larger reach and getting your message out there, as they can help broaden your addressable market. They will only do this if there is some type of consideration in return. Typically, this is some type of revenue-sharing program or another less-tangible benefit. No matter what route you take, you can't deny the bevy of benefits available with partnerships.
The potential downside is because there is no immediate revenue stream coming up, you need to look at partnerships more like a long-term relationship and strategic plan. Due to this, some new startups stay focused on immediate results and tend to shy away from entering into a formal program.
If you need help with a SaaS referral agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.