Key Takeaways

  • A software reseller agreement allows a reseller to sell a vendor’s software under their own name and contract with the customer.
  • Top-down agreements follow the vendor's predefined terms and are suited for high-volume or SME deals.
  • Bottom-up agreements are customized and negotiated for large enterprise customers but involve higher cost and complexity.
  • Three-party contracts are discouraged due to legal risk and complexity; referral partnerships are preferred.
  • Distributors and resellers operate independently under their own terms; agents act on behalf of the vendor without direct customer contracts.
  • Using local resellers solves legal, linguistic, and support barriers for international SaaS vendors.
  • Additional agreement types such as VAR, OEM, and referral agreements should be considered based on the business model.
  • Software reseller agreements should clearly address license scope, IP rights, pricing, branding, customer support, liability, and compliance.

A SaaS reseller agreement involves a software services provider, known as the vendor, granting another business, the reseller, the rights to enter into a contract with a third party (customer) as the principal for providing the vendor's services to the third party.

Top-Down Arrangements

There are two main ways contractual terms are formulated between the reseller and the customer. The first is a top-down reseller agreement. Here, the requirements on how the reseller can contract with customers are outlined in the reseller agreement, usually in the form of a schedule. They typically closely resemble the standard customer terms the vendor sets forth.

These are better suited for higher-volume deals with customers known as "SMEs." If the reseller wants to use a top-down agreement with enterprise customers, the agreement can't be overly unbalanced. Moreover, it must include all the standard compliance provisions this type of customer expects, such as:

  • Anti-bribery
  • Audit
  • Information security
  • Record-keeping.

Key Provisions in Top-Down Agreements

Top-down software reseller agreements typically include standardized provisions designed to protect the vendor’s intellectual property and maintain quality control over customer interactions. These agreements often specify:

  • License scope and restrictions: Clearly outlines the reseller’s authority to grant sub-licenses or deliver the SaaS product under specific conditions.
  • Brand usage: Guidelines on how the vendor’s trademarks or branding elements may be used in marketing or customer-facing documentation.
  • Reseller obligations: Includes required service levels, customer onboarding responsibilities, and reporting duties.
  • Flow-down obligations: Mandates that certain terms, such as data protection, acceptable use, and termination clauses, must be passed on to customers without modification.

Bottom-Up Arrangements

The bottom-up agreement is different in that the terms result from active negotiations between the customer and the reseller. It's important to note that this type of agreement can cause significant cost and administrative burdens on both the vendor and the reseller. However, these may be necessary when dealing with large corporate customers. While not always practical, top-down agreements are typically better for both vendor and seller.

Negotiation Challenges in Bottom-Up Agreements

Bottom-up arrangements, while more flexible, bring unique challenges:

  • Customization fatigue: Every large client may demand changes, leading to significant time investment from legal and sales teams.
  • Contract inconsistency: Inconsistent terms across customers may complicate compliance audits and vendor oversight.
  • Escalated liability: Vendors often have less visibility or control over the final terms, exposing them to unintended risks, especially when warranties or indemnities deviate from their standards.
  • Pricing complexity: Custom discounts or bundling negotiated by the reseller can lead to margin erosion or reporting issues if not managed properly.

Three-Party Contracts

There may be times where a customer wants a vendor to add itself to the contract between a reseller and a customer. This idea is not necessarily desirable and should be avoided when possible. If a customer wants to retain a direct relationship with a vendor, it's preferable to have the reseller step aside and act as a referral partner instead.

Resellers may not want to do that because they want to increase revenue. However, from a legal standpoint, it's a bad justification for a three-party contract. Even in ideal conditions, these are complex and result in unexpected consequences.

Three-party contracts also tend to be more expensive to draft and to negotiate. It's not uncommon to see mistakes and unwanted ambiguities. If a customer requires services from the reseller as well, these can be added under a different contract between the parties.

Alternatives to Three-Party Structures

Instead of engaging in complex three-party contracts, vendors and resellers can consider the following alternatives:

  • Back-to-back agreements: The vendor signs a direct SaaS agreement with the customer while the reseller handles implementation and support under a separate service agreement.
  • Master Reseller Model: A master reseller can be appointed to manage multiple sub-resellers within a region, simplifying direct vendor involvement.
  • Referral Agreements: These enable resellers to receive a commission or finder's fee for bringing in leads while the vendor maintains full contractual control over the customer.
     

What Are Resellers or Distributors?

In theory, a distributor is the same as a reseller. The reseller or distributor will purchase SaaS software and services from the supplier under the terms set forth in a reseller or distribution agreement. It is then resold to the local customers within the reseller or distributor's territory, under its own terms and conditions and Service Level Agreement, known as an SLA.

There is no legal relationship between the distributor and the SaaS supplier because it's just like a normal reseller contract.

Some people confuse distributors with agents as well. An agent is a company or a person who acts on behalf of the supplier and will find leads. He or she may also assist with selling the supplier's SaaS software to customers who are within the agent's territory. There is no legal relationship, as there is no contract with the customer.

Differences Between Resellers, Distributors, and OEMs

While often used interchangeably, these roles have distinct legal and operational implications in a software reseller agreement:

  • Resellers: Purchase software at wholesale and sell to customers at a markup, typically under their own SLA.
  • Distributors: Act as intermediaries between vendors and multiple resellers, often adding value by offering logistics, local marketing, or support.
  • OEMs (Original Equipment Manufacturers): Incorporate the vendor’s software into their own branded product or platform. OEM agreements often require white-labeling and deeper technical integration, along with specialized licensing terms.
     

Why Use a Reseller Agreement?

There are a number of reasons someone might be interested in using a reseller or distributor:

  • Little-to-no-viable sales channels and professional contacts in the customer's country.
  • They are not physically present in the country.
  • They cannot speak the local language there.
  • There is no ability to offer customer support in the local language or within local business hours for the customer.
  • SaaS terms and conditions are not drafted in the customer's local language, or they are not compliant with local laws and regulations where the customer is.

By using reseller agreements, these problems can be resolved, since the reseller will sell the SaaS software to the customers directly. It will:

  • Be legally compliant with regulations and laws.
  • Be provided in the local language.
  • Offer local support in the necessary language.

Business Benefits of Software Reseller Agreements

A well-structured software reseller agreement can unlock new business opportunities:

  • Scalable market entry: Vendors can enter new regions without the overhead of setting up operations or hiring local teams.
  • Revenue acceleration: Resellers already have existing customer relationships and sales infrastructure.
  • Reduced localization effort: Resellers handle currency, legal compliance, and language localization.
  • Risk mitigation: Liability for local sales, customer support, and regulatory compliance falls to the reseller rather than the vendor.

Important Notes About SaaS Reseller Agreements

When drafting a SaaS reseller agreement, there are some important points to keep in mind:

  • How are late payments handled and assess risks involved if a customer doesn't pay at all or becomes insolvent? Who takes the hit in these situations?
  • Will you use a VAR, or a value-added reseller? These are resellers who add value by offering additional services such as account management services, setup services, and more.
  • What are situations where termination is warranted (e.g., insolvency)?
  • Will you need or utilize OEM agreements, where the product is rebranded for the OEM business, or referral agreements, which are often compared to affiliate programs?
  • Have parties agree to make the English version of the contract be the legally enforceable one.

Drafting Considerations for a Software Reseller Agreement

When drafting a software reseller agreement, legal teams should address the following:

  1. Intellectual property rights:
    • Ensure the vendor retains ownership of the software and restricts reverse engineering or redistribution.
  2. Termination and suspension clauses:
    • Include clear guidelines for breach, insolvency, and force majeure events.
  3. Data protection and privacy:
    • Align with applicable laws like GDPR, especially if customer data is processed locally.
  4. Audit and inspection rights:
    • Allow the vendor to verify compliance by auditing reseller practices.
  5. Non-compete and exclusivity:
    • If exclusivity is granted in a territory, define performance thresholds and renewal conditions.
  6. Revenue sharing or commission structure:
    • Clearly document how payments are made, tracked, and settled, especially in tiered pricing models.
       

Frequently Asked Questions

What is a software reseller agreement?A software reseller agreement is a legal contract between a software vendor and a reseller, allowing the reseller to market and sell the vendor’s software to end customers.

How is a distributor different from a reseller?Distributors usually work at a higher level in the supply chain, often serving multiple resellers, whereas resellers sell directly to end users.

Can a reseller rebrand the vendor's software?Yes, through an OEM agreement, resellers may be allowed to rebrand or white-label the software, depending on terms negotiated.

What are the key risks for vendors in reseller models?Risks include loss of control over customer contracts, inconsistent service levels, brand misuse, and non-compliance with local laws.

Is a three-party contract between vendor, reseller, and customer advisable?Generally, no. These contracts are legally complex and prone to disputes. A referral or direct agreement model is usually preferable.

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