SaaS Reseller Agreement: Everything You Need to Know
A SaaS reseller agreement involves a software services provider (the vendor), granting the reseller, the rights to enter into a contract with a third party.4 min read
Updated June 25, 2020:
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.
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:
- Information security
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.
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.
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.
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.
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.
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