What Is a White Label Service Agreement?
A white label service agreement details a situation in which a vendor provides services or goods but the customer rebrands it to appear as if they created them.3 min read
A white label service agreement details a situation in which a vendor provides services or goods, but the customer rebrands the deliverables to appear as if they created them. For example, a software vendor might provide a platform such as a mobile app, but the customer makes it look as if they developed the app, not the supplier. White label situations exist across industries, making white label service agreements all the more important.
Why Use a White Label Service?
A vendor might have a great offering, such as a tax service, logo creator, or game, but lack a large customer base. Offering its platform to existing companies allows them to profit from their goods or services because they're being marketed under a trusted brand. The white label service agreement can be constructed on the basis of either distribution or agency, depending on the circumstance.
Given the nature of white label products, they're sometimes referred to as private labels. You may have heard the term applied to wine, which is a good example. Private label wine allows you to sell your own branded wine without the winery because you're getting the wine from a white-label supplier and selling it as your own. White label products and services reduce the time, effort, and money you would otherwise put into producing your own product or service.
White Labeling vs. Agency Partnering
The term “white label” hails from the fashion industry. Company A takes a clothing item that Company B created and uses its own label, making it look like Company A designed the apparel. You'll see the same situation when shopping for store-brand groceries. They're the same items as the name-brand groceries, but they're rebranded as a more generic offering, allowing you to save money.
The alternative to white labeling is agency partnering. In this situation, a business enlists an agency to complete work for the client, and the customer pays you through the agency, not directly.
While white labeling has many benefits, things can go wrong quickly. Some worst-case scenarios include:
- Work fluctuations: You could deal with periods of too much or not enough work.
- Poor management: It's possible to lose a lot of money on work that comes in if things aren't properly managed.
- Unrealistic expectations: Customers may have certain expectations you're unable to meet with your white label product or service.
In most cases, you can prevent these risks by switching from a white-label model to agency partnering, but you should also weigh the pros and cons of each before deciding which is best for your business. For instance, it takes longer to get paid in an agency-partnering setup because the client pays the agency.
What to Include in Your White Label Service Agreement
Every white label service agreement should detail the structure of the arrangement. Does the client know who is doing the work or designing the product, or will your company pretend to be the originator?
Hiring agencies often require nonsolicitation clauses, meaning you can't work directly with clients. At this point, you should get feedback from your legal team to make sure the agreement is in your best interests. You need to clarify from the onset whether you can speak directly with clients, as some situations prohibit the white label provider from speaking with customers.
The white label service agreement should also include the scope of management. Who is in charge of negotiating projects that go beyond the agreement's initial scope? How should you revise budgets?
The agreement should define the level of client expectations. Are the client's expectations unreasonable? What do they require, and can you meet those expectations? Include a section regarding performance management in the agreement. This section outlines results the client expects and whether you can deliver those results.
As the hiring party, you may negotiate performance-based agreements with the white label provider to help increase your margins. However, if the underlying client kills the project before it's completed, the agreement should stipulate whether you receive compensation or a kill fee.
Most white label service agreements include a section on profit potential. You need to make sure the agency you're using charges the client enough so that both the agency and you can make a decent profit.
If you need help drafting a white label service agreement, post your job 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, Stripe, and Twilio.