What is Revenue Sharing Agreement Drafting?
A revenue sharing agreement is a legal contract between two parties to explain how income from a product or partnership is shared between them. You might have seen one in affiliate marketing or joint ventures.
Since revenue sharing can be flexible depending on the parties’ situation and goals, a revenue sharing agreement needs to be drafted for clarity. This agreement should include information such as payment schedules and dispute-resolution methods.
Read the rest of this article to learn more about revenue sharing agreements, different types of revenue sharing, how to draft these agreements, and why you should contact a lawyer for help with the revenue sharing agreement drafting process.
What are Common Types of Revenue Sharing?
Revenue sharing types can include the following:
- Partner or affiliate revenue sharing. This is when a company shares a portion of revenue with their partners or affiliates because they helped to create their sales.
- Joint venture revenue sharing. Two or more companies work together on a project and will share revenue earned based on what parties have contributed.
- Sales or referrer revenue sharing. Companies share revenue with sales teams or referral partners based on deals that have closed or over which they’ve had a strong influence.
- Recurring revenue sharing. This is common in Software-as-a-Service (SaaS) businesses. It involves partners receiving regular revenue shares.
What are Key Terms in a Revenue Sharing Agreement?
A revenue sharing agreement usually contains core elements, such as the following:
- Revenue streams. This explains what type of revenue will be shared, such as product sales.
- Duration. This specifies if the revenue share is a one-time event or ongoing.
- Attribution. Contributions must be recognized properly by identifying which party was involved in generating specific sales or leads.
- Percentage. Each party’s shares they will receive must be stated for clarity.
- Payments. This explains the payment schedule, such as if it’s monthly and/or requires an invoice.
- Costs. You should include admin costs and other fees involved.
How Do You Draft a Revenue Sharing Agreement?
When writing a revenue sharing agreement, there are some things not to forget to include. Here’s a rundown of them as well as tips to consider during the drafting process.
Define Roles
Your agreement should explain parties’ duties, such as marketing, tracking measures, and tax reporting. When every party knows what their responsibilities are, this prevents misaligned expectations.
Explain Earnings
The revenue sharing agreement must explain how earnings are calculated and split. It might change according to factors such as contributions, market conditions, and more. This needs to be clarified to prevent future misunderstandings or conflict.
Make Regular Adjustments
For ongoing agreements, you want to conduct reviews regularly to check that parties are still satisfied with the agreement terms. You should make provisions in the agreement for how they can amend terms.
Define the Term
The revenue sharing agreement should mention its duration and notice periods required for early termination. There should also be information regarding early termination triggers.
Include Revenue Tracking
Clarity about how the company will measure and distribute revenue must be included. For example, this should include what events, such as ticket sales, will prompt revenue sharing.
Mention Cost Deductions
The agreement should include information about any expenses that will be deducted prior to splitting revenue, such as marketing or production costs.
Do You Need a Lawyer for Revenue Sharing Agreement Drafting?
Although it’s not mandatory to hire a lawyer to draft your revenue sharing agreement, it’s advisable. They have expertise and experience to ensure your agreement doesn’t lack any important information that can put you at legal or financial risk.
Here’s a rundown of some of the most important tasks a lawyer will conduct when drafting your agreement.
- They’ll clarify how the revenue is defined and split, ensuring percentages are fair.
- They’ll identify all reporting and tax responsibilities.
- They’ll ensure all clauses in the revenue sharing agreement are legally enforceable.
- They’ll protect your intellectual property, such as software or creative assets, as well as sensitive business information.
- They’ll avoid any ambiguous wording in the contract that can contribute to misunderstandings or disputes between parties.
- They’ll align all clauses with local, state, federal, and/or international laws.
- They’ll help you exit the agreement legally by including fair termination provisions.
- They’ll consider provisions for future events, such as if the business is dissolved or merges with another company.
- They’ll allocate liability fairly to reduce your exposure.
- They’ll negotiate terms between parties for more favorable ones.
- They’ll include effective dispute-resolution methods, such as mediation.
- They’ll guide you through the revenue sharing process.
- They’ll review a revenue sharing agreement that’s already been drafted, such as if you’ve used a generic template. This will give you peace of mind that it’s clear and customized for your specific situation.
Where to Find a Lawyer for Revenue Sharing Agreement Drafting
If you need to hire a lawyer to draft your revenue sharing agreement, you can easily locate a qualified lawyer on an online legal platform such as ContractsCounsel.
ContractsCounsel is one of the largest online legal marketplaces. It gives you access to a curated network of vetted lawyers, who have lots of experience in drafting and reviewing contracts so that they’re transparent and legal.
Here’s how to request that a lawyer on the platform drafts your revenue sharing agreement:
1. Go to the ContractsCounsel marketplace and post your project for free. You can include some details of what you require to match with the most suitable lawyers.
2. Wait for lawyer bids. You’ll receive multiple bids from lawyers directly on the platform.
3. Review the lawyers' profiles. The platform provides extensive lawyer data to browse, such as location, client ratings, years of experience, field of expertise, and previous projects completed on the platform.
4. Connect with a lawyer who matches your legal requirements. Hire them to draft your revenue sharing agreement for clarity and legal validity.
