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Software Reseller Agreement

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What is a Software Reseller Agreement?

A software reseller agreement is a legal agreement that outlines the rights and responsibilities between an owner of the software, publisher, person, or business or a reseller that wants the rights to sell or license the software to a third party.

Often referred to as a software distributor agreement or software distribution agreement, this common software agreement is created for one purpose: to make sure both parties are keeping up their end of the bargain.

The entire concept of third-party reselling is not new or without its faults. Missed communication, poorly defined requirements, or loopholes could threaten even the best business deals. This is why a licensed attorney should review any software agreement that involves reselling, especially in more complex agreements.

This is an article about getting the most from your software distribution agreement.

How Do You Structure a Software Reseller Agreement?

A reseller agreement for software can be structured as exclusive or non-exclusive.

  • Exclusive Software Reseller Agreement: a software reseller agreement in which the reseller is the only entity legally allowed to resell or distribute the software, including the publisher and any of the publisher’s other resellers. However, it is common for an exclusive arrangement to be limited by a geographical area or industry.
  • Non-Exclusive Software Reseller Agreement: Most mainstream software reseller agreements are non-exclusive. In these arrangements, the publisher is free to permit other resellers to sell the same software.

What’s Included in a Software Reseller Agreement?

Depending on the complexity, a software reseller agreement could include more specific topics, but at a minimum, it should include:

  1. Applicable Law: There are some cases in which the publisher and reseller are in different countries. In these especially, there is a need to define under which jurisdiction the laws governing the agreement will be based.
  2. Ownership Terms: As mentioned above, a software reseller agreement can be exclusive or non-exclusive. The publisher is the one who decides which type of agreement they want to offer, and it sometimes varies among individual sellers.
  3. Intellectual Property Rights: Intellectual property rights are one of the trickiest, but most important points in a software reseller agreement. Suppose a reseller does not have express permission to use the trademark, or copyright. In that case, they could face copyright infringement or trademark infringement charges if there is a breach.
  4. Payment Terms: As with many legal agreements, the financial terms should also be delineated in the software reseller agreement. If you are a reseller, this is the part you want to pay attention to. It will outline how you will be compensated.
  5. Software Maintenance/Updates: Make sure you have support after the agreement. If you don’t, you could be left hanging once the agreement is signed. Typically, the SaaS publishing company is responsible for updating and maintaining software throughout the contract's lifetime. A schedule should be included.
  6. Additional Services: As a reseller, if you will be responsible for end-user training, you’ll want to know ahead of time and be compensated accordingly. This should be agreed upon at the start and outlined in the software agreement.

Here is an article about some of the top software resellers in the market, according to users.

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How Does a Software Reseller Agreement Work?

To set up a software reseller agreement, there has to be an interested party, the reseller, and a producing party, the publisher. The rest is a series of steps.

  1. Meet with the software publisher to get a feel for the product and answer any initial questions.
  2. Review terms and outline notes to prepare for the next meeting.
  3. Meet with the publisher again and negotiate the distribution terms.
  4. Hammer out the deal's details, such as promotional literature, patent or trademark information, payment information, and generally expected duties of both parties.
  5. Consult a licensed lawyer to help draft the agreement.
  6. Time to sign or take this last chance to renegotiate any contract terms.
  7. If signed, you can now execute the agreement as outlined.

Here is an article about building a SaaS reseller business model.

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Types of Software Reseller Agreements

There are three main types of reseller agreements: top-down, bottom-up, or the less common, three-party.

Top-Down Agreements

Suited for a more high-value customer or SME, top-down agreements spell out how the reseller contracts with customers. This usually takes the form of an agreed-upon schedule, and they are expected to include standard compliance provisions, such as:

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

Bottom-Up Arrangements

This arrangement may be necessary when working with a larger corporate customer. Still, in a nutshell, bottom-up agreements are a product of active negotiations between the customer and the reseller. While they may not work in every situation, they create a win-win for both publisher and seller.

Three-Party Contracts

A less popular form, the three-party contract, happens when a publisher wants to act as an intermediary between reseller and customer. While not impossible to work with, this arrangement is a bit improbable. Moreover, even with all of the stars aligned, agreements of this nature are complex and expensive undertakings.

Here is an article about reseller agreement formats.

Typical Payment Terms for Reseller Agreements

The most common payment terms for reseller agreements are margin, commission, or subscription.

  • Margin: with margin-based payment terms, the reseller would purchase the original product and resell it for more than the purchase price. The difference between what the reseller paid and what they sold it for is called margin and represents the profit made per product.
  • Commission: commission-based payment terms would be based on a license fee paid to the publisher, by the end-user. This is similar in set-up to a sales agent’s commission and is commonly used in a SaaS agreement.
  • Subscription: this is one of those situations where knowledge can keep you out of trouble. If there is a subscription payment model for the end-user, what part of that payment is due to the reseller? This is different for every agreement; make sure it is part of your review checklist.

Here is an article about how to determine your reseller margins.

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