A reseller agreement partners two parties, typically a manufacturer and distributor. The two parties draft a document of terms. In these terms, they outline the expectations and requirements of the partnership similar to a franchising business model. If you are business executive, there are many ways of negotiating these agreements with your distributors. In this post, we’ll cover the most important reseller agreement negotiation terms and how to make the most of them.
First and foremost, distributors want a great price when negotiating reseller service agreements. Whether it’s a SaaS service or hardware product, you have to make the price worthwhile for the distributor. Otherwise, they can just resell services from your competitors. You can offer competitive pricing to entice distributors. After they are interested, then you can make your demands on more favorable terms.
After negotiating favorable pricing terms, you have leverage to demand minimum quantity requirements. You can require that the distributor buys a minimum quantity of product each month or quarter. A minimum quantity provides protection for your company. Additionally, it offers an incentive to the distributor to sell a minimum amount of your products. Of course, the minimum quantity should be reasonable to allow a fair reseller agreement to succeed.
Next, your reseller agreement can provide exclusivity to the partner. If they are able to meet your minimum requirements and pricing, you should consider some sort of exclusivity. In order to create a favorable agreement, include sales projections and performance incentives in the document. As a result, the distributor and manufacturer mutually benefit from increased sales in a market. Remember, you can negotiate exclusivity for a territory, market, region or distribution channel like e-commerce fulfillment. Don’t give up all your flexibility right away.
Depending on the business, the purchasing process will vary in every reseller agreement. Usually, the reseller places a purchase order to the manufacturer. Then, the OEM or manufacturer has a per-determined time frame to complete the order. In technology service providers like a remote DBA service, these purchase orders are completed instantly with automation. Either way, you should negotiate terms that allow your business to fulfill orders and requests in a timely manner. Certainly, you want to have enough time to handle orders from all your distributors without violating any reseller agreement terms.
Allow Semiautomatic Renewal
Rather than agreeing to a reseller partnership indefinitely, try annual renewals. However, unlike an automatic renewal, each party can terminate the agreement with 30 days notice. These types of terms and conditions can protect your business from under-performing distributors. For example, either party can submit a “Notice of Intention” to terminate the agreement. At that point, the reseller agreement can be re-negotiated or terminated all together.
Negotiating reseller agreements can make or break your business. When it comes to operating in a reseller partnership, exercise caution with your selection. You should do your due diligence on every distributor before signing a partnership. Offer attractive pricing. Then, negotiate your main terms like quantities, exclusivity, purchasing and termination. With a good reseller agreement checklist, you are ready to negotiate a winning partnership.
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