September 18, 2024

What Resell Agreements Are & When You Need Them

With this guide, you will understand the importance of a resell agreement, its main elements, its advantages, and how it impacts your business.

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In today’s competitive marketplace, what sets apart a certain company is its ability to consistently increase profits.

However, increasing customer growth and reach and boosting sales can be difficult when you don’t know the intricacies of setting up your resellers.

For manufacturing companies that deal in products and services, having a well-made reseller agreement that takes care of all the mutual terms and rules is critical.

Today’s article covers the details and concepts of a resell agreement, its key elements, and its many advantages that can help both resellers and suppliers conduct business together.

Key Takeaways

A reseller agreement allows one party to sell another's products or services.
These agreements outline terms to ensure fair dealings and prevent price competition.
Key elements include product specifics, territory, pricing, marketing, and intellectual property.
Advantages include market expansion, increased revenue, cost savings, and business flexibility.

What’s a Reseller Agreement?

The term reseller agreement can have slightly different meanings.

In the simplest terms, a reseller agreement, sometimes known as a resale or a reseller contract, is a deal where one party (the supplier) gives another party (the reseller) the right to sell the supplier’s products or services.

Suppliers can be manufacturers or wholesalers, while resellers are the ones who sell the products or services to the final customers, and they act on the suppliers’ behalf.

For example, a software company allows a reseller to distribute its software products to its target audience. The reseller aims to earn a commission by selling the product to the final customer at a price they set.

Typically, the reseller pumps the prices up to the suggested retail price given by the supplier.

What’s So Special About Reseller Agreements?

These legal documents highlight and set the terms and conditions of the business relationship between a supplier and a reseller.

To make sure there’s no price competition, a supplier needs a well-crafted reseller agreement both parties agree on, as per mutual discussions with the supplier and reseller.

This way, they can ensure a fair deal for the end customer while both parties profit.

Importance of a Well-Crafted Reseller Agreement

Reseller contracts are crucial as they allow the reseller to sell the supplier’s products or services to third parties, and it’s more than just a legal obligation to go through the process.

It’s important to properly set forth the reseller contract terms because misunderstandings between both parties can arise, and this almost always spells profit and trust loss, and damage to a brand’s reputation.

For more on legal agreements that are beneficial for most companies, read more about the importance of an LLC operating agreement.

Types of Reseller Agreements

Reseller agreement are diverse since each industry will specify certain terms, characteristics, and rules for each one. Each agreement therefore caters to the unique needs of the business partners involved.

We can break down the most common ones:

Software/Service Reseller Agreement: These agreements are the most common and apply when the reseller sells products or services. The specifics of what’s being sold define the agreement, and most of them use standard boilerplate templates.
Exclusive/Non-exclusive Reseller Agreement: This determines whether a reseller has sole rights to sell a product or service in a certain area or globally (exclusive). The non-exclusive type applies to multiple resellers and what they’re allowed to do.
Value-added Reseller Agreement: When this type is in question, the reseller isn’t just selling a product or service; they’re also adding extra items or services, hence ‘value-added’ to the overall agreement.
Master Reseller Agreement: This agreement can be applied across multiple products or entities that streamline the reselling process. Commonly, larger companies and enterprises use this type of reseller agreement.
Authorized Reseller Agreement: This one designates a certain reseller as a ‘qualified’ or ‘authorized’ dealer, giving them specific rights or privileges not found in common reseller agreements.

While these agreements go by different names, they all serve the same basic purpose – outlining the terms for reselling a supplier’s products or services.

A Typical Reseller Agreement Format

Reseller agreements, like other legal documents, need to follow an understandable structure that clearly defines the roles and obligations of all parties involved.

There are two key formats to consider, and a less common one:

Top-Down Reseller Agreement

A top-down agreement format outlines the rules under which the reseller can sell to customers, and it’s often dictated by the supplier.

This approach ensures consistency and clarity and is especially beneficial when dealing with many products.

Bottom-Up Reseller Agreement

The reseller outlines the sales terms for the end user and communicates these to the supplier.

The terms are commonly settled from discussions between the end customer and the reseller.

This method is more flexible for dealing with larger clients with specific needs. However, it also has significantly higher administrative costs for the reseller and the supplier.

Three-Party Reseller Agreement

A third type of reseller agreement, called a three-party reseller agreement, can also be considered, but it’s more or less rare to see in the software industry.

Understanding Reseller Agreements: Key Elements

Reseller agreements have several key elements that positively affect the relationship between the parties involved.

Here are some of the most important elements that act as indicators of a well-made reseller agreement:

Products or Services: The agreement should clearly define the products or services covered and that the relationship is maintained professionally and ethically. It should also specify any exclusivity rights of the reseller and restrictions, ensuring everyone understands the scope of the relationship. In most cases, the reseller agrees that the relationship of the parties will not constitute a partnership or a joint venture.
Territory: The agreement should outline the specific geographic region where the reseller is allowed to sell the products or services. This helps avoid disputes with other resellers or marketing parties.
Pricing: The agreement must lay out the customer pricing structure, payment methods, and any discounts or commissions available to the reseller. Additionally, it should also concisely specify payment deadlines and possible penalties in case of late payment.
Marketing and Promotions: The agreement should list the marketing materials and promotional activities that both parties undertake, like marketing campaigns, advertising materials, and other specified tasks and activities.
Intellectual Property: The agreement needs to address any intellectual property rights associated with the products or services in question, and this usually includes trademarks, watermarks, copyrights, and patents.
Terms and Conditions: Finally, the agreement should detail how long would the reselling campaign last, what are the renewal conditions, and expiration or termination clauses in case of violation and/or a reseller’s breach of trust. These elements are one of the most important elements that protect the interest of both parties.

The Difference Between a Distribution Agreement and a Reseller Agreement

Some companies consider reseller and distribution agreements as interchangeable or the same in terms of legal requirements. One can easily mistake them as similar documents that pretty much overlap.

Reseller and distribution agreements share uncanny similarities, but they are distinct regarding their operations and responsibilities.

Here’s a simplified comparison:

Degree of Control: Distributors serve as independent contractors, while resellers focus primarily on selling without any explicit marketing or distribution tasks.
Responsibilities: Resellers bear total responsibility for warranties, distribution, and branding. Conversely, distributors buy products from various manufacturers at wholesale rates, handling the marketing, sale, and delivery of the final products to the customers.
Marketing: Contrasting with distributors, resellers don’t shoulder marketing and promotional responsibilities for the products. Their focus rests on retail aspects, such as pricing and end customer service, and setting up a physical or online store.
Scope: Resellers act as intermediaries or agents in selling products to consumers. Unlike distributors, they do not purchase or stock products. Conversely, distribution agreements involve distributors who enjoy more independence and can assume wider responsibilities.

Resellers and distributors play unique roles in getting products to consumers, which makes them so similar. However, their responsibilities and levels of control are widely different.

Advantages of a Reseller Agreement

Reseller agreements come with several benefits for both manufacturers and resellers:

Market Expansion: They allow manufacturers to reach new markets and customers while resellers leverage existing products and services for faster market entry.
Increased Revenue: Resellers can tap into their customer base to drive sales, creating new opportunities for revenue. This also benefits manufacturers by increasing product visibility.
Cost Savings: Resellers often take on marketing, inventory management, and end customer support. This significantly reduces operational costs for manufacturers and lets them focus more on product development, improving designs, and innovation.
Flexibility in Today’s Industry: With a reseller agreement, manufacturers can quickly adapt to the already rigorous market conditions and end customer demands. This flexibility makes it easier to handle market trends and fluctuations when manufacturers and resellers partner.

Final Thoughts

A reseller agreement is a powerful tool for businesses looking for additional sales methods to broaden their reach and increase profits.

A well-executed agreement benefits everyone involved, promoting a healthy, fruitful business relationship. That’s why consulting with legal experts is crucial to ensure you’re following all applicable laws and regulations.

If you’re interested in business topics and you want to know more about leading a company, check out Entrepreneurship 101 for new business plan examples.