One common way to increase sales and brand awareness for new software and other tech companies is to utilize resellers. Resellers will leverage their network to sell your product, and in exchange you will pay them a commission (usually in the form of a revenue share). However, some resellers offer more favorable terms than others and, if you are the provider, there are some common pitfalls to consider when contracting with a reseller:
- Perpetual Revenue Shares: Typically, you want a defined limit on how long you will pay a revenue share to a reseller. Perhaps you pay 10% of the first year or two of any customer contract you enter with a referred customer. Maybe longer. However, if you agree to pay a revenue share for the lifetime of your relationship with a referral, this can be an issue as your business and relationship with that customer grows. Perhaps a 10K customer becomes a million-dollar customer 10 years down the line, and without a time limit on commissions, you could still owe a commission to your reseller.
- Conflicting Sales Channels: Other issues arise when resellers refer you customers that you have a pre-existing relationship with or were referred to from other sources. In your contracts with resellers, you should be clear that you will only pay a referral on net new referrals, and if other resellers have made an introduction, or perhaps your sales team is already pitching a client, these won’t count for a commission.
- Representations and Warranties: Lastly, when working with resellers, you want to be very clear about what representations resellers can and cannot make about your products. If your resellers are promising things that your software cannot do, this can result in customer relationship issues later on.
If you do decide to enter into a reseller and revenue share agreement, take care to avoid these pitfalls which can come at a cost to increased sales and brand awareness.