Channel sales · Partnership agreements

How to construct a referral agreement?

Anonymous

August 17th, 2015

We are a west coast SaaS company offering a B2B service on top of a platform/hub (think something like a service for SalesForce or WordPress). Our pricing model is subscription (only), we have a v1 product (MVP+), and a couple of initial paying customers.


I have been discussing a potential collaboration/partnership with a professional services company (they do setup, customizations, development, etc. for the platform), as a channel for us. There will be no involvement on their behalf on delivering our service.


I am considering what type of agreement is preferable (obviously it will be pending the level of responsibilities they are going/willing to assume).

I have been considering two models:

1. Reseller agreement (where they sell our service and get their cut)

2. Referral agreement (we are involved in the sales cycle)


If we go with referral, what would a typical "cut" look like percentage-wise for the following level of their involvement?

1. No involvement - initial intro only.

2. Active in the sale process and helping close the deal. Giving us inside info about the client, pitching on our behalf, etc.


Since the validation of our service is very important for us, I am looking for ways to incentivize the partner at least for the first few (1-3) deals. What strategies have you applied in the past to achieve such an objective?


Many thanks in advance for your insights.

Steve Everhard All Things Startup

August 17th, 2015

You basically have three models and each has different legal implications on your relationship with the user; distribution (resale), agency, referral. In a distribution agreement, subject to terms, the distributor takes title to the product and resells under their own contract. They may have buyback agreements but given that this is SaaS software then I imagine there is merely an ELA and some form of access code which you generate. The distributor would be expected to handle first level support in most cases, and they are probably free to bundle products together for a system level solution. They can resell at whatever price they like, including a loss if they so choose.

An agency model means that they use your contracts and act on your behalf in negotiations. They generally have no rights to negotiate price and support is down to you. The agent is generally paid a fixed commission. They may or may not offer consultancy or other services with your consent, but they would be outside o the contract for supply.

Obviously an introduction is merely that. The level of good will of course depends on their relationship with the client and they may request a 'watching brief' to ensure that their relationship with the client isn't compromised. They won't be involved in contract negotiation or exchange.

As much depends on the role your partner wants than your goals. If they want to take prime position, or construct system sales they might want a distribution agreement. If they are happy to refer to you then an agency or referral model might work. The extent of their risk is reflected in the commission, although with your market reputation (low reputation obviously equals harder sell), the typical gestation period for a sale, their reputational risk and the resale value of the product. The last point is important because %age of sale price for a low value item will be higher than for a high value item.

I would go in with an idea of what margin you are prepared to sacrifice in each model case, given the state of your market penetration.

Glenn Donovan Vice President of Sales (fractional)

August 17th, 2015

Good luck, it sounds like you are doing great! As for the model, I'd look first at the partner and whether they resell other products or not. If so, then I'd go for a reseller model. But if they don't, then just offer a referral model.

A little tip. Most of these kind of relationships don't pan out to be as productive as you'd hope unless the partner was in the business of selling your category of solution before you came along. If it's an unnatural act it just won't happen. Sales channels are notoriously hard to make effective. If they are merely fulfilling demand you generate anyway, I'd think long and hard about whether you need to do this at all.

If you need to give them something, do a modest referral fee as a way of getting started. Keep it simple, just that they make the first contact and get you a meeting, don't make it any more complex than that. If you win, they get X. Forget who's "doing the selling" - just close the deal. The value of your next 10 clients is almost impossible to overstate.