How to Develop a Channel Partner Agreement

How do you define your company’s relationships with entities external to your business? Do they fall into the role of vendor, distributor, agent, or something else altogether?  Codify your business relationships with the companies and individuals who help you market and sell your products or services by using channel partner agreements.

By developing a channel partner agreement, you and the other party can be clear on every aspect of your partnership. By developing modularized or standardized agreements, your company can conclude agreements quickly and easily, without letting deals get tied up in legalities.‌‌

In this guide to channel partner agreements, you’ll learn:

• Who channel partners are‌
• Who these agreements impact in your organization‌
• Best practices for creating channel partner agreements‌
• The benefits of standardizing channel partner agreements‌
• Tips and action steps for standardizing agreements with channel partners

A channel partner agreement outlines and codifies a commercial partnership between two businesses. It covers confidentiality obligations, payment terms, incentivization for channel partners, indemnification, and other stipulations for working together. To better understand these types of agreements, it will help to know who typical channel partners are and what they do.‌

Who are channel partners?‌

Types of channel partners may vary depending on your sector, but generally, they include:

• Dealers. You may work with independent dealers and retailers to sell your product in their stores. Your partnership agreement could include marketing for your product in their company or giving you better shelf space.‌
• Distributors. Distributors help you get your products from manufacturers to dealers, product installers, or end customers by providing warehouse or transport services.‌
• Affiliate partners. An affiliate partner agrees to promote your products or services in exchange for a small percentage of the profits from any sales they send your way.

In the tech and SaaS fields, other common channel partners are:

• Cloud service providers. Cloud service providers offer cloud computing components to host your solution in the cloud for better security or more speed.‌
• Managed service providers. You may partner with another company that offers ongoing support to your end-users, usually via a subscription model.‌
• Embedded partners. Also known as “white label” partners, embedded partners allow you to sell their service or product to end-users with your own branding.‌
• Value-added resellers. Value-added resellers (VARs) take your hardware or software product and package it with add-ons for the end customer.‌

Whichever type of partnership you have with another business or independent contractor, you must have a clear channel partnership agreement that allows for the best interests of both parties.

Creating channel partner agreements can be complex because they impact several areas of your business. Multiple teams may either be involved in developing these agreements or deal with changes to their work as a result of an agreement.‌

Which departments should be concerned with channel partner agreements?

• Marketing. The goal of a channel partnership is the promotion and sale of your products and services, so any agreement with an outside entity will have a big impact on the day-to-day work of your marketing team. You marketers will have expectations concerning revenue sharing and promotion from a channel partner agreement. ‌
• Legal. Channel partner agreements create obligations for your company, whether long-term or short-term. Therefore, your legal team will typically be responsible for drafting, owning, and managing these agreements.‌
• Finance. Any partnerships you conclude will alter your financial forecasting and revenue operations, so your finance team should be aware of new channel partnership agreements.‌
• Sales. Your sales team may be heavily involved in your channel partnerships, especially if you have team members dedicated to overseeing channel partners. Individual salespeople also tend to feel the effects of channel partnerships directly, as they manage leads that the channel partner generates.‌

With so many departments involved in channel partner agreements, imagine how quickly work can come to a halt if you have a large volume of agreements to deal with and an inconsistent process for drafting, negotiating, and signing these agreements. You can ensure efficiency if you streamline the process and create effective channel partner agreements.

When you’re drafting a partnership agreement, you should examine your sales strategy, as the approach you take will define key elements of your agreement. You’ll know what your sales strategy is by looking at the type of partner you have: distributor, affiliate, or value-added reseller, for example. Understanding the sales strategy will also help you define the depth of the partnership. How involved is the channel partner? For which steps of the sales process are they responsible?‌

Once you’ve asked and answered these high-level questions, you can put together an agreement that comprises the basic elements.‌

Essential things to include in your channel partner agreement 

• Definitions. It’s helpful to include a glossary of terms at the beginning of the agreement, identifying the parties and clearing up any legal or marketing terms used.‌
• Confidentiality. Spell out obligations on both sides for protecting proprietary technology, trade secrets, or intellectual property. Establishing trust between both companies is essential for collaboration and a confidentiality section sets expectations from the beginning.‌
• Appointment. The appointment section sets forth a date the partner company is authorized to be a channel partner as well as geographic limitations for marketing your products, if applicable. This section should also include the duration of the partnership.  ‌
• Compensation. Indicate how much your company will pay for a specific result and cover issues such as returned products. Also, include how you will make payments to the partner company.‌
• Tax status. Make it clear that the partnership is between two different business entities, especially if you’re working with an independent contractor. You don’t want to be on the hook for the channel partner’s benefits or tax payments.‌
• Planning. Ask your channel partner for sales plans and forecasts so you know how they plan to promote or sell your products or services. In most industries, advertisers must follow guidelines, so you’ll want to confirm your channel partner complies with these rules.‌
• Indemnification. If your company is comfortable paying costs incurred by the other party, include an indemnification section and state what you’re willing to cover. ‌

Termination of agreement. Include a section that spells out what happens in the case of a breach of terms, because new ventures aren’t always guaranteed to work out.

Channel partnerships have the potential to boost your commercial revenue substantially and for a long period of time. They evolve constantly as well, allowing your company to scale as needed. Staying on top of your channel partnerships and streamlining their management not only saves you time but also keeps your company nimble and reactive to an ever-changing market.‌

When your company relies on multiple channels, you can’t afford to create and update agreements manually. With a standardized, automated contract process, both legal and sales departments can work with the same contract software to adjust contracts as needed. Your partnership managers can send out contracts that are already signed-off by the legal department, and there’s little variation between your channel partner agreements. Both sides have a better experience and you end up with contracts signed more quickly.

Using channel partner agreements with influencers ‌

If your company works with hundreds of influencers, like our client L’Oreal, then you need channel partner agreements often. Influencers operate as independent contractors, and each require their own agreements. When you have digital contract software that manages your agreements and standardizes your contract process, you don’t have to waste time sending contracts to your legal department. You can meet with an influencer, discuss your deal, and have an agreement ready for them to sign by the end of the day.

Steps for standardizing your channel partner agreements

• Remember that you’re partners. Go into drafting an agreement with a partnership mindset. You’re concluding a mutually beneficial deal.‌
• Review previous agreements. Create a template by looking over previous channel partner agreements and see which brought the least negotiation or pushback. Incorporate the same language or emulate the same formatting if it worked well for you before.‌
• Implement user-friendly design. Design your agreement so your counterparty wants to sign it. Optimizing documents for signing could include linking, using tables, adding layers, and replacing jargon with plain language.‌
• Leave room for fallback positions. Use conditional logic to add fallback positions, or terms you’d be willing to change if above or below a certain value. Your legal department can approve the parameters, and your sales department can adjust the agreements during negotiations.
• Automate: With an automated contract management system, your partnership managers need only update their terms and send these updates to the legal department right before they’re ready to sign.‌

Channel partner agreements are too valuable to your business to lack a standardized contract process. With the huge ROI potential of channel partnerships, you want your company to be free to make as many agreements as possible, without being bogged down by a clunky process.

Ironclad’s Workflow Designer lets you create standard templates and customize them as needed. You can create your company’s base channel partner agreement and ensure it meets legal standards, then let your partnership managers adjust it for their individual agreements.