Partner types

There are typically three major types of software distribution partnerships:

  • OEMs
  • Resellers
  • Referral partners.

OEMs and resellers enable companies to reach customers their direct sales forces cannot.  Partners may be working on their own or in cooperation with the company’s sales teams.

Referral partners pass leads to the direct sales force in return for a fee.   Sometimes, referral partnerships are called “Barney agreements” after the purple dinosaur on children’s TV.  Their “I love you, you love me” nature can lead to meaningless results worth less than the effort that went into setting them up. 

Successful partnerships deliver based on the effort put into them–if they’re “easy come,” they’re likely to be “easy go.”   That being said, if companies find themselves naturally passing leads, referral agreements have a place.  Affiliate programs are a good example or systems integrators/implementers may choose to refer leads as opposed to resell.

The success of any type of partnership agreement is a function of alignment. How well aligned are the partners’ goals, incentives,  sales forces, products?  Instead of hiring an additional sales person, you’re hiring someone else’s.  Yet, the partner’s sales reps usually have other companies’ products to represent as well.  The trick is to capture mind share.  There is more on that in Enabling a Successful Partnership.

Following are typical terms for the different types of distribution partnerships:

  • OEM: 50%+ discount in return for revenue commitments, partner sells your product every time they sell their own, partner supports (except bug fixes) and implements, your license terms integrated in partner license, may be private label or not, upfront license purchases offered at volume discount, X year term with auto renewal
  • Reseller: 30-40% discount, may or may not not be revenue commitments, your product is an option partner can sell, partner provides at least first level support, partner usually implements, customer signs your license, upfront license purchases offered at volume discount, X year term with auto renewal
  • Referral: 10-15% fee paid on leads that turn into sales within a set time period, leads must qualify as such per whatever terms have been agreed, X year term with auto renewal.

Affiliate programs (where one company offers a product or service on another’s web site which may lead to a purchase) typically provide a 30% split of any revenue to the partner.

To the extent there are upfront payments or revenue guarantees by the partner, they can be used, for example, to improve discounts, term, exclusivity, or product capabilities or scope.  

While revenue sharing agreements are largely variable cost, upfront payments in fixed cost agreements (for example, a partner agrees to a long term contract to provide an input used to create a product in return for fixed fees) can be used to reduce on-going payments.  The larger the upfront payment, the lower the on-going payments.  

There has been some discussion that software-as-a-service (SaaS) partnerships are different from traditional enterprise software agreements.  While there is typically less complexity and less implementation associated with SaaS installs, it is still necessary to configure workflows and user interfaces, migrate data, integrate with other applications, and support customers.  These differences are likely to impact which partners you choose but not the need to support the customer.

Next up: Channel Product Requirements.

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