Partner Management channel strategy

Partnership agreement – 8 things you should not forget | Partnerplace

5 min read

Aug 8, 2024 4:09:55 AM

Are you building a network of partners that support the growth of your business? A well-thought-out agreement is a must. If a partnership is to be fruitful, its conditions should be clearly established and confirmed in writing. What should be the details of the agreement with your partner? See 8 things you must not ignore.

When to sign the partnership agreement?

Before you start drawing up a partnership agreement, you may wonder when to sign it. That question often appears during discussions with our clients. The truth is that a specific time for settling the partnership does not exist. It depends on its nature, as well as needs and expectations of both parties. There are three major scenarios:

The agreement is signed at the outset of cooperation – after early meetings, discussions, when a decision to start a cooperation has been made. It is a good idea to formalise the agreement as soon as you realise that your partner is a perfect match.
The agreement is signed after trial – e.g. after delivering the first lead. This approach may prove beneficial if you want to make sure your partner is able to guarantee specific results.
The agreement is signed after meeting other specific conditions – e.g. after winning a specific number of clients, or when your partner wants a payout. This variant allows you to minimise time and resources dedicated to formalities. The cooperation agreements are signed only with valuable partners that guarantee specific results.

The initial cooperation stage may be a good way of „familiarising” with one another, demonstrating own expectations and specifying terms of partnership. It may help you to draw up the agreement that will prove satisfying to both parties and discuss all required issues.

What should the partnership agreement involve? 8 things you must not forget

Have you found a partner who you wish to establish a long-term cooperation with? A gentleman’s handshake is not enough. The partnership agreement must be made in writing as this will surely help you to avoid many misunderstandings and problems. Obviously it should include the parties to the agreement, scope of validity, and general requirements. It will also need to include specific provisions showing the terms of cooperation.

Commission calculation

A partnership should be beneficial to both parties – you gain leads while your partner is rewarded with a commission for „bringing” them to you. The principles of calculating the aforesaid commission must be carefully specified. The agreement must clearly state:

the rate of commission;
when and how it is calculated. For example: the partner may receive 10% for submitting a lead and another 10% for concluding a deal. In that case the partner may receive either 10% or 20% of the commission, depending on who closes the deal.

It is also advisable to specify the rules of „crediting” leads into the partner’s account. It cannot be ruled out that two partners submit the same lead. To solve this problem, the agreement should clearly say that the moment of submitting the lead by the system is binding and only the first submitter is entitled to the commission. You can also specify the maximum time for accepting a lead in the system (e.g. if you fail to do so within 2 weeks, the lead is considered accepted by default). You may also think about declaring that leads are not passed on to others (unless the partner requests so).

Commission payment

Your partners will surely appreciate carefully specified principles of paying the commission. Thanks to this, they will know when and how they can receive the funds they are entitled to. In the agreement, remember to add the following:

when the commission is paid – usually after the client has signed the agreement and settled his first invoice or by the specific deadline (e.g. within 45 days) after settling the first invoice;
how long the payment is processed;
how funds are transmitted.

This is how you can avoid misunderstandings. The commission payment terms may well be established individually with the partner on the basis of the type of the cooperation. There are also other partnerships that do not require full payment of the commission, and part of it is used to „replenish” the marketing budget of your partner. It is worth taking that into account.

Sales restrictions

The agreement should also define clients and markets that a specific partner may target. As a rule it takes a form of restrictions or exclusions. For example, if Polish partners are allowed to target only Polish clients, it must be clearly underlined in the cooperation agreement. At this point it is essential that terms of cooperation are specified as companies may be interdependent and operate in numerous markets.

Partnership levels

Most partnerships involve various partnership levels. The aforesaid level may determine the commission rate, for instance. If you use a multi-level structure, the partnership agreement must clearly specify available types of partnership and criteria for reaching higher levels.

It is also important that you list the conditions that must be met to reach a specific level (KPI). If downgrading a partnership level is allowed, you should also note it in the agreement and specify when it happens.

Non-competition clause

You should also consider adding a non-competition clause to the agreement. Under the aforementioned clause, you may allow your partner to distribute products or services to other companies only if they are not your competitors (providing similar products or services, operating in the same industry or the same market).

Non-disclosure agreement (NDA)

The cooperation agreement should also include a non-disclosure clause (NDA). It is required to protect business secrets and your company’s interests. The provision should oblige the partner to keep business secret, in particular in relation to clients’ and partners’ data, business operations of your company and partners, or in-company communication. The agreement must explicitly specify actions that are prohibited with regard to confidential information.

The clause may specify and list the information that is deemed confidential and state how it must be protected. It is also possible to impose contractual penalties for violations in this respect. In that case you must detail specific instances that result in penalties and define the nature of these penalties.

When cooperating, partners frequently gain access to sales/marketing materials. If this is the case, you ought to state which of these materials are subject to the non-disclosure clause.

Cooperation termination

The terms of cooperation termination is another important provision that all partnership agreements should include. Specify when and on what terms a partnership may be terminated. Partnership agreements are usually concluded for an indefinite period of time, so either party should be allowed to terminate it (subject to specific period of notice). You may also declare terms of immediate termination in the agreement (e.g. gross violation of contractual terms).

Marketing Development Funds (MDFs)

Numerous partnerships adopt the so-called Market Development Funds (MDFs), that is marketing budgets available to partners. These are funds that you can use for various marketing campaigns aimed at promoting the product or service you sell (e.g. event organisation, paid marketing materials, etc.).

The partnership agreement may define rules of providing such support (e.g. a need to submit the marketing plan along with a strategy, budget and expected results). Sometimes lists of potential operations and available funding are also used.

Solid partnership agreement – a foundation for fruitful cooperation

A good partnership agreement is a foundation that every fruitful cooperation is based on. Do not refrain from drawing up detailed and complex documents that specify all terms the cooperation with your company is defined through. Remember to make sure the agreement allows you to make amendments. This is how you can easily amend or clarify the terms if it proves to be necessary later on.

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