Partner Agreement Template: Outlining considerations to terms and conditions of the partnership, including roles, responsibilities, and expectations.

Anonymous Channel Manager
Oct 3, 2024
5 min read

Updated: Oct 8, 2024

What is a channel partner agreement?

A channel partner agreement is a binding contract that potential partners must read, understand, internalize (ideally), and sign before doing business with your company. It outlines the terms of the partnership between both parties, including expectations, compensation, and contractual obligations. Sample agreements with the reseller and distributor (bottom of page) are for reference when starting your program. Please consult your legal counsel before using these documents.

Channel partner agreement template: 5 major sections to include in your agreement, including areas most organizations miss. These will save you time and frustration as your business grows. The exact agreement terms will vary based on the partnership type you choose. However, every partner agreement needs certain specific sections that cover key provisions of this agreement. Here are the sections and mistakes many companies make in their partner agreements. Please consult your legal counsel for any/all guidance. Our intent here is to aid your business and legal counsel in understanding where the business “gotchas” are.

1. Definitions

Certain sections of partner agreements can become a little complicated. This type of agreement often requires legal language and marketing jargon that partners might not be familiar with. Fortunately, you can solve this problem by including a glossary of business terms partners may encounter that require a little more explanation. In this section of a partnership agreement, you’ll typically see lots of terms having to do with the “end-user.” For example, if your company is a service provider, the end-user you would reference in a partner agreement would be the person subscribing to your service.

Mistake we see:

Many organizations don’t pay attention to definitions that can undermine the balance of the contract. Common mistakes are "net sales" for example. If "Net Sales" is not clearly defined, there may be confusion about what deductions (like discounts, returns, or shipping costs) are allowed when calculating the amount on which the partner earns commissions. "Territory", "Intellectual property", and "Exclusive vs Non-Exclusive" rights also have proven to be highly problematic if poorly defined. Take time to be intentional here.

2. Incentives and payment terms

To motivate companies to enter a partnership with your business, it’s wise to outline margins, discounts, and incentives. There are many ways for a company to incentivize potential business partners. This section details the commissions or other incentives partners can earn. It also covers payment terms, including how much your company will pay for a specific result and when these payments will be issued. Cash commissions are a popular incentive (and the core of certain partnerships, like referral partnerships and affiliate programs). However, there are plenty of other ways to incentivize companies to sell your product beyond cash payouts. Often, companies combine several types of channel partner incentives. These other types of incentives include rebates, discounted or free products, vacations, and much more.

In this section of your partner agreement, you’ll need to cover exactly what types of incentive rewards are available for business partners, the value of these incentives, and what they must do to become eligible for these rewards.

Mistake we see:

Most commonly, we see contracts that lack clarity, which results in a relationship that does not deliver on expectations. For example, the channel partner may not be clear on what they need to achieve in order to avoid penalties or termination of the contract. Additionally, it's important that you're aligned with your Finance team regarding rebates, MDF (marketing development funds), or any other incentives, as they can all impact revenue.

3. Indemnification

Through a partnership with another business, lots of costs will be incurred. To indemnify a business partner means that your company will take care of costs incurred by the other party. The exact terms of this section entirely depend on what your company is and isn’t comfortable paying.

Mistake we see:

Many firms fail to be clear when defining the scope of indemnification, agree to overly broad indemnification obligations, overlook the importance of addressing third-party claims and the process for handling these situations, and finally … especially for start-ups, that you must agree to limitations of liability that can result in catastrophic financial exposure. Play Big. Don’t stretch on liabilities. A strong partnership is about healthy boundaries.

4. Marketing | GTM Efforts

Hopefully, your company’s partners will be eager to promote your products. BEFORE you finalize your agreement, ensure you’re aligned with expectations regarding GTM (go-to-market) efforts, including marketing.

Mistake we see:

Many organizations attempt to negotiate these after the agreement is signed. The “rookie” mistake is agreeing to revenue targets (outcomes). 99% of the time, these revenue targets will be unattainable because the “activities” that deliver the outcomes are not agreed upon. Agree to these instead of revenue targets. Manage the process and get these into the contract. If you want to add revenue targets, tie those to incentives based on performance, not promises.

5. Termination

Unfortunately, despite great intentions, there’s no guarantee that a new partnership will go smoothly for everyone involved. What happens if a partner violates the terms and conditions of this agreement? For instance, assume the distributor does not pay you for your services or infringes on your intellectual property. Considering these situations, it’s a good idea to have a termination section to cover what happens if this agreement is breached. You might also include terms that outline how and when a partner can end the deal, including how many days’ notice they must give if they’d like to cancel the contract. That way, partners can’t just exit the relationship on any grounds, but they do have some flexibility if the strain of the partnership outweighs the potential benefits.

Mistake we see:

Ensure that defaulting on payment is grounds for termination, including any ‘exclusivity’ agreements, so you aren’t placing your business at risk.

An effective channel partner contract is crucial for aligning with your go-to-market (GTM) strategy, risk tolerance, and operational objectives to maximize leverage and success. It provides a clear framework for expectations, responsibilities, and incentives that align with your GTM approach, ensuring partners are motivated and equipped to promote your products effectively. Defining terms like revenue sharing, support requirements, and performance metrics helps mitigate risks by aligning the agreement with your risk tolerance and minimizing exposure to potential liabilities. Additionally, a well-structured contract incorporates the business mechanics needed to drive efficiency and scale, such as streamlined onboarding, clear incentives, and compliance measures, thus helping you achieve operational leverage and scale with less friction. Ultimately, it ensures that all parties work harmoniously to drive revenue growth, minimize risks, and create a strong, scalable channel ecosystem.