Are you a business who uses downloadable software or a software as a service (SaaS)? A software referral agreement is a popular way to drive extra revenue to your business. Under the agreement, you refer your customers to buy software from a supplier. In return, the supplier pays you for that referral. This article explains how a software referral agreement works.

How Does a Software Referral Agreement Work?

A software referral agreement sets out the terms and conditions of a referral relationship. In a referral relationship, you pass on suitable customers to the supplier through an agreed process. There is no direct payment from the customer to you for buying the software. 

Instead, the supplier will pay you a referral fee, usually though a one-off fee paid as a lump sum. If the customer has bought a SaaS product, your referral fee will accrue over time based on the customer’s ongoing subscription to the product. 

If you have an ongoing referral fee, ensure your software referral agreement provides for continued payment even after you or the supplier end your referral agreement. That continued payment process may last only for the first 12 months of purchase. Alternatively, the payment may continue indefinitely as long as the customer continues to subscribe to the SaaS.

What is a Qualified Referral?

Your software referral agreement may state that you will only get paid if you provide qualified referrals. Typically, a qualified referral is a referral that meets certain criteria set under a referral agreement. 

Common criteria for a qualified referral include that:

  • the customer is new to the supplier or falls under a category of existing customers as defined in your referral agreement;
  • the customer bought the software or subscription within a specific timeframe following your referral; and
  • you make the referral to the supplier in an agreed format.

For example, you have to add the referral’s details in a spreadsheet, email the supplier the details or provide the referral with a unique code that attributes the referral back to your business.

Why Should You have a Referral Agreement?

A referral agreement is useful where you cannot provide the software or SaaS yourself. However, you can provide general support and consulting services, which could enhance your customer’s experience. Therefore, a referral relationship provides customers with more value without the cost of investing in software resources.

For example, if you are a graphic design teacher who uses Adobe Creative Cloud, a referral agreement allows you to earn extra money based on referring your students to buy the product.

From a risk perspective, a referral agreement limits the extent of responsibility for any damage or dissatisfaction from the customer. Your customer contracts directly with the supplier, so they have to take action against the supplier if anything goes wrong. You should not be included in the contract between supplier and customer, especially if you are involved in the transfer of payment. Otherwise, your referral agreement may look more like an IT reseller agreement which attracts extra responsibilities and risks. 

How is an IT Reseller Agreement Different?

An IT reseller is a business that is authorised by the supplier to resell products directly to customers. The reseller obtains payment from the customer and passes on any applicable fees to the supplier. An IT reseller agreement governs the relationship between the reseller and the supplier. As a reseller, you carry more responsibility and risk when directly selling the IT product to customers.

For example, if you are reselling a SaaS product like Adobe Creative Cloud, the supplier may make you liable in the agreement if you fail to deliver the product on time as requested by the customer. Therefore, you have to be extra careful to ensure you deliver a quality service.

In a software referral agreement, you as the referrer agree to send suitable customers to the software supplier. The customers do not buy the product directly from you. Therefore, you would not have the same risks as a reseller on direct liability for any damage or viruses to the software.

Key Takeaways

A referral agreement minimises your risk and brings additional revenue to your business. You are not as involved with the customer and the delivery of the software. The software supplier will also benefit from additional revenue brought by your customers. Ensure that your referral agreement allows you to get paid fairly. If you have any questions or you need assistance with a referral agreement, get in touch with LegalVision’s IT lawyers on 1300 544 755 or fill out the form on this page. 

Jacqueline Gibson
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