Tech startups have limited executive bandwidth that can be directed to sales and marketing.
Internal solutions to such a predicament include building a sales team, launching social media campaigns, running paid advertisements, and providing sales promotions, to name a few. These approaches can be costly and have their limitations.
Savvy companies form partnerships with complementary businesses to benefit from already established customer relationships and other partners’ sales teams.
While partnerships take on many forms, businesses can make great strides by utilizing certain fundamental relationships. This week we will focus on Referral Partnerships.
Referral Partnership
What Is a Referral Partnership
In a Referral Partnership relationship, a company enables partners to identify and solicit, and often distribute pre-approved marketing material to, prospects that may benefit from the company’s solutions.
Considering a Referral Partnership?
How to Maximize a Referral Partnership
To maximize the value of these partnerships, your company should carefully select partners that are (i) targeting the same types of customers, and (ii) by the nature of the partner’s solution and the partner’s own sales and account management practices, are already uncovering needs that your company can fulfill.
Putting a Referral Partnership Agreement, which are often mutual, will lay out the foundation for such a relationship, but successful implementation requires cultivation and proper incentives.
In establishing a Referral Partner Program, your company should take care to train partner sales representatives on:
- (i) the nature of your company’s solution,
- (ii) how your company’s solution stacks up against competition, and
- (iii) how to qualify a prospect.
Most importantly you should ensure that your business is properly incentivizing partner sales reps to facilitate warm introductions. In this regard, be mindful that a Referral Partner Agreement is usually entered with a partner itself and not with a partner’s reps. As such, your company should require partners to pass through some compensation to their reps. Otherwise, the customer-facing reps will have no reason to keep your business’ solutions in mind.
The Mechanics of a Referral Partnership Program
The mechanics should be simple. Inbound referrals can be accepted in any number of forms including emails, memo submission, CRM integrations, and promo codes. Lead pre-qualification standards will need to be thought through on a case-by-case basis. If your company has limited bandwidth to run down leads, ensure that the leads that come through are well refined and meet certain thresholds. Your business will also need to have a practice for rejecting or disqualifying leads to avoid conflicts with the your own sales team and other referral partnerships.
Compensation for Referral Partners
Compensation ranges by industry, and usually has some correlation with industry profit margin. In SaaS for instance, where profit margins are fat, 10-20% of ARR for a mere warm referral is not uncommon. Referral payouts will typically sunset (stop paying out) after a year or after the customer’s initial contract term. Perpetual referral payments are a bad idea as they can freeze investment/acquisition opportunities. Where possible, benchmarking competitors’ referral partner programs can be hugely valuable – what sales rep will take 5% from Company A where Company B is paying out 20%?
Legal Considerations for a Referral Partnership
Finally, when it comes to Referral Partnerships, ensure that you set a firm legal foundation by engaging an attorney who is familiar with your company’s industry and deal flow. Having the right agreements and documents in place, unique to your partnership, establishes a formal structure and prevents headaches from arising further down the line. You’ll want to cover:
- Use of Intellectual Property(IP) and Marketing Rights (i.e., trademarks, demo licensing)
- Confidentiality of Proprietary Information
- Data Privacy and Policies for Personal Data Exchanges
- Reputational Concerns
- Warranties
- Limitation of Liability and Disclaimers
- Indemnity
- Termination
If you are kicking off a partner program in the SaaS space, please feel free to reach out to David Pierce, JD, MBA at Founders Legal (dpierce@founderslegal.com). David is a former tech sales leader who now devotes a large part of his legal practice towards facilitating deals for his SaaS clients. Founders Legal is an unparalleled techlaw boutique based in Atlanta, Georgia that focuses exclusively on complex matters in the areas of Intellectual Property, Corporate, Transactional, Securities, and Data Privacy law.
Stay tuned for our next installment on Reseller relationships.
David Pierce, JD, MBA is a Corporate & Technology Attorney at Founders Legal, an unparalleled techlaw boutique based in Atlanta, Georgia.
David, a former tech sales leader, holds a unique insight into technology transactions. Through his sales consultant experience and legal practice, David understands the bureaucratic pitfalls that can cause deals to fall out. He centers his practice around facilitating deals for his SaaS clients and utilizes his extensive contract experience and strategic negotiation skills to enable his clients to achieve their objectives. In addition to his work in technology transactions, software and intellectual property licensing, David provides general corporate counsel, advising clients on their governance, capital raise efforts, M&A, and trademarks.
Founders Legal (Bekiares Eliezer LLP) is a boutique Corporate & Intellectual Property Law Firm based in Atlanta, Georgia USA, and trusted by thousands of companies nationwide. Founders Legal focuses exclusively on complex matters in the areas of Intellectual Property, Corporate, Transactional, and Securities law.
