Weighing Exclusive vs. Non-Exclusive Partner Agreements

By Donagh Kiernan 1

If you want an instant heated and strong opinion then just ask a vendor executive whether his or her company would award exclusivity to a reseller. Mostly they would answer with a flat, “No way,” or, “Not a hope.” The response is not a rational one.

Vendor executives hold strong opinions about exclusivity when forming partnerships, but often don’t fully know why. Before signing a new agreement, it’s important to distinguish between exclusive and non-exclusive partnerships to make sure you select the right fit for your company.

Exclusive Sales Partner Agreements

Exclusive agreements protect vendors and their partners from either party working with competition for a set period of time. By signing an exclusivity agreement, you both agree to work together to sell a product or service in a specified market. Exclusivity affords partners the freedom to develop the market without having to worry about a competing reseller taking some of the market they invested to create. When vendors find the right partner, many grant exclusivity because it gains greater commitment from their partners and provides greater room to get into the market, begin building a sales pipeline and see faster success.

For vendors, the key to implementing an exclusive partnership successfully is by approaching their partner’s sales engine in the same way that they sell directly with full control of their team. With greater commitment to joint success, both parties can invest in the relationship and in working together all along the marketing and sales process, removing cost at each step and focusing on effectiveness.

To optimize an exclusive partnership, vendors need to make sure their partners have enough support. Full transparency and clear expectations are essential from the start. Vendors and their partners will need to establish specific channel components including marketing campaigns, full sales pipeline visibility and direct-to-salesperson support and coaching to achieve better sales performance. Both parties also must agree on a measurement system that tracks progress toward mutual goals to maintain top performance, almost acting as one organization.

The right tracking system in an exclusive agreement can actually help vendors build a strong relationship with their sales partners. By aligning their incentives and setting milestones, sales partners can develop shared goals and both parties can work together toward achievements. Measurement systems can also help partners stay on track. Some vendors choose to revoke exclusivity agreements if partners fail to meet performance targets. No one wants to jeopardize exclusivity, so this tactic can serve as an effective deterrent.

Limited exclusivity can be granted to a particular region, particular industry sector, particular customer type, a particular application area or company division type within the target customer type or any boundary that allows the partner space to maximize their strength and get results.

Exclusivity may come with an upfront fee or a guarantee commitment of order levels if the vendor’s product is proven in a marketplace.

Activity-based targets are advisable to ensure commitment along the sales process, especially if vendors have a long sales cycle. Through activity-based sales targets, vendors will discover early if the exclusive partnership is not working and can terminate the exclusivity based on non-performance.

Non-Exclusive Partner Agreements

Non-exclusive agreements allow competing partners in a specified market. While these partnerships may lack the comfort of exclusivity, competition might prove to be the daily kick to get performance in the marketplace.

Vendors must manage having competing partners—and even selling direct into the same market—to avoid confusion with end customers. A deal registration process or prospect exclusivity can help, as they provide a more transparent and harmonious partner network. Prospect exclusivity can be awarded to a partner on a specified list of target companies to allow them sufficient time to start a sales process. It then can be revoked after the specified period and awarded to another partner, if requested. Incentives of better product discounts or commissions can be used to encourage deal registration.

Increased total market coverage and opportunity are the main appeals of non-exclusive agreements. When there are more players in the market, vendors can more readily adjust if customers switch among providers. Vendor also have more eyes and ears in the market, which translates to more proactive market intelligence. What’s more, they have more hungry salespeople who, when properly equipped, will work hard in developing opportunities and closing deals.

The biggest trade-off in considering a non-exclusive agreement is what it may signal to partners. In some cases, a non-exclusive partnership can negatively impact the level of commitment from the partners. To prevent any misunderstandings of intention, vendors must be clear about their goals and objectives before entering into any agreement. With complete information, vendors and partners can choose the right agreement to help both grow their business.

A vendor’s job is to make its partners successful. With multiple vendors vying for partners’ attention, vendors must balance the demand in the market with the right number of partners to make all all partners successful and ensure their partners’ commitment.

Donagh Kiernan is founder and CEO of Tenego Partnering, a business development services company based in Cork, Ireland, providing hands-on international partner sales channels development for growing and established software product companies.