Referral agreement

Referral agreement


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A referral agreement is a legal contract that defines a partnership between a service provider and a referral partner that earns commission on sales. The contract sets out the terms of a partnership wherein one party is referring qualified leads or customers to the other partner in exchange for rewards or compensation.

Referrals are an effective method of increasing lead acquisition and sales, and a referral partnership is mutually beneficial as one partner sees increased sales and the other earns a cut for their leads. These partnerships are governed by referral agreements to ensure each party is clear on the terms of the partnership, what will be done in the event of a dispute, and how the partnership can be terminated if desired.

Typical inclusions in a referral agreement include (but are not limited to) terms, audit rights, intellectual property, confidentiality, and dispute resolution.

Example: It took Lucy's lawyers a while to go through her referral agreement with Lookster, but once it was signed, she was excited to celebrate (and start earning commission on her leads).

More Partnership terms beginning with
Referral link

A referral link is a unique UR used by customers in referral programs to promote a company's brand and products. Customers enrol in a referral program, are given the referral link by the vendor, and then can use that link to drive traffic and sales to the vendor. The customer gets a cut of profit made from traffic to the link.

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Recurring revenue

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Revenue that an individual or company receives on a regular basis and at fixed intervals, as opposed to in lump sums. Two common forms of recurring revenue are monthly recurring revenue (MRR) and annual recurring revenue (ARR), depending on the cadence with which funds are distributed. Both are common metrics that SaaS companies use to track how much revenue they’re earning.

In addition, reseller partners will often receive recurring revenue from software vendors if they sell a subscription on their behalf. For example, if a value-added reseller (VAR) partner sells a software subscription to a new customer, the software vendor may reward the partner with a 20% of the MRR the company receives from that customer each month. 

This mutually beneficial arrangement also incentivizes the reseller to help keep the customer happy because the longer they keep renewing their subscription, the more passive income the partner will earn. Companies benefit massively from this, as it takes some strain away from their customer support and customer success functions.

Also see: Reseller partners.

Example: The CEO was thrilled to see annual recurring revenue increase nearly 20% after the product marketing team rolled out a pricing update.

Example: As a small agency, X-Factor Marketing was eager to add sources of recurring revenue through partnerships to offset some of the instability of their project-based fee structure.

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