What Exactly is a White Label Agreement?
A white label agreement is a business arrangement where a company (the "Buyer") outsources a component of their product or service offering to another company (the "Developer"). The Developer then completes the service and thereafter the Buyer puts their own label on the Developer’s offering and sells it as their own. One purpose of entering into a white label agreement is to allow the Buyer to supplement their offerings without having to actually create or produce certain aspects of their products or services . After implementing a white label agreement, the Buyer may be able to increase their offerings with minimal costs, expand their market reach, increase their access to customers, open the door to new business partnerships and increase consumer referrals and recommendations.
White label agreements are common in several industries. The financial services sector utilizes white label agreements to produce statements, payment cards, debit cards, credit cards and other financial instruments, software and hardware products in the technology sector, private labeling products in the health and beauty sector and generic contracts for the sale of goods in the real estate sector.
Key Elements of a White Label Agreement
A properly drafted white label agreement will typically contain the following components:
1. Purpose of the Agreement
Typically, the white label agreement will set out the purpose of the agreement. A standard clause often states something along the lines of "In consideration of the Licensee’s payment of the License Fee and the other covenants on its part herein contained, the Licensee is hereby granted a license to use the Products to carry on its business provided that it makes no representations or allegations that it is in any way associated with the Licensor. The white label agreement will then set out how the licensee can market the products. It is common for such agreements to allow the licensee to use the name of the manufacturer to market or advertise the products.
2. Delivery
This should clearly set out when the product is to be delivered. Typically, if this is not fulfilled, it can be remedied by the licensee claiming damages to have the matter rectified, or alternatively, discharge the contract.
3. Pricing
A white label agreement will typically set out pricing structure whereby the licensee must pay licensing fees to the licensor. It may also set out other payments that the licensee may have to provide.
4. Liabilities
Such clauses will usually describe the liability of each party upon a breach of the agreement which may include whether you can recover damages.
5. Intellectual Property Rights
A standard clause may state that all intellectual property rights that are in respect of the products, shall be owned by the manufacturer and shall only be used in accordance with the terms of the agreement.
6. Duration and Termination
The white label agreement will need to set out the duration of the agreement. A termination clause will also set out how and in what circumstances the agreement can be terminated. This may include issues such as consequential loss, an action in a material breach. The term of such agreements can vary, so it will depend on the parties’ wishes.
7. Confidentiality
The parties to the agreement will often want to keep the conditions behind the white label agreement confidential. These rules may also apply to the details of any information learnt from each party.
8. Jurisdiction
A white label agreement often details the jurisdiction in which the agreement is governed by, and the jurisdiction in which disputes are to be heard through the normal channels.
Pros of White Label Agreements
When both the white label provider and the client understand the purpose of a white label agreement, the benefits of using such an agreement can be significant. Not only can the white label provider make money, but he can expand his market, by aligning his core competencies with those of the client.
The white label agreement can be used to leverage the client’s existing brand. When the product is already familiar to the client’s end user, it is easier to introduce the branded product to the end user than the provider’s own branded product. It can also work in reverse. The client may have a great product but a poor reputation. If the white label provider has a better reputation, this will help increase sales.
Additionally, the client does not have to invest in infrasturcture or staff to support the new product or service offering, again, speeding its time to market or time to take advantage of new business opportunities.
Cons and Risks Involved
While white labels offer a number of benefits, they also expose your business to a number of risks, especially around quality control. If you’re outsourcing core functions or critical processes, a poor white label relationship could be a serious blow to your business. To protect your business, there are a number of risks that you should be aware of before entering any agreements.
Quality Control: As the white label partner, you have very little control over how the product is made or how any associated services are delivered. As the original producer, you have full control, but how do you ensure that the white label provider meets your quality standards? Or, what if the white label partner’s actions—which you’re not even aware of—harm your brand? These are questions you’ll want to answer through the negotiation process. Specify the quality control requirements, and the process by which you’ll be notified of any violations and the corrective actions that will be taken.
Brand Reputation: Your white label partner is ultimately the company that the customer will see. Your name is not on the product, so a bad experience or defect will damage the white label provider’s brand—and it will damage yours, too. If your white label partner isn’t successfully marketing the target brand, it could be just as harmful to your own brand. Even with all these potential risks, this is a real possibility. Without your ability to directly guide messaging and controls, how do you know that its effective?
Dependency Risks: If you become too reliant on your white label partner, your core value proposition may no longer be unique. You might become too dependent on your white label partner’s ability to deliver successful products and/or services. If the white label provider fails to fulfill their obligations and/or if you find a better deal for the same or a similar white label product or service, you will struggle to revert back to your original business model.
How to Write a White Label Agreement
When drafting a white label agreement, the parties should consider the following steps:
Step 1 – Due Diligence
As with any contract, due diligence is key for both parties. The party wishing to white label its product (the seller) should do its due diligence and ensure that the white labeler is a reputable company. Similarly, the party white labeling the product shall do its due diligence and ensure that the white labeled product meets its quality control standards.
Step 2 – Consult a Lawyer
If you are the seller, you should consider consulting a lawyer to prepare the agreement to ensure that all the necessary protections are included. For example , you should include non-compete and non-solicitation provisions that restrict the white labeler from competing against you or soliciting your customers. Even if the white labeler is familiar with the product, it is still important to have the agreement prepared by a lawyer. The white label branding requirements may ensure that modifications are kept to a minimum. However, a lawyer will consider all business and legal considerations and craft the agreement accordingly.
Step 3 – Negotiate Terms
Once the draft agreement has been prepared, both parties should negotiate the terms of the agreement.
Step 4 – Execute
After the negotiation process, the parties should execute the white label agreement.
Samples of White Label Agreements
To get started with draft agreements quickly and easily, it is a good idea to use some sample white label agreement templates. These templates can be found on the websites of many different types of companies involved in the white labeling process. Technology, retail, publishing, fitness, product development, and other relevant industries may have examples. They often provide sample agreements for free, as long as you do not try to directly copy or use their own contract templates.
You can also find a number of websites that focus on business law and other related topics. These sites provide sample templates, discuss how white labeling works, and offer details regarding the applicable laws. A quick online search should produce a number of results.
Customizing the agreement is a relatively simple process – you only need to provide the details of your company and the company with whom you are entering into the contract. It is usually as simple as a few lines of text.
There are also a number of paid options that provide sample agreements. Like the free examples, they often do not let you copy and paste text directly from the agreement. However, they can help provide you a starting point and offer guidance on using the agreement.
Among the sites that offer paid sample agreements and typically do not restrict copying are Rocket Lawyer and Contract Templates. Contract Templates tends to offer a more extensive library of contracts than others.
Examples of White Label Agreements in Use
ABC Company, a software development firm, had been struggling to gain traction in a competitive market. However, by utilizing white label agreements with various marketing agencies, they were able to expand their reach without directly hiring additional employees. The joint venture approach allowed them to tap into the marketing agencies’ existing client bases, quickly increasing their sales and brand awareness.
DEF Consulting, a marketing agency, found a unique strategy for expanding its service offerings. By entering into white label agreements with ABC Company, DEF Consulting was able to provide its clients with high-quality, customized software solutions without the investment of time and money required to develop these solutions internally. As a result, DEF Consulting was able to provide additional value to its clients and increase its revenue streams.
GHI Corporation is a well-known brand in the food and beverage industry. They were facing competition from new, up-and-coming brands. To counter this, they began offering white label agreements to small, local beverage companies. This not only allowed GHI Corporation to expand its product offerings without investing heavily in research & development but also gave them access to new markets. The strategy paid off, and GHI Corporation was able to maintain its market share while also supporting local businesses in the process.
JKL Design Group is a design firm that initially focused on graphic design. However, they soon recognized the demand for marketing collateral, product packaging, and other design services. Instead of investing in new hires and creating new departments, JKL Design Group offered white label agreements to other design firms. This allowed them to quickly expand their service offerings while also providing additional income to their partners.
These case studies illustrate the versatility and benefits of white label agreements. By pursuing white label agreements, companies can grow and expand their service offerings without heavy initial investments.
Summary: The Future of White Label Agreements
The future looks bright for white label agreements. In the financial sector and eCommerce, we’re seeing a rise in independent consultants and organizations choosing to white-label products and solutions under their own branding. In terms of the development of a global economy, the concept of white labeling fits in very well with the ability for businesses to operate seamlessly around the globe. As people are looking for transparent solutions in terms of their food supply chains, the transparency offered by white label agreements will help consumers feel safe about purchasing products that have been sourced by third parties or passed through several distributors and suppliers.
For the EU, where white labeling is a highly regulated area, the future remains bright as well because it encourages corporations to be compliant with the most rigorous dual sets of legal standards. For instance, if you are a European based business and openly disclose all of the relevant information required under EU standards, you can also ensure that you are compliant with strict American laws as well. Since many businesses are now operating in a transatlantic marketplace, being compliant with both American and European standards is likely to gain favor with both buyers and sellers.
In sectors like pharmaceuticals and cosmetics, there could be even greater demand for white labeling in the future because the customization of drugs, vitamins and makeup provides consumers with an unprecedented level of customization . As people continue to demand greater customization and a greater ability to choose the properties they would like their products to have, the demand for white labeling will likely continue to increase.
New trends that come into the marketplace on the eCommerce side of business will also increase demand for white labeling. Whether its branded workout solutions, attendance tracking systems or other technology based solutions, programmable solutions often come with the ability to introduce branded versions of existing products that can be sold for profit. When it turns into significant enough profits, it’s worth paying for the development of a white label version of a solution in order to fulfill a niche in the marketplace.
Whatever industry you may be in, chances are that white labeling will become an increasingly important part of your future business endeavors. Whether you want to white label products, team with a reputable company whose values align with your own, build community trust by sourcing products wisely or pass through high quality products by a third party, white labeling is an important tool in the modern world. As more people are turning to the Internet for information, they will begin to insist on purchasing only from those companies they trust. Brands that build trust will be able to thrive in this era of consumer awareness.