So you have opted for sales outsourcing. It’s a brave decision, given that sales is the engine of business growth.
Outsourcing such an important part of your business has some challenges. But it’s worth the risk since sales outsourcing offers numerous benefits and can significantly boost your company’s growth.
However, there are some legal considerations that you need to be aware of.
Key legal considerations of sales outsourcing
In addition to numerous advantages, sales outsourcing also entails some legal risks and challenges. These need to be carefully considered and managed so that your company avoids becoming a cautionary tale.
When outsourcing sales, it’s important to ensure that the service provider delivers the expected level of quality and quantity of sales services. You can achieve this by setting clear and measurable performance guarantees in the form of key performance indicators (KPIs) or service level agreements (SLAs).
Be as clear as possible when determining the criteria for evaluating the service provider’s performance. Clearly define sales goals, quotas, conversion rates, and customer satisfaction in the contract. Don’t forget to include well-defined availability, responsiveness, reporting, and communication with your outsourced sales team.
Performance guarantees should also include consequences for failure to meet agreed standards, such as legal remedies, penalties, escalation and termination rights, or performance improvement plans.
Performance guarantees can help to align the interests and expectations of both parties. They also provide a mechanism for monitoring and successfully managing the relationship with your outsourced sales force.
Sales outsourcing may involve the creation, use, or transfer of intellectual property (IP) rights. These include trademarks, trade secrets, patents, or copyrights.
IP rights are valuable business assets that need to be protected and exploited appropriately. Therefore, it’s essential to clarify the ownership and licensing of IP rights in the outsourcing contract.
Carefully consider the following questions:
- Who owns the IP rights in the sales materials, methods, tools, or software developed by or for the service provider?
- Who owns the IP rights in the customer data, leads, or contacts generated or collected by the service provider?
- What are the rights and obligations of each party regarding the use, disclosure, or modification of the IP rights?
- How will the parties deal with any IP infringement claims or disputes?
You can avoid potential conflicts and litigation over IP rights in the future by addressing these issues upfront.
Privacy and information security
It’s impossible to avoid sharing personal or confidential data of your customers, prospects, or team members with your outsourced sales team. This information is subject to various data protection, privacy, and security laws and regulations.
It’s very important to keep in mind that these laws and regulations may vary from country to country.
Therefore, make sure that your outsourced sales team complies with all applicable privacy and information security laws and standards to avoid potential nightmares. An outsourced sales force must work in alignment with obligations regarding the collection, processing, use, storage, transfer, or deletion of personal data.
Your sales reps, both in-house or outsourced, have to obtain consent from prospects or clients for processing their personal data. In cases of data breaches or incidents, they have to notify relevant authorities and data subjects.
In the contract, you can limit data retention periods, ensure anonymization, or restrict data transfers to third parties without adequate safeguards.
Also, there are technical and organizational measures you can implement to protect data from unauthorized access, loss, or damage.
Privacy and information security are not only legal obligations but also ethical responsibilities that can affect the reputation and trustworthiness of your company.
Restraint of trade
It goes without saying that sales outsourcing isn’t all sunshine and lollipops. It may create the risk of competition or conflicts of interest, and therefore disasters can occur.
In some of the worst-case scenarios, your service provider may:
- Poach your customers.
- Divert sales opportunities or resources to your competition.
- Sell your confidential business information.
- Use IP rights for their own benefit.
Luckily, you can include restraint of trade clauses in the outsourcing contract, to prevent these risks, and protect your business interests. Better to be safe than sorry.
You have at your disposal:
- Non-compete clause which prohibits the outsourced service provider from engaging in competing activities or businesses during or after the outsourcing relationship
- Non-solicitation clause which prohibits the outsourced service provider from soliciting or enticing customers or employees away from your company during or after the outsourcing relationship
- Non-disclosure clause which prohibits the outsourced service provider from disclosing or using confidential information or IP rights for any purpose other than providing sales services to you.
However, they must be reasonable in time and geographic scope to be legally enforceable.
Despite careful planning and management, disputes may arise during or after sales outsourcing. The best way to reduce the risk is to establish steps and processes for resolving possible disputes or disagreements.
You should definitely specify a process for issue escalation, mediation, arbitration, or, if things go really wrong, litigation in your outsourcing contract. Dispute resolution clauses in the contract can help to avoid costly and lengthy litigation and preserve the relationship between you and your outsourcing sales partner.
The importance of legal considerations
Sales outsourcing can offer many benefits to businesses, such as reducing costs, increasing efficiency, accessing specialized skills and expertise, and expanding market reach. It can be a beneficial business strategy, but it also involves some legal considerations that need to be taken seriously.
When it comes to outsourcing contracts, make sure it covers all necessary details to protect your business. A good outsourcing contract clearly outlines all terms and conditions, scope of work, deliverables, deadlines, payment terms, quality standards, and dispute resolution mechanisms.
By addressing these issues in the outsourcing contract and following best practices, you and your outsourced sales team can achieve a successful and sustainable outsourcing relationship.