Your business doesn’t exist in a vacuum! Whether it’s manufacturers, suppliers or distributors, you rely on other individuals and companies to keep your operations running smoothly and manage your growth.
One of the ways you might achieve this growth is by introducing your products into new territories through a network of distributors.
If you work with a distributor network, it’s important to have the right agreements in place.
Failing to do so could result in disputes and loss of momentum for your latest releases!
Understanding distribution agreements
A distribution agreement typically takes the form of a contract between a manufacturer/supplier and a distributor – allowing for the sale of a particular product or range.
Unlike under an agency agreement, the distributor assumes ownership of the goods to be sold and the associated financial risk, managing their own stock levels and acting as the bridge between the manufacturer and the end user.
These agreements specify terms including the scope of products, territorial rights, pricing strategies, and duration of the contract.
They’re generally used to:
- Support expansion into new markets: Providing an established local presence for the supplier via an existing business.
- Reduce operational burden: Logistics, marketing and sales become the purview of the distributor rather than the supplier/manufacturer.
- Transfer risk – The distributor becomes the customer for the supplier, removing much of the financial risk from the supplier, particularly if they are operating on a low profit margin or need to maintain cash flow.
A solid agreement with your distributors will help your business to thrive and avoid future disputes.
Optimising your agreements
The idea behind distributor agreements is to build the foundation of your business’ relationship with its distribution network.
The agreement itself should reflect this by clearly setting out:
- Territorial rights – Define geographic boundaries to prevent market conflicts and ensure distributors are motivated to maximise sales within their areas
- Performance expectations – Include any expected performance metrics and minimum sales targets to incentivise distributors and maintain a competitive edge in the market
- Flexibility – Establish regular review points to adjust terms such as pricing and product range to adapt to market changes and distributor feedback
- Training – Define expected training and marketing support to distributors to improve product knowledge and sales strategies.
- Exclusivity – Make sure to identify and define any periods or areas of exclusivity with your distributor to avoid triggering future disputes.
Ready to start growing your business and expanding into new markets with a distribution network? Get your agreements right the first time and enjoy a smooth commercial relationship built on shared goals for your product.
For advice and guidance on commercial agreements, contact our Company Commercial team today and speak with a member of our team.