There are many ways to sell what you supply. Agency and distribution models are two of the most common ones, if you’re not planning to supply the end consumer directly. Both are quick and powerful ways to increase market penetration, exploit new markets and boost sales.
They can be particularly useful and efficient models when you’re expanding into new locations, where you might not have an established customer network or knowledge of the local trading laws.
There are some fundamental differences between the two models. Our guide examines the main differences, to help you to decide which one might work best for you.
We’ll also take a look at how you can select the right agent or distributor for your business and on what terms, and what to include in your contract. This is also vital to the success of your approach, not least since agency and distribution relationships tend to last for many years.
Agency vs distribution agreement – some key differences upfront...
When might you want to use an agency relationship? And when might you want to use a distribution relationship?
It's a common question among many business owners thinking about moving their business in this direction – while the 2 do have some similar aspects, they are 2 very different working relationships – and it's very important you know which one is best for your business.
Let's take a look at the differences of each...
1. Who owns the goods and is named as the seller of them?
An agent sells in your name and on your behalf and is never named as the seller of the goods. It is effectively a facilitator or introducer, acting as an intermediary between you and the end customer. It never takes ownership over your goods and typically incurs little to no risk in respect of them (you’ll probably have the insure the agent in respect of any action it takes on your part). While the agent usually has your authority to create a contract between you and the customer, you remain directly and contractually liable to the customer and you take the credit risk on the customer.
By contrast, the distributor is your customer, even if it isn’t the final one that you’re targeting. The distributor buys from you, takes over ownership of your goods and sells to its customers (who should be aligned with your intended target customers). The distributor takes the credit risk on the customer, you take the credit risk on the distributor.
Distributors tend to take on a lot more financial risk than agents, but they tend to recoup this in their margins on resale of the goods, which are generally of a higher value than the commission paid to agents.
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