There are only so many hours in a day so it makes sense to leverage your time wherever you can. When it comes to getting your products into the marketplace, setting up distributorships will multiply your efforts and allow you to tap into new locations and/or markets.
You can take advantage of a distributor’s network, expertise and systems to put your products into the hands of more customers with much less effort on your behalf. The cost for this leverage is the profit you sacrifice as payment to the distributor.
Just a quick aside – you might be tossing up whether to appoint a distributor or a sales agent – read this article to learn how they are different.
If you’re setting up a distributor arrangement, it’s wise to consider a few key issues that will determine how it operates. Doing a little planning will save you having to deal with problems or loss down the track.
Area or Territory
Get clear on the area or territory your distributor will be servicing – is it a town, series of postcodes, city, state or country?
Are there any restrictions on the types of business your distributor can work with? For example, you might have a product that can be distributed to health food stores and chemists, so you may choose to divide the territory based on market segment or category.
How will online sales affect your distributor? You or a proposed or an existing distributor, may have a large online presence that creeps into someone else’s territory. How will you negotiate these sales cleanly?
Deciding whether to make the arrangement exclusive or non-exclusive is a major decision.
An exclusive distribution agreement will give the distributor the exclusive right to distribute the product within a defined territory whether that is geographic and/or includes a specific customer category and market segment. This can be highly attractive to a potential distributor because they know they will have no competitors. It can, however, become problematic for you if you form a relationship with someone who isn’t doing their job as your expected – a properly defined dispute and termination section in your agreement will help you overcome that problem (more on this later).
Conversely, a non-exclusive arrangement means you can set up more than one distributor in a location or market segment.
There are many questions to answer when considering marketing and many of them revolve around who will fund the resources needed to sell your products – things like brochures, samples, advertising. Will you as the supplier give resources to the distributor? Will you share costs? Or will the distributor need to pay?
What about your IP or intellectual property – those intangible assets such as logo’s, advertising material, product images, jingles, videos, etc.? Can the distributor use your IP in any way they choose, online or offline? Or will you provide guidelines that control the way a distributor can portray your brand and products?
Disputes and Termination
No one likes thinking about what will happen if things go wrong, but sometimes you just have to put on your pessimistic hat so you can minimise the damage if the worst case scenario plays out.
Some of these scenarios might include situations such as:
- The distributor hasn’t paid their bill for 3 months;
- They’re using your IP in ways that discredit your product or brand;
- They’re bad mouthing your products to their customer because they have just taken on a more lucrative deal with your competitor.
When you contemplate these types of situations, you quickly understand why you need to have a plan for dealing with conflict and terminating the relationship. It saves a great deal of stress when you know that you can refer to a document that outlines what will happen if the other party steps outside the boundaries.
Put your Arrangement in writing
It’s not enough to just think about these things or even talk about them – you need to put your arrangement in writing so that there is no confusion about the operation of the distribution arrangement. A distribution agreement will cover these key points as well as others that I haven’t mentioned. It will provide a solid foundation for your relationship and provide the protection that your business needs.
We’ve covered just a few of the issues that you need to consider when setting up a distributorship – click here to learn about the other seven factors that determine distributorship success.