If you are considering taking the next step in your business venture and opening up to international markets, it is important to determine the optimal strategy for your needs. One of the primary decisions you will need to ponder on relates to the selling model you will adopt – should you use an agent or a distributor? Both have advantages, for example, business customs and traditions vary from country to country; good sales agents can be invaluable in helping you to navigate etiquette and bureaucratic minefields, making sure your products are sold into foreign markets with the minimum of administrative delays.
A reliable, experienced agent or distributor will not only assist you to sell your products into new territories, but they can identify fresh opportunities and even help you focus your sales strategy. In doing so, your business will be encouraged to innovate and evolve, potentially further expanding and driving sales of your products and/or services.
How do agents and distributors differ?
Agents and distributors offer different ways in which to sell into overseas markets. Agents simply sell your products for you, and once the sale is agreed, you deal directly with the customer. With distributors, they will purchase your products from you, and it is left to them to sell those products to the end user. It may be that you have agreements with multiple distributors in a given country (a non-exclusive agreement).
Selecting an agent or distributor
All too often, companies will be contacted by prospective distributors or agents who negotiate an exclusive arrangement, purchase a shipment of products (distributors), and then fail to sell them. This can result in severe reputational damage to your brand and a breakdown in the relationship between both parties. It is therefore vital when considering working with an agent or distributor to do your homework. The process of terminating an agreement with an agent or distributor can be costly and stressful; therefore, it best avoided. Not only will any legal challenge be time-consuming, but it can also damage the chances of success in the geographical area in which you wish to sell.
To help you pick your agent or distributor wisely, Smallbusiness.co.uk recommend you ask several probing questions to gauge the ability of a prospect to sell your products:
- Do they understand the market you are in?
- Who do they currently act for?
- How well do they understand your product?
- Ask if you can observe their selling staff in action
- Ask for evidence of their financial status
- Can they advertise effectively?
- Do they have appropriate premises or capacity to store your products?
- What is their sales geography?
- Is there any way in which they could damage your brand?
- Ask for references
- Ask for evidence of sales for other brands
- Measure their willingness to train staff in your products
- How well can they help you navigate the local business customs and regulations?
When selecting a distributor, it is best practice to visit the potential partner to see their business operation for yourself. They may ‘talk the talk’, but when you arrive, you might be horrified to see they have nothing but a small shed in a backyard. Meeting the staff, visiting the office and warehouse, viewing the financial accounts, and observing their day to day operation will prove invaluable in providing you with confidence the distributor is capable of delivering.
Ensuring you have contractual terms for your business needs
Once you have selected your agent or distributor/s, you will need to ensure your contractual terms are carefully considered. Engaging an experienced commercial solicitor will make an enormous difference, as they will ensure the agreement is in your best interests and takes into account all of the legal considerations needed. They will ask questions such as:
- How will you ensure the pricing remains consistent with other markets?
- What type of warranties and liabilities will be in place?
- How long will any exclusivity exist?
- What are the credit and payment terms?
- What are the minimum order volumes?
- What are the discounts being ordered (and for how long will these discounts be in place for)?
For agents, you will need to agree who is responsible for shipping, the commission payable, when commission will be paid, who will conduct credit checks on clients, what happens if the customer requests a refund or cancels their order, how after-sales service will be managed, and how the products will be marketed/branded.
When deciding whether to enter into an exclusive or non-exclusive arrangement, it is desirable to establish trust before becoming exclusive – this offers the distributor or agent the incentive to perform in the knowledge an exclusive arrangement may be on offer in the near future, while providing you with the option to find another distributor or agent if needed. Ultimately both parties may wish to enter into a long-term partnership, but trust and reliability need to be established before this can be achieved.
Taking your first tentative steps into overseas markets is always unnerving. Not only may you not speak the language, understand the trading laws, or the local customs, you will have to rely on a third-party to become as enthusiastic and passionate your products and/or as you. By adopting the correct overseas sales model, carrying out your research, and ensuring you have a rock-solid contract, you will put yourself into the best position to push your sales into the next level.
Reach Revenue works with business owners, leaders and investors to develop high performing sales and marketing teams aligned to the strategic objectives of their business. To find out how we can help you, please contact us on 0203 858 8030 or firstname.lastname@example.org