In international trade, appointing agents or distributors in overseas territories can be a really good way of getting your products into those markets due to their local knowledge and connections.
Agents and distributors work in slightly different ways so it is important to know the distinctions so you can choose the most appropriate arrangement for your business. You can even choose to have both.
An agent is like a salesforce. They act on your behalf to negotiate and sell your products. You retain the direct relationship with the customers that they find, and they earn a commission on the sales.
Choosing to appoint agents rather than distributors allows a business to retain more control. This applies to a number of aspects:
An agent’s commission will usually be less than a distributor’s margin because the agent takes on less risk, so the cost to you will be lower.
The process is more drawn out with an agent as you have to wait until they have secured sales to get paid. You must also offer support to help them achieve sales such as training and marketing assistance, which adds cost.
A distributor is an independent contractor who buys your products from you and then resells them to their own customers at a mark-up. They are effectively your customer and you don’t have any further relationship with end users beyond your distributor.
The biggest advantage of a distributor is that you make the sale direct to them and then it’s up to them to find their own sales, so it’s a shortened process and you get paid quicker. The risk associated with making sales beyond that point is all theirs.
They also have to fund the cost of selling your products locally, for example through retail stores, and pay for storage/warehousing etc.
The main issue with a distributor compared to an agent is the loss of control once you have sold your products to them. They can set their own price and market your products in any way they wish to. They are also likely to demand a lower price to allow them to make a sufficient margin.
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