Distributor or agent - which is right for you?

Distributor or Agent relationship?

While distribution and agency agreements share some similarities, they have distinct legal implications.

The key difference is that a distributor buys the goods from the supplier and resells them at their own risk, taking ownership and responsibility for sales, marketing, and distribution. An agent, on the other hand, negotiates sales on behalf of the supplier without taking ownership of the goods. They act as an intermediary, receiving a commission on successful sales.

There are several advantages to having a distributor, especially for manufacturers and brands trying to reach a wider market :-

• Reach - distributors have established networks and relationships within specific regions or industries, allowing you to access new markets and customers you might not be able to reach on your own.

• Expertise - distributors have local knowledge and market insights, guiding you on pricing strategies, regulations, and cultural nuances for effective product positioning.

• Logistics – the distributor deals with product storage, transportation, and delivery.

• Larger order volumes – due to the level of commitment on their part, distributors will often target larger order volumes.

• Reduced Costs and Risks – no need to invest in your own sales force, marketing initiatives, or logistics infrastructure, reducing upfront costs and ongoing overheads. Risk is reduced in terms of unsold products, as distributors buy your products upfront and assume the responsibility for selling them.

• Faster Market Entry - leveraging a distributor's existing network can significantly speed up your entry into a new market compared to building your own infrastructure.

• Not subject to Commercial Agent Regulations - in the UK, commercial agents are protected under the Commercial Agents Regulations 1993, entitling them to compensation/indemnity upon termination.

Reasons to use an agent not distributor

• Lower financial investment - agents operate on commission without needing to purchase inventory, reducing upfront costs and ongoing working capital requirements.

• Direct market intelligence - agents provide direct feedback on market conditions and customer preferences since they maintain closer contact with the supplier, unlike distributors who may filter or control such information

• Flexibility - easier to test new markets or products with minimal investment and adjust strategy based on performance

• Cost management - variable cost structure through commission-based compensation rather than fixed overheads associated with distribution operations