Working with Agents and Distributors in Overseas Markets
Appointing a sales agent or distributor in an overseas market or region is an effective way to reach international customers without having to establish your own international sales operation.
An agent is a representative you hire to find you customers and in some cases they’ll even negotiate and conclude the final sales contract. They will charge commission at a prearranged rate for every customer they find that you end up selling your offering to. This will typically take between 2.5 and 25 per cent of the money earned by your offering in the market.
A distributor is an entity that you sell your product to for them to then sell onto their own customer base. They will add their own margin to cover their costs but they will use their greater in-market resource – marketing, export documentation, stocking and labelling among other things – to sell your product. A distributor will usually take between 25 and 60 per cent of the money made from sales of your product in the market.
In summary, working with an agent is a decision to effectively sub-contract your overseas sales function to people with the required in-market knowledge and experience, while a distributor is a customer for your product in the market who will then sell your offering onto their own customers.
Should I use a sales agent?
In most cases, sales agents only cost you the commission that they earn for finding you customers. You provide them with sales and marketing materials in order to sell your product on your behalf and you then receive the revenue from the sales they make – minus the commission.
Working with sales agents will allow you to ultimately manage the final sale to the end-customer if you want to, but be aware that agents can require some time and effort on your part to manage. You need to ensure they properly understand what your offering is and that they’ve understood the sales and marketing materials you’ve given them. You also need to ensure that they’re giving adequate time and attention towards finding customers for you – they will often have other people who they are representing at any given time.
You need to do your due diligence before appointing an agent to represent you. Establish what experience they have finding customers for products similar to yours and make sure they are operating in the territories you actually want to be selling into.
Finally, always seek legal advice on the terms you agree on, as it’s often not particularly easy to terminate a commercial agent contract. It’s important that you specify the country of law for any contract, as it can otherwise default to the country local to the agent.
Should I use a distributor?
A distributor is a customer of yours, but they then sell your offering on to their customers. They then function as your sole point of contact for the performance of your offering in that market.
Working with a distributor is an easier option compared to working with an agent because they take all the marketing and delivery requirements away from you when they buy the rights to distribute your product. Distributors are usually much larger outfits using their own warehousing capacity and resources for marketing, documentation and labelling, among other things, to sell your product.
Distributors will often have a broader range of products and businesses that they’re also selling, so it’s key that you form a relationship in which you can ensure your product is being prioritised. A good indicator of their interest in your product, if you’re a goods exporter, is how much they’re prepared to invest in stocking it. If they don’t want to stock that much, they’re not going to be able to distribute much!
Always look at what competitor products they sell and whether they’ll have the technical resource or skills needed to sell your product successfully in the market – i.e. installation or repair skills if your product requires specialist setup and maintenance. If they don’t have this, your brand and reputation could be impacted in that market.
Getting the most from an agent and distributor
The thing to remember when working with either an agent or distributor is that it’s your show – it’s your product they’re selling, it’s your name on the line.
Many people worry about whether to appoint someone on an exclusive or non-exclusive basis.
A ‘non-exclusive’ basis allows you to hire other representatives concurrently, thereby allowing you to test the waters with different partners. However, it’s unlikely that the agents or distributors will be properly motivated to sell your product in this arrangement on a long-term basis.
‘Exclusive’ terms would make the appointed representative the only entity that can sell your product in that market, preventing even your own business from also selling into that market. If you hire someone in this way, you need to be sure that they properly buy into your business ethos.
It’s usually advisable to ask an agent or distributor to ‘earn’ your trust first. In this respect, a good starting point may be to hire them as a ‘sole’ representative. This allows them to be the sole representative external to you selling your product in the market, but you also retain your rights to sell into that market as well.
It’s a decent compromise position until that partner gains your trust or completely buys into your ethos.
How do I go about finding one?
The big question for anyone starting out is how do you find agents and distributors who want to sell your product in your selected market?
Here’s three quick tips.
First, do your competitor analysis to find out who is distributing or selling your competitor’s products in your selected market.
Second, attend relevant tradeshows for your sector in the market and try to generate and follow up on relevant leads there.
Finally, remember that in many markets it’s vital you go out and meet the people you’re working with. Person-to-person interaction is key across all parts of business, especially when it comes to deferring the selling of your product to someone in an overseas market.
Remember that these relationships only work when there’s trust!
This article was produced by Open to Export for the International Business Festival, which helps ambitious businesses find the information and connections they need to explore new markets.