Negotiating Distribution Agreements with Suppliers

No one distribution agreement is made the same!

by Robert Savellis When negotiating distribution agreements both parties often have similar goals in common. Being, to enter a market they do not have a presence in or to increase their market share in a current market. In summary a new revenue stream. Sounds simple! However the devil is in the detail. Working within a number of industries I have been shocked at the risks distributors accept when signing distribution agreements. In many cases the feedback I receive from the executive team is “this is how it is with this vendor”. I cannot accept this statement, two distribution agreements are never the same. The skillset of the people or team that broker the deal influences the structure of the agreement and if they win the ‘Hearts and Minds’ of the other party. As in any negotiation scenario each party only offers what is necessary to achieve the required result. The importance of the agreement ending in a win/win situation cannot be emphasised. Both parties need to ensure that their key objectives are achieved to ensure a profit and longevity to the relationship. If you do not ask you do not get. Very often negotiators in the distributions side find it hard to say no, fearing that the vendor may pull the pin. Saying no is important in the negotiation process as it allows the vendor to identify your boundaries. You know your business and what you can and cannot do to meet your objectives. It is important to both parties that the agreement is robust enough to achieve results for all involved. Signing up a new distribution agreement is an expensive task in relation to recourses including cash-flow and can affect the bottom line in a catastrophic way. The most cost efficient and productive way to ensure the best possible results is to hire a professional to assist your negotiation team. A successful distribution agreement spreads the risk across both parties. Other than standard terms, a well structured distribution agreement should also feature:
  1. Stock rotation policy
  2. Rebate systems clauses – how rebate funds can be spent in regard to;
    1. Marketing funds
    2. Funded headcount
    3. Bottom line funds
  3. Vendor support in relation to;
    1. Training and Accreditation
    2. Discounted demonstration products
    3. Vendor trade marketing
    4. Trade Shows
    5. Marketing collateral
  4. Special pricing support for larger deals.
  5. Termination agreement in regard to stock held by the distributor.
Robert Savellis as a Sales and Marketing Performance Specialist as the KONA Group If Robert can help you and your organisation to develop more opportunities, increase sales and grow profits please go to: or Telephone 1300 611 288, or email