What is the 1 supplier’s key clause in a Distribution Agreement?
If you are the supplier of goods to a distributor what is that one supplier’s key clause that you want in that distribution agreement? Stick around and I’ll tell you.
Hi everyone, Simon here from The Contract Company -Contracts that’s what we do all day, every day and sometimes overnight, lucky us.
So if you are a supplier and you supply goods to a distributor and that distributor may have an exclusive territory or region and that distributor distributes goods.
What do you want as a supplier? What is the one key clause you would want in that agreement? Well, I think it’s volumes.
Volumes: A Supplier’s Key Clause in a Distribution Agreement
What does that mean you say Simon? Good question.
What I mean by that is that the distributor often wants exclusivity in the region or territory. So that they are the only distributor of those goods in that territory. This is fine because they’re going to spend time and money in you know marketing the goods trying to develop the brand and trying to generate sales.
So if they’re going to stick their neck out and spend that time and money trying to generate sales of the products through marketing then they want something for that which is exclusivity.
The supplier’s biggest issue usually is that they are scared or concerned they sign up to a contract. It may be for multiple years one two three or four years or longer.
They have to abide by the terms of that contract. They’ve got no control over how much money they’re going to make in the contract.
So that’s why I say the supplier’s key clause they want in there is about volumes. They want to mandate in the contract that there is a minimum volume that the distributor must meet.
So what that means is the distributor must purchase the minimum amount of goods under the agreement per year.
That way the supplier is protected. They know they’re making reasonable revenue from granting exclusivity to the distributor in the region.
That way they have some comfort if things just go according to the contract. Let’s say the minimum volume is a thousand per year. So that distributor’s got to buy a thousand products off them per year. They know that on a thousand products are gonna make a certain amount of money and that’s okay.
Obviously, they’d like to do better and sell ten thousand. But at least specifying that minimum volume gives them some comfort [on exclusivity].
They won’t mind granting exclusivity to the distributor for that region. They know they’re going to get their 1000 products 1000 sales per annum.
That’s why I think if you’re a supplier that’s one of the key clauses you want in the agreement. You want to mandate a minimum amount of minimum volume. I should say the minimum volume that the distributor has to purchase off you in any given time period. You know as the supplier, you’re going to make the money that you need to grant that exclusivity.
Usually, the contract would say that if the distributor doesn’t meet that minimum requirement then the supplier is able to terminate the contract. This sounds reasonable because they’re not getting the volumes.
Therefore why should the supplier be bound to continue to use the distributor when the distributor just can’t sell the product and make the money. In fact, they can’t make themselves both parties money.
Anyway, that’s just my view as to what I think is the most important agreement if you’re a supplier in a district distribution agreement.
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