What’s the Difference between a Reseller and Distribution Agreement (in 2 minutes or less!)?
Reseller or distribution agreement, would you like to know the difference? Then this post is for you. This will help you make a decision as to what business model is for you.
The difference between a distribution and a reseller agreement, let’s use an example. That’s always the easiest way, I think to understand a new issue.
I’m a mad keen mountain biker. I’m not very good at it, but I keep trying. So I ride a Scott bike. Now Scott bikes are manufactured in Switzerland. They want to sell their bikes into Australia so they can appoint a distributor.
So what then happens there is that the distributor, under a distribution agreement, purchases stock from Scott. Scott supplies the bikes to them, and then they, as a reseller, either sell the bikes themselves or more likely they ship them off to retailers. In such a case when there is a retailer, they sell the bikes on their behalf and on Scott’s behalf.
The Main Component of a Distribution Agreement
So that’s the main component of a distribution agreement is the actual distributor purchases stock from the manufacturer. The distributor gets the stock, warehouses the stock, and then distributes it out to the retailers.
Reseller Agreement – lower risk, lower reward
Turning to a reseller agreement, using that same example, a reseller agreement could also be a direct contract with Scott. In that scenario, the reseller or the retailers, depending on where the agreement is with, actually sell the bike, but they don’t warehouse the bike.
Then when a bike is sold, the retailer or the reseller really makes a commission. The bike is then shipped from Scott direct to either that person (as in the retailer) or to the client and the reseller just makes their commission.
In that structure, the reseller is not warehousing any stock. So under reseller agreements, the amount of commission paid is generally much lower than under a distribution agreement.
Other Key Terms in a Reseller vs Distributor Agreement
Now, in both agreements, they can have certain rights like exclusivity. So a distributor could be the sole importer and distributor of products in Australia, or they might have a non-exclusive right.
In fact, in some cases, they can often compete with the manufacturer because the manufacturer may actually want to sell direct to consumers in Australia as well.
So there’s a whole lot of different configurations about how they can work, but that’s the main difference between them. I’ll just go through quickly again.
The main difference between them is the warehousing of stock. Now, as you can imagine, if you warehouse stock as a distributor, you carry more risk and that’s why you’re going to get a bigger slice of the pie. Anyway, that’s reseller versus distribution agreements in two minutes or less, I hope. If you found that helpful, please feel free to share it. Any questions, please get in touch.