As a supplier looking to sell more products, you may consider engaging a reseller, also known as a ‘distributor’ or a ‘wholesaler’. This involves connecting with another business that promotes and sells products on your behalf. A reseller arrangement can offer:
- increased brand awareness;
- access to a previously untapped market; and
- the potential for more sales.
This article will explain how a reseller arrangement can benefit your business and what terms to include to ensure the agreement benefits you.
What is a Reseller Arrangement?
A reseller arrangement is a strategic partnership where you authorise another business, the reseller, to sell your products or services. As a supplier, you can instead focus on:
- expanding your market reach;
- leveraging the reseller’s expertise; and
- taping into new customer segments.
Ultimately, a collaborative and mutually beneficial relationship boosts sales and brand visibility. Sometimes, a reseller arrangement can also be a new income stream for the supplier whose products are white-labelled.
How Does a Reseller Arrangement Work?
As a supplier, you can choose to:
- sell your goods or software directly to customers;
- engage sales agents to purchase your goods or software from you to sell it directly to their customers; or
- engage a reseller or ‘middle man’ to sell for you.
A reseller arrangement is generally used by suppliers who sell the following:
- goods, such as homewares or technology hardware; and
- software licenced for resale to customers.
Is a Sales Agent the Same as a Reseller?
It is essential to distinguish between sales agents and resellers. Although both options have benefits and will increase brand awareness by reaching new markets, they are distinct in how they interact with your business and sell your products.
In an agency relationship, the agent’s role is to solicit business from customers on your behalf, meaning they will enter the market to obtain orders. An agent might:
- enter into contracts on your behalf; or
- connect you with the customer.
The agent will not be a party to the sale transaction and will not hold stock unless they also provide warehousing and logistics services. Typically, you compensate an agent through commission.
On the other hand, a reseller generally agrees to sell the products on behalf of the supplier in the reseller’s own name. Accordingly, the reseller purchases the supplier’s stock at an agreed price and then resells it at a higher price. Here, the profit margin is the reseller’s remuneration.
What Are the Benefits of a Reseller Arrangement?
Entering into a reseller arrangement can provide numerous advantages for your business. These arrangements can offer businesses a strategic avenue for growth, market penetration, and increased sales by capitalising on the reseller’s market expertise, customer relationships, and sales capabilities.
Firstly, resellers often have an established presence in the market, with a well-known brand and a solid customer base. Resellers can assist you in expanding into new markets and countries that your business may face difficulties in expanding to by itself, subsequently reducing some of your risk. Your business could also capitalise on the reseller’s localised market knowledge.
Secondly, a reputable reseller may be able to sell a high volume of your products due to extensive distribution channels and sales infrastructure. This could also result in a faster time-to-market.
Thirdly, by engaging a reseller, your business could offload the labour-intensive sales and customer interaction processes, allowing it to focus on core operations and product development. This can also help reduce overhead costs.
Fourthly, resellers can play a crucial role in increasing brand awareness and visibility within their respective markets through marketing efforts and product placements.
Finally, resellers may have the option to bundle your products with complementary offerings in their product portfolio with your permission. This cross-selling opportunity can create added value for customers while generating additional revenue streams for both parties involved.
What to Include in a Reseller Agreement
You will need a reseller agreement to specify the arrangement between you and the reseller. This should be a mutually beneficial relationship, but ensure you are adequately protected so that the agreement does not disadvantage you.
The table below sets out some points you should cover in your contract.
| Pricing | + Determine how you will compensate the reseller, which is generally by a commission of the sale price. + Consider whether a recommended retail price (RRP) applies. Careful consideration should be given to setting an RRP. As a supplier, you can only suggest the RRP. You cannot stop a reseller from selling below a specified price. + Outline that you can request a sales report including the number of units sold and at what price. |
| Orders and Delivery | + Specify whether you will deliver the product directly to the customer or ship it via the reseller. + This will determine how and when you receive payment. |
| Marketing Material | + Mandate whether the reseller must use your marketing materials when selling your product. + Outline which materials the reseller should use when advertising your products and state that the reseller should return these materials when the arrangement has ended. |
| Intellectual Property (IP) | + License your intellectual property to the reseller so that they can use your name and logo. + Be clear on how resellers can use your branding to align with your brand guidelines. + You should prohibit resellers from copying the goods or software. |
| Non-compete | + Prevent the reseller from selling other products that compete with your business. |
| Disputes and Termination | + Establish a dispute resolution process. + Maintain your right to terminate the arrangement if the reseller breaches the agreement or you no longer benefit from the partnership. |
How Much Can You Customise Your Reseller Arrangement?
Resellers often offer more than just sales. Many can offer additional support or services, enhancing the overall customer experience. This can range from technical support to customisation services, adding significant value to the software package. By partnering with resellers, software owners can leverage their expertise to improve customer satisfaction and loyalty. Agreements with resellers should clearly specify any custom obligations on the reseller and the scope of those services.
Additionally, as the supplier, you can decide how much involvement you wish to have in customer support in your reseller agreement. You might specify whether you want to handle customer inquiries or support requests directly or let the reseller be the primary point of contact. In any agreement, this means setting clear rules on how and when customer questions, technical issues, and support tickets are managed. By specifying this detail, you ensure that customer support is aligned with your service standards and maintains a consistent brand reputation. At the same time, the reseller is aware of their responsibilities and ensures customers continue to get software support.
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Key Takeaways
As a supplier, you probably want to focus on manufacturing your products. Therefore, engaging a reseller may be an appropriate way to sell a high volume of goods and reach new markets. However, you must prepare a reseller agreement to ensure your business benefits from the arrangement.
If you would like help drafting, reviewing or negotiating your reseller agreement, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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