9/20/2016 BalanceisBeautiful:ABalancedDistributionAgreementPaysDividends

Glen Balzer
Management & Forensic Marketing Consulting on Sales Channel Relationships&Contracts

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Balance is Beautiful: A Balanced Distribution Agreement Avoiding the Top 10

PaysDividends Mistakes with Distributor
Agreements
Equality between distributor and supplier is the hallmark of a sound distribution
agreement. Balanced agreements survive longer than those where one partner is Balance is Beautiful: A
favored over another due to clever terms and conditions. The longest living Balanced Distribtution
agreements are simple, easily understood, and even-handed. Distribution Agreement Pays Dividends
partnerships that are based upon imbalanced agreements and perhaps wording too
clever often expire prematurely. Sound agreements need not be clever, but must Balance or Bias - Seeking
demonstrate evenhandedness and balance. Equilibrium in
Representaive Agreements
Imbalance Enters the Agreement
Creating a Sale Presence
Relationships and agreements between distributors and manufacturers ultimately in the Global Marketplace
expire. That expiration may be amicable, whereby both parties move ahead in
di
erent directions. Upon disengagement, the distributor engages with an established Cross-Territory Sales Bring
and enthusiastic supplier; the manufacturer creates a relationship with a distributor Split Commissions:
of great promise. Parting company with a former partner in a distributor agreement,
Splitting Commissions
however, may become acrimonious and demand help from an attorney. In many
cases where a distribution relationship ends in a legal dispute, the distributor Across Multiple Territories
agreement was crafted in a way that did not treat both parties equally. One-way
Direct v. Manufacturers
agreements are created by a partner that may be relatively inexperienced with
drafting distributor agreements. An attempt is sometimes made to stack advantages Representative: How Best

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toward one side of the partnership in an attempt to make it a better deal for one to Organize a Sales Team
partner than for the other. One partner becomes too clever in attempting to its make
life better by exploiting the inexperience of the other partner. Such exploitation works Distributors Must Manage
against the longevity of a distribution partnership. Supplier Relationships

Seasoned distribution partners understand through experience that unbalanced Launching a Sales
wording does not serve the purpose of long-lasting partnerships. The objective of Presence in a Foreign
drafting imbalance into an agreement is generally to increase the advantages of one
Market
partner over the other. Unfortunately, imbalance ultimately leads to strained
relationships and legal skirmishes; not to great relationships and optimal business Problem-Free Distribution
results. The real objectives of a partnership between a distributor and a supplier are
Agreements
greater sales, improved market share, and better prot margins. The objective should
never be a list of advantages in an agreement of one partner over another. Resolution Proven Techniques
of imbalanced agreements regrettably quite often involves costly and time-consuming
Improve Supplier
litigation.
Relationships

Value v. Terms and Conditions Six Rules for Negotiating a

Better Distribution
Cleverly crafted words and phrases in a distribution agreement rarely extend the life
Agreement
of a partnership between a distributor and a manufacturer. A partnership lives only
so long as both partners believe that there is a benet to a continuing relationship.
Traits of Successful
Once perceived value erodes, the partnership is nished, followed closely by the
Representative
expiration or termination of the agreement.
Agreements
Executives signing a distribution agreement are generally optimistic about the
partnership that is being launched. No one involved with the creation of an Launching a Sales
agreement looks forward to its demise. The premature expiration of a relationship Presence in a Global
between a distributor and a supplier might be disappointing. A legal dispute arising Distribution Channel
from the disengagement of the partners should be avoided. The breakup of a
partnership, however, is not necessarily an incorrect course of action. When a Tips for Improving
distribution partnership unwinds, both parties have a choice of focusing on their own Supplier Relationships
respective business and attendant customers, or spending management time and
company resources on a legal dispute that will still result in the dissolution of the
distribution agreement. Executive time, management attention and nancial
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resources allocated to a legal dispute represent a shift of focus away from the
business; away from customers. Since unbalanced agreements more frequently result
in a legal scuKe, striving to craft a well-balanced distributor agreement is worth the
e
ort. An ounce of preventive energy striving to draft a balanced agreement pays real
dividends when litigation, legal fees and damage awards can be avoided. A balanced
distribution agreement really is beautiful.

Examples

Agreements containing clever phrases and clauses that a
ord greater power to one
partner over another are asymmetric. Agreements that are crafted in an unbalanced
fashion tend to expire more quickly than those that are written with an objective of
balancing the relative power of both parties. Partners in an unbalanced distribution
agreement might be satised during periods when the metrics are favorable: rising
sales, increasing market share and climbing prot margins. However, all metrics rise
and fall over time. A time-tested partnership might weather declining metrics
occasionally. But, if metrics are poor for an extended period of time, one or both
parties may seek an exit from the agreement. Problems with an imbalanced
agreement usually surface when performance declines or when one or both parties
begin to think about terminating the agreement.

An agreement that allows for price adjustments to occur only once per year is
unbalanced. A manufacturer must confront changing costs throughout the year. To
expect the manufacturer to endure rising costs for an extended period of time
without the short-term ability to pass along those added costs is not reasonable. A
balanced approach to changing costs would allow for price changes to be made
throughout the year, perhaps on a 30-day or 60-day notice.

An agreement that allows for termination by only one party is unbalanced. An

agreement that allows one party to terminate the agreement for a number of
alternative causes while allowing the other party to terminate for a single draconian
cause is equally unbalanced. Exercise care when drafting the agreement to ensure
reasonable balance in the ability of both parties to terminate the agreement.

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If one party can terminate the agreement for convenience, balance dictates that the
other party may do the same. Writers of the agreement must remember that the
perceived value of continuing the relationship by both parties; not the cleverness and
intelligence of the author, is the factor that determines the endurance of the
distribution partnership.

Conclusion
Distributors and manufacturers need to ensure that a distributor agreement into
which they enter is void of one-way language. A relationship founded on a
symmetrical agreement stands a much better chance of growing and developing for a
long time. A relationship founded on the inequality of the relative power between two
partners, on the other hand, is doomed to a premature conclusion. Seeking a
balanced agreement is merely a single step that a partner can take to promote the
longevity of a distribution agreement and partnership.

This article rst appeared in the January/February 2008 issue of Progressive Distributor.
Glen Balzer is a management and forensic consultant involved with domestic and
international marketing and sales. He advises parties involved with relationships and
contracts between manufacturers representatives, suppliers, customers and industrial
distributors. He promotes conict resolution between parties involved in representative
and distribution agreements. He has considerable experience integrating and rationalizing
companies upon merger and acquisition. During the past 30 years, he has been involved in
establishing and managing marketing and sales organizations throughout America, Europe
and Asia.

Contact him through his website: www.neweraconsulting.com

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