Guidelines for Crafting Your Reseller Contract
In the dynamic world of business, establishing a successful reseller partnership is crucial for both manufacturers and resellers alike. Here, we delve into the essential elements that should be included in a reseller contract to ensure a harmonious and profitable relationship.
First and foremost, it's essential to define the scope of exclusivity to prevent conflicts and overlaps among resellers. This includes outlining the geographic or market area where the reseller holds exclusive rights [1][3].
To prevent exclusivity problems and ensure performance, it's advisable to set clear, measurable sales quotas or minimum performance standards in the contract [1]. These benchmarks help both parties understand expectations and provide the reseller with a clear goal to strive for.
In the event of underperformance, it's crucial to establish consequences, such as the loss or review of exclusivity privileges, to incentivize the reseller's commitment [1]. Transparent tracking and reporting systems should also be in place to monitor progress and verify whether quotas are being met [1].
Performance review milestones and joint planning sessions can help maintain alignment and address issues early [3]. These regular check-ins can foster open communication and ensure both parties are working towards the same goal.
Other crucial aspects of a reseller contract include:
- Governing Law: Specifying the governing law is important, particularly when parties are in different states or countries, to avoid the need for litigation in foreign jurisdictions.
- Documents-Only Arbitration: This allows parties to resolve disputes remotely, based on submitted documents, without the need for a physical hearing, saving time and money for all parties involved.
- Resellers should not make unapproved guarantees. A Minimum Advertised Price (MAP) policy is important for online sales, ensuring resellers compete on quality of service, not just price.
- Manufacturers can change prices for products not yet ordered by resellers, but should disallow aggressive price increases with a % cap and notice prior to any increase.
- Confidentiality is paramount. The reseller should not use the manufacturer's product specifications, trade secrets, business model, etc. for others' benefit.
- The terms of payment, discounts, late fees should be clearly stated in the contract.
- The contract should address indemnification, personal guarantees, governing law, and arbitration procedures.
- Force Majeure should be considered, addressing the likelihood of calamities and political instability in the target market.
- The contract should specify if the reseller is allowed to use the manufacturer's name and trademarks.
- The manufacturer's obligations should include sales leads, samples, advertising, training, support, honoring warranty and return obligations.
- The contract should address shipping, allocation of risk of loss upon shipment, drop shipping directly to the reseller's clients, export/import regulatory compliance.
- The reseller's obligations should include advertising efforts, customer service, insurance, permits, licenses, compliance with local laws, accounting, regular reporting.
- Indemnification: Parties must agree to reimburse each other for damages resulting from their mistakes, especially relevant when a reseller is authorized to install a product or make customer representations.
By incorporating these elements into a reseller contract, both parties can enjoy a mutually beneficial partnership, with clear expectations, accountability, and a framework for addressing potential issues. This approach reduces common legal and business risks, promoting a successful and long-lasting partnership.
[1] "Preventing exclusivity problems in reseller contracts by outlining sales quotas." (Source not provided)
[3] "Ensuring performance in reseller contracts: A guide for manufacturers." (Source not provided)
An entrepreneur venturing into small-business and finance might find it beneficial to establish clear, measurable sales quotas or minimum performance standards in a reseller contract to prevent exclusivity problems, foster accountability, and create a harmonious and profitable relationship. Transparent tracking and reporting systems should also be in place to monitor progress and ensure these benchmarks are being met.
Careers in finance and entrepreneurship can be shaped by understanding the importance of specifying the governing law and including documents-only arbitration in reseller contracts. This not only reduces common legal and business risks but also promotes a successful and long-lasting partnership.
