When I’m speaking with clients who are looking for ways to expand their business the conversation sometimes comes around to the possibilities of using agents, distributors, licensing arrangements or a franchise.
Each of these sales partners, or sales models, has a lot to offer. But it’s important to understand what each type of partner means for your business.
The term ‘franchise’ has become a common way of describing a business relationship where the franchisor allows other people to sell their products or operate the same type of business under the same name, usually within a designated area. But there is more to it than that. Much more. Legal obligations, management control, customer service and pricing are involved. And often ‘franchise’ is not the correct term for the relationship being offered.
Let’s have some definitions.
Sales Agent
A representative for your company who will find buyers and sell your products. Also called a broker. Paid by commission on sales achieved. Stock is not usually held by an agent.
Distributor
An enterprise whose business is to buy merchandise for resale, usually to retailers or other industrial and commercial users.
License
A formal permission or authority to do, or not to do, something which otherwise would be a legal wrong. Often used when dealing with merchandise or procedures protected by trademarks and patents.
Franchise
A privilege granted by one organisation (the franchisor) to another (the franchisee) to sell, produce or use its products. Different types of franchises include:
- A product franchise: which acts as an outlet for a particular product.
- A system franchise (usually called a business format franchise): which is authorised to conduct business according to a system developed by the franchisor.
- A process or manufacture franchise: for which the franchisor supplies a critical ingredient or the know-how for a production process.
According to the Franchise Council of Australia the most common franchise method is the business format franchise, with over 700 different systems being offered in Australia.
Typically each type of sales partner is subject to geographic restrictions of some kind, such as a pre-defined territory. Depending upon the situation this may be part of a metropolitan area, a state, or an entire country. Ideally the size of the territory should be based on sales and/or profitability benchmarks. This is sometimes tough to calculate for new products and services.
At times the definitions may overlap. For example a ‘manufacture franchise’ may be the same as a ‘license’ for a manufacturer to produce certain items. The legal boundaries can be quite puzzling and expert assistance should always be sought.
Of particular importance is the requirement of a business format franchise to offer comprehensive training, support, business management procedures and marketing programs. This all-inclusiveness is a hallmark of a true business format franchise.
It takes a long time to develop the systems and knowledge required to create a business format franchise that conforms to the Franchising Code of Conduct and that will be of interest to serious franchisees.
If you find that your products do not require the intensity of support required by a business format franchise then the other sales partner options may be more suitable.
From a simple commission-based arrangement with an industry sales agent (or broker), to a more formalised licensing deal that may offer exclusive territory and advertising support, there are opportunities to get your partners working for you to increase your overall sales.
Don’t just leave it to your sales partner
However, it’s not simply a case of thinking, “Let’s sign a deal and let them worry about getting the sales”.
No matter which option you choose there will be ongoing communication and support required from you if you want your sales partner to get the best results.
And there are always potential pitfalls in any relationship. Remember, the less committed your sales partner is to you, the lower your products or services will appear on their priority list.
So here are a few things to keep an eye on if you want to stay on track for success:
Sales Agents – Stay in regular contact. Sell them on your products. Get them excited. Make sure your commission is competitive. Do you have an exclusive arrangement with them? Try to avoid agents who also represent competitive products, as they may have a conflict of interest.
Distributors – Be aware of how your products fit with their ranging policies. Train their sales team. Help them to promote your products by way of co-operative advertising and sales incentives. Stay on top of any seasonal or dated stock. You don’t want your distributor overstocked with old merchandise (because they will think twice before ordering current stock!).
Licensees – Make sure your legal documentation is sound. Gain a thorough understanding of your licensees business so you know how your product/service is being used. Are they committed to you for a period of time, number of units, or value of sales? Limit the license to their specific use so you are free to deal with other licensees.
Franchisees – Use a franchise consultant to help develop your package. Remember your selection of new franchisees will be of paramount importance – people make the business! Have procedures to measure customer service levels and operating standards (use random checks, mystery shoppers, contests etc). Gain co-operation and ‘buy-in’ from franchisees, rather than confrontation.
Online sales partners
Online businesses use alternate terminology and legal structures for their sales partners. For example:
- An affiliate program for an online product can be compared to a sales agent.
- Syndicating content can be compared to licensing (of the information).
- Patented code/software is commonly used under license.
Always do your sums and make sure your choice of sales partner presents the best outcome for you. Look for commitment, synergy, innovation and growth potential in prospective partners. Your future depends on it.