Agency, distribution and franchise models are popular models for the outsourcing of the selling function of a business and offer several benefits to suppliers, including:
In this blog, we will take a broad look at the differences between distribution, agency and franchise models and we will follow this up with a series of future blogs looking at each model in more detail.
Distributor or Commercial Agent?
Distributors and agents are commonly confused with each other, however there are some crucial differences:
The distribution model allows a supplier to offload the risk and its stock, however a distributor will typically expect a larger mark-up.
An agency arrangement typically has a lower commission payable and offers the benefit of the supplier retaining control over the terms of sale. However, suppliers should be wary that the Commercial Agents Regulations 1993 (which offer significant protection to agents, including a right to receive compensation upon termination of the arrangement) may apply.
Franchising is essentially the granting of a licence by a supplier (or a “franchisor”) for a franchisee to trade under the franchisor’s brand. Typically, it includes:
The franchising model offers the opportunity to the franchisor to use the franchisee’s start-up capital to facilitate the expansion of its network. The main disadvantage to the franchising model is loss of control, however it is usual for franchise agreements to have significant restrictions.
Which model is right for your business?
There are various pros and cons of each approach which we will explore in more detail in the forthcoming series of blogs. Choosing the right model will depend on a number of factors, including the type of product, your profit margin and the local requirements in a specific territory.