Most companies can’t succeed on their own, and while this may seem like an unexpected statement, it’s actually quite true. In today’s marketplace, companies are now more than ever realizing that they can’t focus resources on manufacturing, sales, logistics, marketing and research all at the same time, and in some of these areas, it’s much easier to find support than in others.
Developing partnerships with companies that focus on sales channels, distribution and marketing helps businesses to efficiently sell their product or service while still focusing the bulk of their resources on the production itself and the further development of their products. At times, businesses will legally partner, joining two entities together with the intent to make a profit.
Types of Sales Partnership Agreements
For businesses just starting out in larger marketplaces, it’s important to understand what types of relationships are standard and what opportunities are available. To understand which option will work best for the company and to craft an excellent sales partnership agreement, it's first important to understand what’s being offered by these independent intermediates and how these different strategies work.
- Channel partner: A channel partner will collaborate with the parent company in order to market and sell a manufacturer’s products. “Channel partner” can be used as a broad term for the other types of sales partnerships.
- Distributor: A distributor supplies goods to retailers. This is often more focused on the logistics of providing the product in the marketplace, but depending on the arrangement, it can also include marketing efforts.
- Dealer: A dealer is someone who works in the market directly selling the product to the customer via retail. They purchase the product wholesale from a distributor and then act as the interface between the product and the consumer.
The phrase channel partner comes from the fact that this is the company, independent of the manufacturing company, that will channel the goods and services produced into the marketplace, whether it’s done in a single step or in multiple steps. The manufacturer can then use the partner’s expertise in marketing, network and sales strategy to its own benefit.
Sales Strategies for Partners
There are three main approaches a company can take when moving forward with a sales partner. The differences between the three focus on the way the partners interact with each other, focusing on the integration of the products and services and how to best showcase the mix to the consumer.
- Manufacturer sells through the partner: In this case, the partner is a retailer of some sort who can connect the manufactured products with the intended audience. The partner provides the “storefront” or “marketplace” — whether physical, digital or both — and offers the product alongside a number of other offerings. The partner may also be offering competitor products: For example, consider a department store with many brands offered on the store floor. As the partner’s business grows, the manufacturer will have more chances to emphasize its own goods within the partner’s product mix.
- Manufacturer sells with the partner: This kind of arrangement works best when the partner can use the product provided to upsell its own products or services. The partner incorporates the value provided by the original company into its own offering, and the final product — a combination of the original manufacturer’s product, possibly other products and the partner’s offering — is then sold to consumers. For example, consider a software company that partners with another company whose software program complements its own. The two programs are sold together in a special package that adds value.
- Partner sells for the manufacturer: This type of partner can be a sales rep or marketing partner whose job is to use its own resources to widen the market options for the existing product. In this case, the partner does the selling to distributors or dealers. This can also be the case when the product is included as part of a bigger whole or as part of the partner’s business. For example, anything wholesale sold to a grocery store represents this kind of partnership, where the grocery store makes the sales to the customer, and individual producers are not marketing their own products.
Depth of Partnership
A partnership program is the way a company evaluates and makes decisions on potential partnerships. It’s the strategy it will use to further push its products into new markets and defines the needs and the goals of these strategic partnerships.
The first step is determining the depth of the partnership. Will the channel partner work mainly as a distributor, or will it integrate the product into its own offerings to add value and market as something else entirely? This obviously depends on the type of products being offered and what the market landscape looks like. A product intended directly for market (a shirt) will benefit from a different type of partnership than a product intended for use in another (fabric).
Intent of Small Business Partnership Agreements
Consider the intent at the core of partnerships: the ability to use a business partner to reach new markets for existing products, thus leading to higher sales. When evaluating potential partners, it’s important to stay focused on this.
Will the partnership grow market share and bring products to new consumers? Will it bring the products to consumers in a new way? Which is the best match with the company’s strategic growth objectives and image?
Also keep in mind that any potential partner will have the same question: How will this partnership help build business? If the partnership benefits one but not the other, it won’t last long. Look for partners who can mutually benefit from the joining of two skill sets. If marketing partners can make money selling the product in new markets, which then feeds revenue back to the manufacturer, that partnership is a lot more likely to succeed.
Partnership Agreement Basics
A partnership agreement is the legal document that details the partnership between two entities with the intent to better both companies’ bottom lines. It’s incredibly important to have this document be detailed and complete because it protects both partners in the event of something happening.
When disagreements happen, the document will spell out how they are to be handled to keep everyone happy with the arrangement. In the case of other upsets, such as employee death or disability that would upset the agreement, this legal document will show that both parties are prepared ahead of time and understand what will happen to the partnership.
What to Include in the Agreement
Before writing a partnership agreement, the following details will need to be worked out between potential partners:
- Ownership: This portion spells out the roles and responsibilities of each partner and stakeholder. It should define what percentage of ownership is assigned to each partner and the management duties for which they will be responsible.
- Decisions: It should also outline a decision-making process and a method for peaceful dispute with a mind to future disagreements. This is a key component of making sure the partnership stays aligned as it grows.
- Profits: This portion needs to determine how profits will be shared among the partners and the method used to do so. It also needs to capture how losses will be shared within the partnership.
- Taxes: The agreement should spell out the tax status of the partnership to make it clear to any potential auditor that generally accepted accounting practices are being used to evaluate taxes and profits.
- Liability: To avoid legal issues, it’s best to designate the liability of each partner and detail what happens in the agreement if one or more partners are found liable.
- Terms and conditions: The agreement should clearly state how long the partnership will be in place under these conditions and when the partnership will come up for renewal or dissolution. It should also discuss how to terminate the partnership as well as how one partner can buy out the other partner’s share and become sole owner.
- Changes: In cases of death, divorce, illness, disability or another tragic event, what will happen to the partnership? Include procedures for adding new partners in the agreement as well as a formal process for removing partners and reassigning responsibilities.
Involve Your Legal Team
It’s best to have legal representation and help when writing a partnership agreement, even in cases where all parties are friendly. Laws can vary from state to state, and standards and regulations can vary within companies. It’s smart to get legal advice when creating this controlling document.
Within the document should be the expectations of both partnered parties in terms of forward planning as well. For a channel partner, this includes the ways they intend to advertise the goods and services and the new markets into which they will be pushing the product and services. For the manufacturer, this should include production and sales forecasts that work with the services being offered. This way, the arrangement has a formal starting place that sets off efforts in the right direction.
While there is no direct cost for a partnership agreement, the fees for legal advice, document development and processing are up to the lawyer and may reach $2,000. Reviewing sales partner agreement templates before proceeding is a good idea, too.
Advantages of Sales Partnerships
If you are considering a partnership, there are a number of additional advantages for the business.
- Businesses as partnerships sometimes don’t have to pay any income tax (this should be checked against state laws). This can depend on the type of partnership but should be considered a significant advantage. Instead, the business owners file gains and losses on their own personal tax forms.
- A good partnership should bring an increase in sales and revenue as well as a decrease in the cost of sales, as the partner brings in expertise and efficiencies that will provide savings.
- A sales and marketing partner can provide valuable information about target markets, customer profiles and demographics, information about which markets are most responsive and information about what commonalities customer service requests and complaints may have. This can all turn into better product development as the manager works to make the product more appealing and accessible to the end consumers.
- Having a partner dedicated solely to getting products to the markets will improve the speed of development and the time to market for new products. This means newer products can be out for sale more quickly and efficiently than before.
- An established partner will bring a sense of consistency to sales and marketing exchanges. It will already have the infrastructure in place, its processes will be tailored to its work and its customer base will already be familiar with its business.
It may seem strange, but sometimes bringing another company into your company’s business can have significant benefits to productivity and profitability. Partnerships, especially channel partner agreements, can provide this assistance to the company (and allow a refocusing of valuable resources) while benefiting both partners in the relationship.