Common commercial arrangements
Having expended (usually considerable) effort and resources in developing products or services for your business, it is important to ensure that the most appropriate mechanism is utilised when commercially exploiting your products and services. This schematic focuses on the four most common commercial arrangements.
We have set out just a few points to consider, in what are often very detailed and highly structured agreements.
DescriptionDirect sale of your own products and services to your own customers
ProsYou have maximum control and flexibility over pricing and commercial arrangements.
ConsYou are at the mercy of market conditions and have to manage customers.
DescriptionYou grant permission to a licensee to manufacture and sell the products according to your specifications and under your trademarks.
ProsIt can be an easy way of accessing foreign markets with a relatively low capital expenditure.
ConsYour reputation can suffer if the quality control is poor and sub-standard products reach the market. You have to divulge your know-how/ trade secrets. Competition law issues may arise.
DescriptionYou sell to a distributor who then sells the products on to customers in their own right. The contract is between the distributor and the customer directly. The distributor sets their own price and terms of sale.
ProsTo a certain extent you are insulated from fluctuations in the “consumer” market. Pricing is often linked to volume discounts for purchase of minimum quantities.
ConsThe distributor holds the customer relationships, and may hijack your brand/ goodwill if the relationship ends badly. Competition law issues may arise.
DescriptionYou sell to a customer using an agent who facilitates the sale. The contract is between you and the customer directly. The agent gets commission on sales.
ProsYou set the price, the agent goes out and finds customers. The agent manages the customer relationships.
ConsCommercial Agents (Council Directive) Regulations 1993 apply on the termination of Commercial Agency. You are legally bound by the actions of the agent.