Features of a Marketing Agreement

Guest post by: Jeff Simon
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What Independent Sales Reps Should Expect From Their Principals - By Jeff Simon

One of the most important things that you need to make sure you get right when you are hiring new independent sales reps is the sales contract you need to agree upon with every new sales rep. The sales contract is for the protection of both the manufacturer’s rep, as well as the principal. We strongly recommend entering into a formal contract with your sales reps, which will lead to a much better understanding of the obligations that both parties have. A contract will vary significantly depending on industry, but there are several key parts that should be included in every contract. These include:

Responsibilities – You need to clearly define the role of each party involved in the contract.

Define Independent Contractor – It must be clearly stated within the terms of your contract that your independent sales rep is a contractor, not an employee.

Compensation – This is very important! You need to be very specific in terms of percentage of gross or net sales. In addition, a good faith clause should always be included. Depending on the volumes involved in an order, and the kind of competition involved as well, orders will often require discounts. In these cases it can be difficult to define commissions, but your sales reps have to be given flexibility in order to close a sale. A good faith clause states that in cases where the rep has to offer additional discounts, it may be necessary for the rep to take a cut in commission, and that any such commission reductions shall be negotiated in good faith. As incentive, we suggest that commissions increase with sales volume. This may lead to defining a quota and the commission structure based on how these quotas are met or exceeded. Not surprisingly, reps will put more time and effort into a line if it will provide them greater return.

Termination – If the contract is terminated by either party, provisions for commissions paid on pending and existing orders must be provided.

Non-compete – For technical or industry specific products, you may also want to draft a non-competition clause. You definitely do not want your independent sales rep to develop a good customer base, and then have him/her switch to a competing principal.

Territory – Most sales reps will want a defined territory. We suggest doing this by either geography or industry type.

Product Improvements – Because of their experience in the field, independent sales reps may sometimes have ideas in how to improve your product! You need to make sure that it is clearly stated that the principal takes ownership of all product improvements made by independent sales reps that are implemented.

Confidentiality – If you have trade secrets or some type of technical advantage over competitors, you will want to include provisions for confidentiality.

Liability – A contract must define liability issues with product use, negligence, and so on.

Dispute Resolution – Provisions need to be included such as governing state laws and attorney fees.

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What Independent Sales Reps Should Expect From Their Principals - By Jeff Simon

About the Author: Jeff Simon

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For over twenty-five years, Jeffrey Simon has been professionally active in financial management, information systems management, software development, and project management. Most recently he has been a founder and principal owner of RepHunter, Inc., a successful startup conducting business over the Internet. During the last two decades he has been employed by GE Capital, and has consulted for clients including American Express, CIGNA, IBM, and Xcel Energy. He has conducted advanced technology training in the international enviroment, including seminars attended by representatives of the U. S. Government, the Canadian government, the British government, NATO, Boeing, DuPont, Exxon, General Electric, Grand Metropolitan, Hewlett-Packard, IBM, Monsanto, Siemens, Westinghouse, and numerous other major corporations. His recent interests include the application of artificial intelligence to analysis of the stock market. Jeffrey was graduated from the University of Minnesota Summa cum Laude in Mathematics, and holds an MBA from Pepperdine University. He may be reached at jas@rephunter.net.
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