Scoring a contract with a big national distributor sounds like a huge win for any manufacturer, right? After all, who wouldn’t want their products available to customers all over the country?
Not so fast.
Before you dive headfirst into a relationship with a national distributor, there are challenges to consider. Ignoring them could spell disaster for your bottom line.
Below, we’ll explain the pros and cons of national distributors for manufacturers. We’ll also show you how working with an Independent Manufacturers’ Representative (IMR) like Durrie Sales can help you navigate these challenges smoothly.
The Appeal of National Distributors for Manufacturing Companies
Traditionally, manufacturers tend to work with local or regional distributors who are responsible for specific geographic areas. Distributors’ sales reps usually visit local customers in person, demonstrating products, offering product support, and building strong relationships. Contracts between manufacturers and distributors are usually straightforward, and logistics tend to be relatively simple, as shipping times can be relatively short. Sometimes, “shipping” might even mean a 20-minute drive where the distributors’ sales rep hand delivers the product himself.
But with a national distributor, everything is bigger, including the potential payoff. There are many reasons why a manufacturer might be interested in working with a distributor that has a larger reach, including:
- Large sales volumes: Larger distributors often generate high-volume orders, which can lead to increased revenue.
- Market presence: Partnering with well-known national distributors can enhance a manufacturer’s market visibility and reputation and turn them into a major player in the industry.
- Long-term relationships: If you play your cards right, you could move beyond regional distribution to build a long-term successful partnership with a big, recognizable name, which could grow your company by leaps and bounds.
- Brand recognition: When a large distributor carries your branded product, this essentially tells your market that this distributor deems your product worthy of their attention. This recognition could in turn lead to other similar deals, increased sales, and more benefits for you.
On the flip side, however, large distributors can also bring large downsides for some manufacturers. Let’s take a closer look at this.
Downsides of National Distributors
While the allure of a national partnership is strong, large distributors have their own processes and rules for working with them – and therefore should really be treated as a separate sales channel. In other words, when you’re working with the big guys, you need a different strategy. In particular, you should be aware of any potential roadblocks.
A contract with a national distributor might involve:
Slim margins: Some manufacturers get lured in by a big, recognizable brand name and lowball their pricing to benefit from the increased visibility and name recognition they feel that big distributor will bring. But they might not consider extended payment terms, flexible return policies, the shared cost of co-op marketing, rebates, and other hidden expenses that can further erode profit margins. Before you know it, you could be close to losing money on the deal.
Weaker relationships: Remember when we said “shipping” might mean a distributors’ sales rep driving an order over to the end user’s facility? Those strong relationships are much harder to build when you’re dealing with a large corporation. Communication with these companies is highly process-oriented, rather than the one-on-one relationships you may be used to. Additionally, turnover can be high, so even if you get along great with your current point of contact, you might have to start over with their replacement in a year or two.
Lack of support: Many manufacturers assume that national distributors come with extensive sales teams working in the field to promote their products. This leads manufacturers to believe they’ll get hands-on end-user support and active promotion from the national account’s salesforce. But that’s not always the case. In reality, many national distributors operate through online platforms and may require you to participate in their strategic supplier program. These are “pay to play” and may require significant investments of thousands of dollars. In these cases, the distributor’s sales reps won’t even talk to you unless you participate in the program. Yes, these programs may be a wise investment for your company … or they might leave you with a huge bill and not much to show for it.
Significant resources: A large distributor might demand a large time commitment from your staff. Because of the lack of support from the national sales force we discussed above, the partnership could require that you invest in your own dedicated support staff and sales teams. You may need to hire more staff or contract with an IMR if you don’t have the in-house manpower to meet their expectations. For example, many distributors use a product information management (PIM) platform to manage the SKUs they sell on their websites. To be able to include your products on their websites, you may be on the hook to provide extensive specs on every individual product. And for a small manufacturer with many SKUs, that can be a huge ask.
Return policies: A national distributor’s returns policy will be spelled out in the Supplier Agreement Letter (SAL), and it will always favor the distributor. Say you discontinue a product the distributor is carrying. Suddenly, they have shelves full of product they can’t sell. And according to the terms of the SAL, they can return it to you (usually without restocking fees). That’s potentially hundreds of thousands of dollars in inventory that you now have to manage.
Organizational silos: National distributors often have what can feel like a complicated process. Chances are your contract will touch multiple people across multiple divisions: one person signs the supplier agreement letter (SAL), another person uploads your product information to the PIM system, and a third person ensures the products are properly showing on their website. This means that if problems arise, you might have a hard time figuring out who to go to for help. Say, for example, there’s a factual error about your product on the website. Who do you contact? You’ve probably never met the team in charge of it. And if you do get through to them, your issue might not get a timely response. What seems like a huge problem to you might be a drop in the bucket to them.
Notably, national distributors may also require complex contracts. Let’s explore what that can mean for your business.
Key Considerations Before Beginning the Quoting Process with National Accounts
During the contract process with a national distributor, several potential pitfalls could eat away at your profit margin. Here are some things to consider:
Extended payment terms: National distributors often negotiate extended payment terms and deep discounts, which can hurt your cash flow. So, make sure you understand how these lengthy terms might affect your working capital, and plan accordingly.
Rebates: Volume-based rebates are common in contracts with national distributors. And this can erode your profit margins. So, advocate to structure rebates based on performance metrics that meet your sales goals, like hitting certain sales milestones, promoting new product lines, or achieving specific growth percentages.
Co-op marketing funds: Cooperative marketing funds are often a mandatory requirement, but it’s crucial to understand what you’re signing up for. National distributors may charge fees for placing your product on their website—often without providing much clarity on how these costs are calculated. This lack of transparency can leave you questioning the value you’re receiving in return.
Pay close attention to these conditions during the contract process so you can ensure you’re actually making a profit on the account.
Consider an IMR to Help You Navigate National Distributors
If you’re interested in pursuing business with a national distributor, a good IMR can be a valuable partner, guiding you through the contract process and helping you consider pitfalls you may not have thought of. Having an IMR on your team can also help in lots of other ways, like:
Resource allocation: IMRs experienced in handling national accounts can provide the support and resources you need, from experienced sales reps to guidance on the process as a whole.
Relationship building: A national distributor might not require as many in-person visits for an IMR’s reps as a local one, but building strong relationships is still important. At Durrie Sales, our IMRs do that by visiting trade shows to pull in leads. And while a huge distributor might not call you back, they will call us back because we have a pre-existing relationship with them that extends to other product lines we represent.
Product synergies and experience: It’s likely that the IMR represents other products that complement yours – which gives the IMR an advantage when trying to place your product with national distributor accounts. Additionally, the IMR’s deep experience in your category means the IMR knows how to properly position your products for greater impact.
Pricing and profits: A good IMR will have experience negotiating price increases on national distribution contracts and can guide you through the process and help you increase your profits.
The best IMRs offer you a long-term partnership and continuous support throughout the process. And with everything involved with a national distributor, you’ll need all the support you can get. So, look for an IMR who is willing to build that national distributor relationship with you—not just introduce you, get everything set up, and leave.
Durrie Sales’ Approach to National Distribution Accounts
When you work with Durrie Sales, you get a “Top-Down, Bottom-Up” approach. We help your national accounts director work with top-level decision makers and develop high-level strategies with the national distributor. Meanwhile, we work on the ground, building relationships with end-users and doing necessary tasks like getting your products onto the national distributor’s website.
Take our relationship with Monster Tool, a division of GWS. The manufacturer of solid carbide cutting tools needed help expanding and growing their relationship with a large national distributor. Because of our long history with this distributor, we were able to help Monster Tool navigate the points of contact at this large customer, building strong relationships with key decision makers that would have been impossible otherwise.
A national distributor can be a huge boon for your company, growing your business and exposing you to a huge new audience. But if you don’t have experience when you go into the relationship, you could make expensive mistakes. Trusting the right partner can help you make the most of your distributor relationship and protect you from hidden costs and other pitfalls. A knowledgeable IMR can help you with contract negotiation, new product introduction, attribute data, product recommendations, and much more.
Ready to see how Durrie can help you build successful national distribution relationships?
