Your role in importing: agent or distributor?
Your role in the importing process can affect the level of risk you take on, the profits you make and the control you have over the product, so it’s important to know where you stand.
One of the first things you need to consider when you start importing is your role in the importing process. When importing, you can act as a sub-distributor or as a sales agent. A sales agent (or simply “Agent”) acts almost exclusively as a sales rep/account manager for the overseas supplier (known in this relationship as the “Principal”). The Agent manages the Principal’s client base here in Australia and finds new customers in return for a commission. The Agent is not an employee of the Principal, and does not actually purchase the Principal’s product for re-sale.
The main advantage of being an Agent is that there is little financial risk, little start-up capital required, and lower overheads. Since Agents do not invest financially in the products, and don’t get bogged down in organising logistics, they are often able to take on a far wider product stable, thus multiplying their chances of success, particularly in the initial stages of the business.
Commission for Agents varies, but rates of 5 to 15 per cent of the ex-works (i.e. factory) price are common. This can quickly add up if you have a wide product range, can broker a deal with a major client, or are selling highly expensive merchandise.
In contrast to Agents, sub-distributors do take title to (purchase) the Principal’s products, which they then re-sell to their own clients in Australia. The Distributor is therefore usually responsible for everything downstream of the purchase, such as freight, customs clearance, warehousing, and distribution. The Distributor is often also responsible for virtually all matters relating to the product within their territory. This can include not only the direct costs of selling the product (such as business marketing and advertising), but also other incidental costs such as the those involved in ensuring that the products comply with relevant codes and standards.
"Your decision to act as a sales Agent or Distributor will depend upon your financial position, the perceived potential of the product and your level of comfort with the risks involved. "
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The reward to the Distributor for this higher level of risk and responsibility is, firstly, financial (Distributors can make much more money than Agents), and secondly, a higher level of control (the Distributor can make decisions that an Agent would need to refer to the Principal). A Distributor is also in a better position than an Agent to ensure that the overseas Principal and the Distributor’s own clients here in Australia do not conspire to cut him out of the picture since, in contrast to the situation with an Agent, there should be no need for those two parties to communicate with each other directly.
These are just some of the myriad considerations in deciding your role in importing. Your decision to act as a sales Agent or Distributor will depend upon your financial position, the perceived potential of the product and your level of comfort with the risks involved. Many successful businesses function as an Agent for some products and a Distributor for others. I often recommend that those new to importing start out as a sales agent to gain experience and contacts before moving on to be a Distributor when they feel the time is right.
What factors influenced your decision to become an Agent or a Distributor in importing?