What Is a Vendor Partnership Agreement?
A vendor partnership agreement is a contract between a vendor and a business which both agree to work together. Agreements may be exclusive or non-exclusive.3 min read
Updated November 6, 2020:
A vendor partnership agreement is a contract between a vendor and a business, in which both agree to work together. Agreements may be exclusive or non-exclusive.
Businesses may choose to work with certain vendors and agree to feature and promote their products in exchange for monetary fees or exclusive distribution rights.
Exclusive Sales Partner Agreements
In an exclusive agreement, vendors and their partners agree not to work with their competitors for a certain period of time. Both parties work together in an exclusive agreement to sell products or services in a specified market. This exclusivity gives partners freedom in developing the market without worrying about a competitor taking the business they worked so hard to create.
When a vendor finds the right partner, many enter into exclusive agreements because it affords a greater level of commitment. It also gives them the chance to do the following:
- Have more room to break into the market
- Build a sales pipeline
- See faster success
Vendors can increase their chances of having exclusive partnerships when they approach their partner's sales engine the right way. They should do this in the same, direct way that they sell their product.
When both parties are strongly committed to achieving joint success, they can work together throughout the marketing and sales processes. They'll reduce costs along the way as they focus on effectiveness.
Vendors should give their partners adequate support to optimize an exclusive partnership. It's important to set clear expectations and be fully transparent from the beginning.
Vendors and their partners need to set up specific channel components to optimize sales. These components include the following:
- Full sales pipeline visibility
- Marketing campaigns
- Salesperson coaching and support
Both parties should have a system that can measure and track progress toward their mutual goals. Acting almost as a single organization can help them achieve top performance. Measurement systems also work to keep partners on the right track.
Sometimes, vendors revoke exclusivity if their partners don't meet performance targets. This can be an effective incentive.
You may choose to limit exclusivity to the following:
- Geographic region.
- Customer type.
- Company division type.
- Industry sector.
- Application area.
Exclusivity may come with the promise of a guaranteed order commitment or an upfront fee.
Non-Exclusive Partner Agreements
A non-exclusive partner agreement allows for competition in a specified market. While these agreements don't offer the comfort of exclusivity, knowing there's competition could be the motivation that some businesses need to perform better.
Vendors have to avoid confusion with their end customers by careful management of competing partners. In some cases, they'll sell directly in the same market, so this can be tricky.
To create more harmony and transparency with partners, vendors may opt for prospect exclusivity or a deal registration process. Vendors may award prospect exclusivity on a specified list of target companies. This gives their partners sufficient time to begin a sales process. Later, they may choose to revoke exclusivity after that time period and award it to another partner.
To encourage deal registration, vendors may use incentives such as commissions or better product discounts.
The main appeal of a non-exclusive agreement is the increased total market coverage and the number of available opportunities. When more players are in the market, vendors can adjust readily when customers change providers. They may also have more motivated salespeople who'll work hard to develop opportunities and close deals.
There is a big trade-off in non-exclusive agreements, however. Sometimes, non-exclusive partnerships can have a negative impact on a partner's commitment level.
Before entering the partnership, vendors have to be clear about their objectives and goals so that no misunderstandings occur. By providing complete information, parties can decide on the best agreement to grow both of their businesses.
Vendors work to make their partners successful. When multiple vendors vie for partners' attention, vendors must balance the marketplace demand with the appropriate number of partners. They want all partners to succeed and stay committed.
Many businesses partner with vendors or other companies as a way to grow business for both parties. To make sure you enter into the right type of agreement — exclusive or non-exclusive — carefully weigh the pros and cons of both.
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