A sales representative agreement is a contract between a company and the people or organizations involved in selling its product or services. It defines various conditions related to the work, such as where the representatives will work, what product/service they will sell, where they will operate, and how they will be compensated. A company that wishes to engage independent sales representatives can opt for this agreement as it eliminates the need to have a formal sales team. This is especially beneficial for small businesses that have newly started out.
Purpose of a Sales Representative Agreement
Having this agreement allows a company to sell its products or services the way it wants. It can prescribe various conditions, such as what products/services will be sold and where thereby allowing the company to control the sale of the product/service. The sales representatives connect directly with people, so it is important for a company to ensure that they correctly promote the product/service. The agreement also outlines the duration of the arrangement and the compensation to be paid to the representative.
Another advantage of the agreement is that it is a cost-effective way for a small company to have an independent sales force, without spending too many resources on hiring an entire sales team. Having a written agreement minimizes the chance of a dispute due to uncertainty. The agreement serves as a blueprint for the relationship between the parties. In this case, the company and the sales representative are aware of their responsibilities under the agreement and hence can work smoothly.
Key Terms of a Sales Representative Agreement
The following are some important terms that should be incorporated in the agreement-
- Names of the parties
- Appointment of the sales representative
- Tenure of the appointment
- Nature of relationship
- The territory where the sales representative will function
- Customers the sales representative should seek
- The selling price of the products/services
- Obligations of the representative under the agreement
- Compensation of the sales representative
- Duties of the company
- Grounds for termination
- Governing law of the agreement
- Signature/seal of both the parties
How to Draft the Sales Representative Agreement?
There are certain things to be kept in mind when drafting this agreement-
- Both parties should carefully consider how the arrangement would benefit them. The representative will be the face of the company while the quality of the products/services will reflect on the representative’s reputation. Thus, both should understand the agreement before signing it.
- In the ‘Appointment’ clause, state clearly if the appointment of the sales representative is exclusive or non-exclusive. If it is exclusive, neither the company nor anyone else can sell the same products/services within the territory mentioned in the agreement. In addition to this, the sales representative cannot sell a similar product of a competitor during the subsistence of the agreement.
Clearly state that the representative is not an employee or partner of the company.
- Define the term of the agreement and the territory within which the representative will function.
- Define the responsibilities of both parties and ensure that they are understood in the same sense.
- An important clause is a manner of providing compensation to the sales representative. Usually, they are paid in the form of a commission, which is a certain percentage of the sales that they make. The company should clarify if it paid for any expenses incurred by the representative for business purposes.
- List the grounds on which the agreement can be terminated.
- Both parties should agree on the law that will govern the agreement. In case of a dispute, this law will be applied to interpret the terms of the contract. Usually, the state’s law, where the company operates its business, is chosen as the governing law.
- Ensure that both parties sign the agreement, and the date is mentioned.
Types of Sales Representative Agreement
- Manufacturer’s sales representative agreement– This is a direct contract between the manufacturer and the representative, who may sell the product or service to wholesalers, retailers or directly to the consumer.
- Wholesaler’s sales representative agreement- Under this contract, the representatives represent the company to other retailers or individual consumers.
- Retailer’s sales representative agreement- The representatives deal directly with the consumers who come to the product’s store. They need to have special knowledge of the product, its features, and prices.
Sales representative definition
A sales representative is a professional who is engaged by a company to sell its product or service. Most of them work directly for the manufacturer of the product and sell it to other organizations that further sell it to the consumers.
Sample Sales Representative Agreement
A Sample Sales Representative Agreement can be downloaded below.
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