10 things to look for in a broker contract

10 things to look for in a broker contract

Make sure you’ve got everything in writing before you jump into a broker relationship. It keeps things from getting messy down the road. Look for these 10 items in your broker contract before you sign.

We prefer simple contracts in lay-person English. Sometimes brokers have “standard contracts” and sometimes you have one you have developed and refined. Use one you are comfortable with and have your attorney review the basic template to ensure that all your interests are covered.

The basic contract covers the following:

1. Product lines, brands represented. If a private label is specifically excluded, say that.

2. Market segments. Usually itemizes customers and classes of trade. Note any exclusions such as house accounts or specific channels, such as c-stores or military.

3. Territory/region. Spell it out. For example, “Northwest” is defined as the states of Washington, Oregon, Idaho and Alaska. Or it can be “Metro New York”—the five boroughs of New York City, Long Island, Westchester County, Fairfield County and Northern New Jersey down to Tom’s River.

4. Commissions. Spell out percentage paid (usually on net sales: defined as gross sales less returns, discounts and allowances) and when paid—e.g., “Commissions are paid on monthly shipments on the last day of the following month.” Note: Some folks pay on product invoiced less deductions (allowances, spoils returns, discounts, etc.), and some folks only pay on payments actually received during the period. Make sure you are clear with your broker what your system is so you each have the same expectations.

5. Term. Usually one-year renewable.

6. Termination. Usually with 30 days written notice by either party. Some brokers negotiate for a longer notice period, which ends up being more “severance” if you terminate the relationship, but the norm is 30 days.

7. Confidentiality. All materials supplied by the manufacturer are considered proprietary.

8. Broker responsibilities. Spell these out: headquarter and end user work, recommendation and implementation of promotional programs, and assistance with clearing up improper deductions and past-due invoices.

9. Summary statement.

10. Addendum. There may be addendum items, such as lists of customers that are commissionable, specifics on geographic territories, exclusions, etc. 


This content is excerpted from the Natural Products Field Manual, Sixth Edition, The Sales Manager’s Handbook, written by Bob Burke and Rich McKelvey. To learn more about or purchase the Natural Products Field Manual, visit the Natural Products Consulting Institute website.

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