The difference is ownership. A sales representative or manufacturers' agent never buys your product — they find customers, you invoice the customer directly, and the rep earns a commission. A distributor buys from you, takes title and inventory, and resells at their own price to their own customers. Everything else that matters — margin, control of pricing, who handles support, how fast you can enter a market, and how hard it is to change course — follows from that single distinction.

The sales representative model

A rep is a local intermediary paid on results. They know the buyers, they carry a portfolio of complementary lines, and they open doors that a foreign supplier cannot open cold. Commissions vary widely by industry and deal size, commonly landing somewhere in the single digits to mid teens as a percentage of the sale.

What you keep: the end-customer relationship, control of pricing, direct visibility into who bought what and why, and the freedom to change positioning quickly.

What it costs you: you carry the operational load. You invoice, you ship, you collect payment, you handle returns and warranty, and you take the credit risk. You also depend on how much attention your line receives inside a portfolio where you may be the smallest item.

The distributor model

A distributor buys at a wholesale price and sells at their own. Your margin is lower per unit, but your operation is dramatically simpler: you ship pallets to one address and invoice one business you can credit-check.

What you gain: local stock so customers get short delivery times, local support and often local-language service, a single customer to manage, marketing investment from a partner with skin in the game, and immediate access to existing shelf space and account relationships.

What you give up: unit margin, control of retail pricing, and direct contact with end users — which means you lose the feedback stream that drives product improvement. You also become dependent: if the distributor underperforms, you may have no other route into that market and no idea why sales are flat.

Side by side

  • Who takes title: rep never; distributor always.
  • How they are paid: commission on sales; margin between wholesale and resale.
  • Who holds inventory: you; the distributor.
  • Who sets the end price: you; the distributor.
  • Who owns the customer relationship: you; the distributor.
  • Credit risk: spread across many end customers; concentrated in one partner.
  • Cash flow: slower, many small invoices; faster, larger orders.
  • Support burden: yours; largely theirs.
  • Speed of market entry: moderate; fast where the distributor is established.
  • Ease of exit: generally simpler; usually contractual and slow.

How to choose

Product and stage decide it more than preference.

  • Reps suit high-value, low-volume, technical products with long sales cycles and configuration or specification work — capital equipment, instruments, industrial systems. If each sale needs engineering dialogue and installation planning, you want the customer relationship in your own hands. The process behind those sales is covered in the B2B sales process for a physical product.
  • Distributors suit lower-value, higher-volume products sold through retail or trade counters, where local stock, fast delivery, and broad coverage matter more than a technical conversation.
  • Early stage often favors a rep, because you desperately need direct feedback from the first customers in a new market and cannot afford to be insulated from it.
  • Later stage favors distribution, once the product is stable, the support material exists, and volume is what you need.
  • Hybrid arrangements are common: a distributor for standard products and a rep for large custom projects, or a rep first and a distributor once the market is proven.

Whichever model you pick, do the pricing arithmetic before you negotiate, not after. Channel margin has to exist inside your price from the beginning — work it through using how to price a product and set the wholesale structure with volume pricing tiers.

What the agreement has to cover

Most channel disasters trace to a vague agreement. Points to settle explicitly:

  • Territory, defined precisely, and whether it is exclusive.
  • Performance conditions. Exclusivity should always be conditional on minimum purchase or sales volumes, reviewed on a set schedule.
  • Term and termination. Duration, notice period, cause, and what happens to unsold stock and pending orders.
  • Pricing and discount structure, including who may set end-user prices where local law permits.
  • Delivery terms. Which Incoterm applies, who arranges freight and customs, and where risk passes — compare FOB, EXW and CIF.
  • Warranty and returns. Who repairs, who stocks spares, who pays freight on a defective unit.
  • Certification and local compliance. Who obtains and pays for market-specific approvals, labeling, and language requirements.
  • Trademark and branding use, plus who owns registrations in that territory — a frequent and expensive surprise. See trademarking a product name.
  • Reporting. Sales data, customer lists where permitted, and stock levels. Without reporting you are blind.
  • Governing law and dispute resolution.

Channel agreements are legal instruments, and rules on agency, exclusivity, and termination differ sharply between jurisdictions — some countries grant terminated agents statutory compensation. Projects House is an engineering firm, not a law firm; this section is educational, and a lawyer experienced in international distribution should draft or review the contract.

Preparing the product for a channel

Both models expose the same weaknesses: missing documentation, no spare-parts strategy, packaging that fails in transit, and approvals that do not cover the destination market. Partners lose interest quickly when they discover any of these after signing. Getting the manuals, service parts, packaging, and compliance file ready before you recruit is what makes a channel partner productive in the first quarter rather than the third.

If you are preparing a product for distribution abroad and want the engineering and documentation side ready first, get in touch through the contact form and we will review what is still missing.