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Length of contract term and buy-out clause

Max Action

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Researching distributors currently, and wondering what sort of terms others are negotiating for contract termination.

For those of you with exclusive contracts, do you have a defined termination date where the contract will end or require renegotiation? What's a reasonable lenght of term to expect for a new start-up with no track record?

There will also be a clause for early termination allowing us to buy out the contract for a certain amount based on prior year(s) sales. Anyone with an opinion on what a fair buy-out amount is?

The first draft contract we've seen from a distributor has no termination date for us, but distributor can cancel anytime with 60 days notice. If we want out, they are wanting us to pay a buy-out (amount yet to be negotiated).

This deal is with a small local distributor, who I expect to get good results from. My fear is that if we need to expand with a larger distributor down the road they will require our local territory too before taking us on elsewhere. Has anyone had luck getting a big distributor that didn't require the local territory too?

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  • 4 weeks later...

Thanks, anyone else with some input? I understand some members here have some reluctance when it comes to simply sharing info they've spent long hours leaning themselves the hard way, and I can appreciate that.

But I think when it comes to negotiating with distributors, this is an area that it would benefit us all if we could be more transparent about what terms we're all negotiating.

Or are some of you signing contracts that require your confidentiality?

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  • 4 weeks later...

Yes, I know each deal will be different. However, knowing what those differences are should help everyone here when it comes to their own negotiating.

So what deals have you made with distributors?

The distributor I'd like to work with wants 25-30% (depending on various marketing factors), with no termination date and a buy-out clause (still to be negotiated, based on prior sales volume) if I switch to someone else.

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  • 1 month later...

I have 3 distributors that have all signed virtually the same contract. There is no buy out clause, either party can opt out of the contract with a 30 day notice. Two of them get 28% mark-up and one gets 30%. One of the one's that finally signed at 28% wanted to be able to mark-up whatever the market would bear; since I had never heard of that I refused. Other provisions have them making there own POS, running sampling programs (which none of them do), give me reports (very hard to decipher) and projections (haven't got one yet). I'm not happy with their performance and am at my wit's end on what to do about it, other than expand my territories to include the whole state of Wisconsin (get 2 or more distributors in the Southern part of the state).

The two distributors that get 28% came to me seeking to carry my flavored rum.

The first distributor that I had picked up my brand, I think, in an attempt to sit on the product and drive me out of business. Then they dropped me after 6 months (no contract).

My second distributor (which I still with); first tried to buy me out, then encouraged me to expand and then stopped ordering; but I held in there. Then they tried to get me to sign and exclusive contract with them so they would own the distribution rights for all my current and future brands. When I said that they could have that drawn up and I would have an attorney look it over, they decided that we didn't really need a contract. That's when I had a contract drawn up with a focus on Wisconsin liquor laws.

I really don't think I have the right contract; I think the distributor's are mad, but felt they had to sign for their territories so no one else could. They had recently lost Rum Chatta and felt they needed something to fill that niche.

Any advise anyone could provide would be greatly appreciated.

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