Setting non-sales targets in medical device distribution agreements
So you found a great distributor—now what? Medical device manufacturers often underestimate the time and money needed to establish and nurture distributor relationships. And, sometimes they overlook the importance of a strong distributor agreement, which is the foundation of a lasting distributor relationship.
Elements of a distribution agreement
Executing a quality distribution agreement requires diligence and careful attention to the needs of your business. A contract that clearly explains the expectations, responsibilities, and obligations of both parties is essential to starting your relationship on the right foot. There are many factors to consider, including:
- minimum sales and service levels,
- return policy for your product,
- conditions of sale for your device,
- legal governance,
- and conditions under which you or your distributor may cancel your contract.
The last point is important, as many companies cite “not meeting sales targets” as cause for termination. However, if you are marketing new technology, specific sales targets are difficult to define, as new technologies often require hefty marketing efforts and may not bring large sales numbers for one or two years. In these cases, you want to make sure your partner is ready to commit with the promise of future returns. And, you need a way to gauge your progress as you build momentum with your product.
Importance of non-sales targets
“Non-sales targets” allow you to measure the performance of your distributor in the absence of concrete sales figures. For example, if you need to get buy-in from certain Key Opinion Leaders (KOLs), make sure to quantify the required number of KOL meetings per month in the contract. If your distributor is not having these meetings, you know you won’t get sales in the future and it’s best to find a new distribution partner sooner than later. Other examples of non-sales targets include:
- calls on doctors/pharmacies
- publishing “free publicity” articles
- attending trade shows
- marketing campaigns
Don’t wait for disappointing sales numbers three years down the road. While formal sales agreements are recommended long term, do not be afraid to explore the “handshake agreement” and try out a new distribution partner for six months or so. Take the time to travel with sales people on sales calls, both to train them on your products and to learn about the company you have partnered with. A couple of days on the road with a sales person with tell you more about your distribution partner than a year of e-mail exchanges. Sometimes this route can get your business plan up and running faster.