How to set dealer territories without fights

A territory fight can start with a sentence nobody questioned when it was written, such as "Hassan and surrounding areas". Two dealers each read "surrounding" as their own, and the maker finds out when both phone on the same day. The cure is not a bigger map. It is five short clauses, each worded so that a dealer can check any order against it without calling you. The wording below is a starting point to adapt, and your own lawyer should look at the final agreement.

Clause one: the area is a list of pin codes

The dealer's area is the pin codes listed in Schedule A.

Attach the list. "District" and "surrounding" are arguments waiting to happen, while a pin code either is on the list or is not. Do not hand a whole district to a dealer in its biggest town. That dealer will serve the town, ignore the villages, and sit on protection you are paying for.

Protection is a trade, so state the other half as well.

If the dealer's purchases fall below the minimum in two consecutive periods, the company may appoint another dealer for any pin code the dealer has not served.

Name the periods and the minimum in the contract, not in a message. A new dealer who has not yet bought from you should have the area stated at once, but switch the protection on only after the dealer has met an opening target.

Clause two: a walk-in from outside the area

A sale to a customer outside the dealer's area is permitted. The dealer whose area it is receives [a stated share] of the dealer margin.

You have three honest options, and the clause should say which you chose. The billing dealer can keep the sale, which is right when walk-ins are rare. The home dealer can get a referral share, which suits cases where that dealer will install or service the product. Out-of-area sales can be refused, with the buyer sent home. That fits only products needing local service you cannot give remotely.

The middle option is the easiest to defend, because it keeps the buyer, the dealer who found the buyer and the dealer who must look after the buyer all in the story. Whichever you pick, give the figure as a share or formula, never "a fair amount".

Clause three: a shared city

In [city], Dealer A serves [localities or customer type]; Dealer B serves the rest.

Shared cities hold when you can check the split from an invoice. Locality works in a metro. Customer type works when one dealer sells to homes and the other to builders and institutions. Splitting by who reached the customer first works for nobody, because both dealers will swear it was them.

If a dealer registers a project, such as a school or a hospital, protect it for a stated period and pay the registering dealer even if another dealer's showroom delivers. Without that, dealers stop registering projects and you hear about them only after they are lost.

Clause four: your own website and marketplace sales

Company online prices will not be below the dealer's recommended selling price. Orders needing delivery or fitting in the dealer's area are offered to that dealer first.

A dealer can read your online listing as the manufacturer competing with them. You do not need to avoid it. You need to say what it is, and to price it at or above their selling price. Large government and institutional orders may stay with you. Say so, state the order size above which that applies, and say what the dealer gets from it.

Check the price clause with your adviser. Competition rules differ and change, and an advertised price you set for your own site is a different matter from fixing a dealer's resale price. The related post on stopping dealers discounting below the agreed price covers that line.

Clause five: how and when the area is taken back

The area may be reduced on [number] days' written notice if clause one is triggered.

Put the exit in writing now, while the relationship is good. A dealer who agreed to the trigger on day one has less ground to complain on day four hundred.

Give every dealer the same wording. Different promises to different dealers are exactly how the fights return, since dealers compare notes.

An invented example: a laminate maker with dealers in Hassan and Shivamogga

Take an invented laminate and plywood brand from Rajkot with two Karnataka dealers, one in Hassan and one in Shivamogga. Each agreement said "the district and nearby towns". Within a season the Shivamogga dealer was billing customers in Chikkamagaluru, which the Hassan dealer had always treated as that dealer's own. The maker had also listed a best-selling laminate on a marketplace a little below both dealers' prices, and each dealer assumed the other had agreed to it.

The repair took one meeting. The maker replaced "nearby towns" with pin code lists. The maker adopted a share for out-of-area sales, set the marketplace price level with the dealers' price, and offered marketplace orders that needed fitting to the nearest dealer first. Chikkamagaluru was split by locality, because both dealers already had customers there.

The Hassan dealer did not get everything it wanted, and Chikkamagaluru stayed tense for a season because each dealer suspected the other of reaching into the shared customers. What both got was a document they could read, which was what the quarrel had been about.

When not to promise an area

Not on the first order, and not where you do not know the market. Exclusivity over a town you have never sold in can sit unused for years while a better dealer waits outside.

Test the draft on five recent orders. For each, ask who would be paid and whether both dealers would call it fair. If you cannot answer within a minute, a clause is not yet clear.

Show the draft to two dealers first

Send the pin code lists and the five clauses to your two strongest dealers before you issue them. Their objections are likely to be the ones the rest raise later. Channel territory planning is the service that builds the lists and rules with you, and the rest of our sales work sits under sales. To start, tell us what you need.