Dealer vs distributor comes down to who each one sells to. A distributor buys in bulk from a maker or importer and resells to shops and dealers across a region. A dealer sells to the people who use the product, often as the brand's local outlet, with service after the sale.
Both buy and own the stock they sell, which separates them from an agent, who sells for a commission. For a maker, the choice is a trade: the distributor's margin pays for delivery, credit and reach you would otherwise fund yourself.
This guide compares the two and works the margins through for a Kampala maker in Uganda shillings. It also sets out what competition law in four African countries, and a good contract, say about prices and territory.
Dealer vs distributor: the differences in one table
The two differ most in who they sell to, how much they buy and who carries the credit. The table sets them side by side.
| Point | Distributor | Dealer |
|---|---|---|
| Buys from | The maker or importer, usually under a written agreement | A distributor, or the maker directly |
| Sells to | Shops, dealers and institutions | The people and businesses that use the product |
| Owns the stock | Yes | Yes |
| Buys in | Truckloads and full cartons | Cartons and single units |
| Territory | A region or a whole country | A town or a district |
| Credit | Takes credit from the maker and gives it to shops | Pays its supplier, and may give credit to regular customers |
| After-sales | Sometimes, as a value-added distributor that installs and repairs | Often: demonstrations, warranty claims, spare parts |
| Brands | Often one maker's range in each category | Often several competing brands |
| Examples | A regional distributor of cooking oil, soap or cement | A motorcycle dealer, an agro-dealer selling seed and fertiliser, a phone shop |
The words change from trade to trade, so the agreement, not the title, decides what each party does.
What is a wholesale distributor?
A wholesale distributor buys from many makers and breaks bulk for retailers, usually without an agreement with each maker. It competes on price and range, not on service. In many African towns it is the wholesaler on the market street.
How is an agent different?
An agent finds buyers and takes orders for the maker, for a commission, and never owns the stock. The maker keeps the stock, the credit risk and the price. Some articles say distributors don't own the goods they sell: that describes an agent.
Which is better for a maker or an importer?
A distributor is better when your buyers are spread out, when you can't carry many small debts, or when you enter a new country. Selling direct to dealers is better when they sit within your delivery radius and the product needs training or service. Many makers do both: direct in the capital, distributors upcountry.
| Choose a distributor when | Sell direct to dealers when |
|---|---|
| Your buyers are spread over many towns | They sit in one city you can deliver to every week |
| You can't fund and collect credit for 60 shops | You can fund it, and you have someone to collect it |
| You are new to the country or region | You already have a sales team there |
| The product sells off the shelf | It needs demonstration, installation or repairs |
| You want one account to manage | You want to see every customer and set service standards |
The margins, worked through
Compare the distributor's margin with your full cost of serving dealers yourself, not with zero. Small deliveries, credit, bad debts and a sales team all cost money that the distributor's margin replaces.
For example, a Kampala maker sells 5-litre jerrycans of liquid soap. The shelf price is UGX 25,000, and dealers buy at UGX 21,500 by either route. The figures are illustrative.
| Who | Buys at | Sells at | Margin |
|---|---|---|---|
| Maker | 19,000 to the distributor | ||
| Distributor | 19,000 | 21,500 to dealers | 2,500, or 11.6% of its selling price |
| Dealer | 21,500 | 25,000 to customers | 3,500, or 14% of the shelf price |
| Line | Through a distributor | Direct to dealers |
|---|---|---|
| Price received | 19,000 | 21,500 |
| Delivery | −300 (full trucks to one depot) | −1,200 (small drops to many shops) |
| Credit for 30 days, at an example 18% a year | −281 | −318 |
| Bad debts, at an example 2% | None: one account, under a bank guarantee | −430 |
| Sales staff and vans | −100 | −1,500 |
| Maker keeps | 18,319 | 18,052 |
Here the distributor route keeps UGX 267 more per jerrycan, although the maker gives up 2,500 of margin. Serving dealers directly costs this maker 3,448 per jerrycan.
One line can change the answer. Cut delivery to 900 in a dense part of the city, and direct selling keeps 18,352, which beats the distributor route by 33.
Margin and markup are easy to mix up here. The distributor's 2,500 is 11.6% of its selling price but a 13.2% markup on its cost: see markup vs margin.
What the law says about dealers' prices and territories
Fixing the minimum price dealers charge is against the law in Kenya, South Africa and Nigeria, and Uganda's Competition Act lists it too. Kenya, South Africa and Nigeria allow a recommended price; Kenya and South Africa require you to say it isn't binding.
| Country | Fixing a minimum resale price | Recommended price | Exclusive territory |
|---|---|---|---|
| Kenya (Competition Act 2010) | Listed as a restrictive practice, s.21(3)(d) | Allowed if stated as not binding, with "recommended price" next to any price you print, s.21(4) | Dividing markets by area is listed too, s.21(3)(b) |
| South Africa (Competition Act 1998) | Prohibited, s.5(2) | Allowed on the same conditions, s.5(3) | Judged by its effect on competition, s.5(1) |
| Nigeria (FCCPA 2018) | Void, and you may not tell dealers of one, s.63(1) and (2) | May be published, s.63(4) | Not covered by s.63 |
| Uganda (Competition Act 2023) | Listed as an anti-competitive vertical agreement, s.9(4)(e) | No exception in s.9 | Exclusive distribution agreements are listed too, s.9(4)(c) |
Read the table as a reason to take advice, not as advice. Distributors often ask for an exclusive territory. In Uganda and Kenya, have a lawyer check that clause before you sign.
What to get in writing
Put every point below in the agreement before the first delivery. Each one settles a common dispute in advance.
- Territory and customers. The districts or counties, whether they are exclusive (see the law above), and who serves large buyers such as supermarkets.
- Products. Which ones, and whether new products join automatically.
- Targets. The minimum the distributor buys each quarter, and what happens if it falls short.
- Prices. Your price list, the notice you give before a change and, for importers, how prices follow the exchange rate.
- Recommended retail price. Stated as not binding, in the words the law asks for.
- Credit. Days to pay, a credit limit, and security such as a bank guarantee.
- Stock. The minimum stock the distributor holds, how it is stored, and how expired or damaged goods come back.
- Sales reports. What it sold, to which dealers, every month. That is your sell-through, as against your sell-in.
- Service. Who handles warranty claims and who pays for repairs.
- Competing brands. Whether the distributor may sell them.
- The end. The notice period, and whether you buy back unsold stock, and at what price.
A distributor that won't buy stock may ask for consignment instead: you own the goods until they sell. Consignment inventory covers the terms.
An importer appointed as a brand's sole distributor signs the same agreement from the other side. Ask for a term long enough to earn back what you spend building the brand, and for a stock buy-back if it ends.
Buying for your shop: distributor or dealer?
Buy regular stock from the distributor and urgent small quantities from a dealer. The distributor's price is lower because you take full cartons; the dealer is nearer and faster when you are about to run out.
- Buy from a distributor for lines you reorder every week, when you can take full cartons, and when you want credit terms.
- Buy from a dealer when a best seller runs out before the next delivery. A dealer also suits one item a customer has ordered, or a product you want to try first.
Every emergency purchase at a dealer's price is a sign that a reorder level is too low. Inventory purchasing covers suppliers, orders and terms.
How to do it in ArmPOS
ArmPOS records both sides of the trade: the dealers you sell to and the distributors you buy from.
If you sell to dealers
- Give each dealer a credit limit. Add them as a customer with a Credit Limit. The POS refuses a sale that would take what they owe above it (Customers).
- Set a wholesale price. Give each product a Wholesale Price beside its Retail Price. Each line in the cart switches between the two (The POS screen).
- Record phone orders and deliveries. Sales › Add sale records a sale to a business customer with its own date and warehouse. It can be paid in full, in part or later (Add a sale without the POS).
- Follow what each dealer owes. Open their Customer Ledger, or read Total Sale Due for everyone in the Customers Report. The Inactive Customers Report lists dealers who stopped ordering (Customer and supplier reports).
- Keep regional depots as warehouses. A transfer moves stock between them once someone with permission approves it (Move stock between warehouses).
If you buy from distributors and dealers
Record each one as a supplier and each delivery as a purchase into the right warehouse (Record a purchase). The Suppliers Report shows what you owe each one. The Product purchases report shows what you paid each supplier for the same product, so a dealer's higher price stands out.
Frequently asked questions
Is a distributor better than a dealer?
For a maker with buyers across a country, usually yes, because the distributor carries delivery and credit. For a shop buying stock, the distributor is cheaper and the dealer faster.
Can a business be both a dealer and a distributor?
Yes. A firm can distribute a brand to shops in one region and sell to users from its own showroom. The agreement should say which prices apply to which customers.
Does a distributor own the stock it sells?
Yes. A distributor buys the goods and carries the risk of not selling them. An agent doesn't, and consignment sits between the two.
What margin does a distributor take?
It varies by trade, and no reliable public figure covers African markets. Work out what serving dealers yourself would cost per unit: that is the most the distributor's margin is worth to you.
Can I stop a dealer selling below my price?
In Kenya, South Africa and Nigeria, you can't impose a minimum resale price, and Uganda's Act lists it as anti-competitive. You can publish a recommended price, stated as not binding.
Work out your cost of serving dealers per unit this week, with the table above, before you sign or renew a distribution agreement. Create a free ArmPOS account to give each dealer a credit limit and a wholesale price. Makers and shops in Uganda can start from ArmPOS in Uganda.
