5 Reasons to Have an Agency of Record for Ecommerce and Marketplaces; Avoid Hitting Multiple Nexus for Tax Purposes
If your business sells products through ecommerce and marketplace platforms, you need to have an agency of record.
Some of you may be more familiar with this concept than others. It’s possible that some of your businesses have even worked with an agency of record in the past.
But regardless of your prior knowledge on this topic, this guide will be extremely beneficial for you and your company.
Let’s start with the basics.
Traditionally, an agency of record is responsible for services such as advertising, brand strategy, digital marketing, and web development services. These agencies have the power to manage media on behalf of the company that hired them.
Agencies of record have the authorization to do things like purchase advertising space based on the terms and agreement with their clients.
However, there are additional benefits of an agency of record that most people don’t realize.
This relationship goes far beyond a marketing standpoint. For businesses that operate through ecommerce and marketplace platforms, an agency of record can make your life much easier when it comes to being compliant with state and federal laws.
As an ecommerce brand, you always need to stay up to date on the latest rules and regulations for your industry. That’s why I recently wrote about Proposition 65 compliance, regulation, and warnings.
Nearly every business that operates by selling goods online can benefit from this guide.
I’ll tell you the top five reasons why you need an agency of record.
We’ll also go into greater detail about different channels and platforms this relationship can be used for. You’ll learn how the structures of these relationships work, and even how an agency of record can benefit manufacturers and larger brands.
Here’s what you need to know.
Reasons Why You Need an Agency of Record
From a marketing perspective, an agency of record can be your one point of contact for virtually everything that you do.
It’s much easier to just deal with one agency than several. That’s why you should be looking for a digital agency of record that can handle all of these responsibilities.
But an all-in-one agency of record can do much more for you than just assist you from a marketing perspective.
An agency of record can help your company expand their operations. Those are the aspects that I wanted to focus on in this guide.
These are the top five reasons why you need an agency of record for your ecommerce and marketplace business.
1. Accounting and Tax Reporting
Large companies are already hitting a lot of nexus tax requirements. These tax burdens and responsibilities are holding them back from expanding.
They don’t want to add new channels of incoming money because it’s a nightmare from an accounting standpoint.
Allow me to explain.
For example, let’s say you have a large company with 1,000 resellers and B2B manufacturing operation.
You’re probably hesitant to start an ecommerce business or sell products through platforms like Amazon or eBay. It’s not like you don’t want the extra income. But in order to make this happen, you would have to create additional merchant accounts, ship products to different states, and become liable for sales tax and income tax reporting.
This expansion of your company creates a headache for your accounting department.
However, an agency of record solves this problem. By partnering with an agency of record, you won’t have to deal with these details from an accounting and tax reporting standpoint.
Optimum7 can be an agency of record for these larger companies who do not want to deal with these types of issues.
We can operate the website and bill the company, relieving the business of any liability. But the large company will still own the ecommerce store and operations.
2. New Supreme Court Ruling on State Sales Taxes
If you’ve been following the news lately, which you should be, you now know that laws have changed for ecommerce companies and state sales tax laws.
On June 21, 2018, the supreme court made their decision on the case of South Dakota vs. Wayfair, Inc.
The 5-4 ruling reversed prior court precedents that prevented states from imposing sales tax requirements on businesses without a physical location in their jurisdiction.
Basically, before this ruling, a state could only collect sales tax if an ecommerce company had storefront, warehouse, office, or distribution facility within those state lines.
But this is no longer the case. Now states can collect sales tax based on an economic presence, as opposed to a physical one.
Here’s a map to show you how this new ruling is affecting different states.
While some states haven’t taken action yet, it doesn’t mean that they won’t do so in the future.
This is huge news for ecommerce businesses as well as Amazon and 3rd party logistics providers (3PL).
The supreme court ruling was a bit ambiguous. For example, it’s unclear whether a tax should be collected based on the billing address or shipping address. These will be left up to the states individually, so there will likely be different requirements between each state.
It can be extremely difficult for you to handle all of this on your own.
An agency of record can help manage these new requirements for you today, and in the future as your company starts its expansion.
3. Less Responsibility for Operations and Customer Support
By hiring an agency of record, you’ll be able to free up some of your time and resources.
When it comes to managing your operations and customer support with your ecommerce and marketplace sales, the agency can handle this for you.
It makes sense. If the agency of record is going to be managing your ecommerce site, they should also be the ones handling the logistics of things like a customer inquiry through that platform about a return or question about their order.
You already have enough on your plate.
By allowing an agency of record to reduce your responsibilities, you’ll be able to focus on other areas of your business, such as big picture operations.
You’ll also have more time to prioritize product development and quality control.
From a manufacturing standpoint, you’ll have more time to make your process more efficient and cost-effective.
4. Solve Compliance Issues
Some businesses must have resellers in order to operate.
For example, a company like Heineken cannot sell alcohol directly. They need to have resellers in order to be compliant with certain regulations and agreements.
There are many industries like this.
So if your company has specific regulations for how you distribute and sell your products through a reseller, you would greatly benefit from this type of arrangement with an agency of record who can handle this for you.
5. Merchant Account Limitations
This is similar to our last point.
Depending on certain rules or restrictions, you may have merchant account limitations.
For example, there may be certain countries or physical locations where your company cannot operate.
The structured agreement with an agency of record would make sense for any large company with these types of limitations.
Channels and Platforms
It’s important for you to understand the types of distribution channels and platforms that are related to an agency of record.
When selling products online, it’s not always as simple as going from A to B. The three main methods for distribution are:
Some of you may be currently operating on one or more of these types of platforms. If you hire an agency of record, you can expand your operation with greater ease.
An ecommerce operation is pretty straightforward. These websites are common for businesses both large and small.
It’s a growing industry. Just look at retail ecommerce sales in the United States alone.
For the most part, when people think of ecommerce, they automatically think of a business selling products online directly to the consumer. But that’s not always the case.
If you have a large brand that is a manufacturer, B2B operation, or reseller, you can use the website model to get into ecommerce.
However, as we’ve discussed above, expanding your operation on your own will have some potential obstacles.
By working with an agency of record on this expansion into ecommerce, your transition will be much easier.
Marketplaces have those same problems.
Sometimes businesses will sell their products through a marketplace instead of through an ecommerce site, or in addition to their ecommerce operation.
Here’s are some common marketplaces that you’re probably familiar with.
Right away, Amazon is usually the first marketplace that comes to mind for most people. Don’t get me wrong; there is nothing wrong with selling on Amazon.
But it’s always important for you to be aware of your other options. You should be aware of how to diversify your ecommerce business with Amazon alternative marketplaces.
An agency of record can help you expand your large company by selling products through these types of marketplaces.
I think the term reseller is pretty self-explanatory. These businesses act as a middleman between the manufacturer and the buyer.
Some of these large companies have resellers that they do not want to disturb.
They might plan to create a new reseller base with different rules to protect their MAP pricing as well as their distribution channels.
Working with an agency of record will allow you to set this up without disturbing your existing relationships with other resellers. You can even treat the agency of record like another reseller, which we’ll talk about in greater detail later.
Consulting Agency of Record Relationships and Structures
When you’re looking for an agency of record, it’s important that you find one that can fit the needs of your business.
Refer back to the image I showed you earlier that compares one agency to multiple agencies.
Obviously, it will be much easier for you to just deal with one person that can handle everything as opposed to several points of contact or doing it yourself.
You need to have an agency of record that goes beyond the marketing scope of your operation.
Here’s what you should look for.
Whenever you’re hiring anyone to help your business, their experience is always the first thing you should consider.
For example, let’s say you were building a mobile app for your company. Would you hire a developer who has never built an app before? Hopefully not.
Sure, they might be appealing based on their price, but their lack of experience will ultimately show in the final product.
The same concept can be applied to an agency of record. Look for a company who has done this before an knows how to handle all of your needs.
Here at Optimum7, we’ve done this multiple times and have the experience required to help your company grow.
With experience comes expertise. We know ecommerce inside and out.
Specialized knowledge is a top reason why CMO’s prefer to work with an agency of record.
The personalized touch that comes with this expertise goes a long way as well.
You don’t want to have to jump through hoops to get in contact with your agency of record. It’s much easier to just pick up the phone and call, or simply send an email if that’s easier for you.
Find an agency that will know your name. They’ll treat your operation with the same level of care as you would yourself.
As you can imagine based on everything we’ve covered so far, proper legal consultation will be required for this relationship to work properly.
That’s absolutely necessary in order to give an agency the power required to handle these operations.
Again, this relates back to our previous points about experience and expertise. You don’t want to find a lawyer that’s never done this before.
There are attorneys that we work with here at Optimum7 who can draft the necessary agreements to make all of this possible.
Benefits of an Agency of Record for Manufacturers and Larger Brands
Large brands and manufacturers have so much on their plate on a daily basis. If you fall into either one of these categories, you know exactly what I’m talking about.
At times, this can be overwhelming.
Expansion and growth go far beyond being able to produce your products at a higher volume.
There is much more going on behind the scenes for this to be successful. I want to take a moment to just highlight the top benefits for larger companies and manufacturers.
The last thing you want to do is be non-compliant. If you break agreements or regulations on various levels, it could be a huge problem for your company.
Depending on your industry, non-compliance could result in penalties, fines, or even losing a license to operate.
But an agency of record will resolve any of these compliance issues based on the structure of your agreement with them.
If any agency of record is the one handling distribution through certain platforms like an ecommerce website or marketplace, it limits your liability.
Yes, you’re still the owner of everything. But based on the legal agreement between you and your agency of record, it forces them to be held responsible for certain elements.
Avoid Hitting More Nexus
You already have enough tax requirements.
Hiring an agency of record will help prevent you from certain nexus taxes.
Different transactions will be processed and taxed differently based on things like the location. It can be very difficult to keep track of all this for each transaction made online.
When you hire an agency of record, you won’t have to keep track of any of this. They’ll do all of the heavy lifting for you.
Avoid Dealing with Paying State Sales Taxes
This piggybacks of off our last point and also relates back to our discussion earlier regarding the most recent Supreme Court ruling on this matter.
The agency of record will take care of all of this for your company. It gives you one less thing you have to worry about.
Cleaner Accounting Structure and Balance Sheets
For those of you with a large business or manufacturing company, your current accounting statements and balance sheets may already be complex
Expanding your online sales to additional distribution channels that we talked about above could make your accounting structure much more complex if you do it on your own.
But that won’t be the case if you hire an agency of record. You’ll likely only need one additional line on the balance sheet for this.
Treat the Agency of Record as Another Reseller
The relationship with your agency of record can be treated the same way as another reseller.
By giving them the right to sell your products through different channels, it makes your logistics so much easier.
How to Hire an Agency of Record
Now that you know why it’s so important to have an agency of record if you have a large company or manufacturing business that you’re looking to expand, it’s time to find one.
If you start browsing online for an agency of record, you might be overwhelmed with the amount of hits in your search results.
But remember everything we talked about earlier. You need to make sure you find an agency that can handle all of your needs.
Hire an agency that is experienced with a high level of expertise and has the legal consultation to make this arrangement possible.
Contact Optimum7. We fit the requirements for everything that has been outlined in this guide.
Our expertise will help you expand your operations with ease through ecommerce and marketplace distribution channels.