# Middleman in Business: Roles, Examples, and Why They're Important

![Businessman and businesswoman signing contracts with intermediary in between the two groups](https://www.investopedia.com/thmb/57lQFy6vChA9SJAO3epATvdfMtk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-923039580-90ffee579bca4625940465ea854fa499.jpg)

*— Getty Images / fizkes*

## What Is a Middleman?

A middleman helps connect buyers and sellers in business and financial transactions. They make transactions easier and support the supply chain, but using them can add costs. Brokers, agents, wholesalers, and distributors are all examples of middlemen. Technology and e-commerce have changed the role of middlemen, allowing some transactions to happen directly while still keeping middlemen important in many industries.

### Key Takeaways

*   A middleman is an intermediary that facilitates transactions between buyers and sellers, often earning a commission or fee.  
    
*   Middlemen can be agents, brokers, distributors, or wholesalers involved in various industries, such as real estate and financial services.  
    
*   Disintermediation refers to removing middlemen to reduce costs, leveraging direct interactions between buyers and sellers.  
    
*   Some industries require middlemen by law, such as alcohol distribution, which mandates purchasing through licensed distributors.  
    
*   The rise of e-commerce has enabled more direct transactions, reducing reliance on middlemen in some cases.

## Understanding the Role and Methods of Middlemen

Middlemen can be individuals, small companies, or large corporations with an international presence. The role of a middleman, or intermediary, is to facilitate interaction between parties, such as a buyer and a seller, typically in return for a [commission](https://www.investopedia.com/terms/c/commission.asp) or other form of fee that may be paid by the buyer, the seller, or both. People sometimes try to "cut out the middleman" to avoid extra costs, but it's not always possible or legal.

Middlemen can also make money by purchasing a product and then reselling it for more than they paid for it. This difference is called the "markup."

A typical [supply chain](https://www.investopedia.com/terms/s/supplychain.asp) in business may involve multiple middlemen, such as a distributor who buys raw materials to resell to a manufacturer or buys finished goods from a manufacturer to resell to a retailer.

Salespeople like real estate brokers match buyers to sellers for a commission, often based on the sale price.

In some industries, you can't avoid middlemen. For instance, car makers usually don't sell directly to consumers. Instead, their vehicles are sold through licensed dealers. The same is generally true for electronics, appliances, and other retail products. In some cases, manufacturers will have a say in how the middleman can market, advertise, or price the product and may offer them various incentives to increase sales.

[Stockbrokers](https://www.investopedia.com/terms/s/stockbroker.asp) are another common example of middlemen. While it is sometimes possible to [buy shares of stock directly](https://www.investopedia.com/ask/answers/06/directsharepurchase.asp) from the corporation that issued them, it is more common for investors to go through a broker, who will make the purchase on their behalf in return for a commission. In addition to handling the transaction, the broker may also provide advice to the client, such as whether the stock is a good buy or whether there may be better alternatives. In the case of mutual funds, investors often have an option to buy the very same funds either directly from the mutual fund company (known as [no-load funds](https://www.investopedia.com/articles/mutualfund/07/no-load.asp)) or through a stockbroker or financial adviser (known as [load funds](https://www.investopedia.com/terms/l/loadfund.asp)). In the latter case, the load, or sales charge, is paid by the buyer to compensate the broker or adviser for their services.

In many fields, such as real estate and financial services, middlemen are also subject to federal and/or state laws governing their behavior. In some cases they must also have passed certain tests and obtained the appropriate licenses to do business.

> **Important**
>
> The rise of e-commerce has changed the dynamics of where an intermediary fits in some types of transactions, often making it easier to cut out the middleman altogether.

## Legal Framework Surrounding Middlemen

In certain states, the sale of alcoholic beverages may be structured to require retailers, [bars](https://www.investopedia.com/articles/personal-finance/011216/economics-owning-bar.asp), and restaurants to purchase products through a liquor distributor. Under such laws, a winery cannot sell its products directly to retailers, thus making a middleman essential. This limits product availability as wineries depend on distributors who control their sales channels.

Such constraints may also extend to the sale and shipment of their products from one state to another. Some states allow the sale and shipment of products such as wine directly to the consumer through online purchases, thus eliminating the layers of middlemen, while other states prohibit this practice. This has proven to be a contentious issue for the distribution segment of the industry, which traditionally relied on wine and spirits makers being required to ship their wares through them.

## What Is Disintermediation?

[Disintermediation](https://www.investopedia.com/terms/d/disintermediation.asp) means cutting out the middleman or removing an intermediary from transactions. An everyday example would be a traveler who purchases their plane tickets and books their hotel stays directly from those providers rather than going through a travel agency.

## What Are the Advantages of a Middleman?

Often, the cost of a middleman is offset by time and cost savings. A store owner who stocks products from hundreds of different manufacturers, for example, will find it far easier to buy them through a wholesaler that has relationships with those companies than to deal with each company individually. The store owner might also benefit from the [economies of scale](https://www.investopedia.com/terms/e/economiesofscale.asp) that a wholesaler brings to the transaction, since it may be purchasing large quantities of any given item for resale to the many stores it serves.

## What Is a Distribution Channel in Business?

A [distribution channel](https://www.investopedia.com/terms/d/distribution-channel.asp) refers to the links in the supply chain leading from a manufacturer to the ultimate consumer of the product. It might include wholesalers, distributors, warehousing, shipping, and other functions, as well as the retailer who sells the product. In a [direct distribution channel](https://www.investopedia.com/ask/answers/052115/what-difference-between-direct-and-indirect-distribution-channel.asp), the manufacturer sells its product directly to the end consumer. In an indirect distribution channel, any number of intermediaries may be involved in the process.

## What Is a Jobber?

In the retail world, a jobber is another name for a wholesaler, often a small one.

## What Is Vertical Integration?

[Vertical integration](https://www.investopedia.com/terms/v/verticalintegration.asp) is a business strategy in which a company takes over multiple segments of its supply chain and eliminates those middlemen. The company might be motivated by potential cost savings or a desire to assume greater control over the process and eliminate possible disruptions in its supply chain. For example, a manufacturer might acquire a company to supply its raw materials or one that can make the component parts it would otherwise have to purchase.

## The Bottom Line

Middlemen connect buyers and sellers, making transactions more efficient. They also provide benefits like advice and economies of scale, especially in real estate and finance. While the internet and e-commerce have made transactions easier, middlemen are still required in certain industries, such as alcohol distribution. Eliminating middlemen can save costs, but it isn’t always possible because of legal, logistical, or financial reasons.

> **Article Sources**
>
> 1.  National Association of Realtors. "[Licensing for Real Estate Professionals](https://www.nar.realtor/membership/licensing-for-real-estate-professionals)."
>     
> 2.  FINRA. "[Registered Financial Professionals](https://www.finra.org/investors/investing/working-with-investment-professional/registered-financial-professionals)."
>     
> 3.  Wine Institute. "[Direct-to-Consumer Shipping Laws for Wineries](https://wineinstitute.compliancerules.org/state-map/)."