Are electronic manufacturers’ reps tomorrow’s dinosaurs, or are they here to stay?

Based on the mortality rate, one may wonder. Six years ago, there were more than 2,000 high-tech rep firms selling electronic components and materials in North America. Today there are fewer than 500. What does that tell you? Mergers and acquisitions are only part of the reason. Electronic component reps are fighting their version of the “war on commission-rate terror.”

Some fatalists believe that the attrition rate will continue and that the proud profession of today’s electronic manufacturers’ rep will vanish into oblivion. They may espouse that the rep’s function will be handled by industrial distributors or by a factory-direct sales force. I’d maintain that’s wrong on both counts! Distributors and direct sales teams already peacefully coexist with reps, so why are there fewer reps (and distributors)? There are many reasons, including these:

• Globalization: Outsourcing and off-shoring have dramatically reduced the North American Total Available Market (TAM) and Distributor Total Available Market (DTAM) — some estimates are as high as 50 percent.
• Shrinking Commission Rates: Lower GPMs coupled with lower selling prices and shrinking commission rates have proved to be a fatal cocktail for numerous reps. Many of them have been forced to take on more lines than they desire, but clearly their motive is survival, not greed — repeat, not greed!
• Aging: From what I see and hear, most electronic rep firms are getting gray beards and are long in the tooth. That means that fewer young men and women are entering the rep business with the possible exception of the owner’s children. With the reality of a diminishing account base, shrinking commission rates and a decreasing talent pool of electrical engineers, can you blame them? Would you aspire to be an electronic manufacturers’ rep in 2006? I say “Yes,” and the balance of this article will tell you why.

Our Industry Will Always Have Reps

There are perfectly logical reasons why reps will never be replaced by distributors. One is simply because reps do not handle competing lines, while distributors do — that’s huge! Distributors have a multitude of competing lines, while perfect reps have none. Check that! Distributors are immensely loyal to one line — their bottom line! Is that a bad thing? Not at all. That’s why we are in business. The bigger the bottom line, the better. You know the expression — bigger is better.

The direct sales force will always be around for sales managers and companies that are smitten with the notion that they need total control for maximum sales results. Au contraire! It is already a proven fact that the professional, outsourced sales function yields the greatest results at the lowest cost — repeat, the greatest results at the lowest cost. Does everyone understand that?

The Hybrid Sales Force

Some manufacturers tout the fact that they utilize a combination of reps and factory-direct personnel. When you stop to think about it, a “hybrid sales force = house accounts” — it just sounds nicer. Many of these principals mistakenly feel that reps should not, or worse, cannot handle multi-million dollar accounts. That is convoluted thinking! Often this is the same rep that developed the account/customer and provides the same level of professional coverage for his other principals. To many reps, a house account mentality illustrates a lack of understanding and commitment to the “fixed cost of sales” model. It also detracts from “favorite line” status and rep loyalty.

Reps Must Be Great Negotiators

The best and the brightest reps are not passive respondents when it comes to commission rate issues. They negotiate, not accommodate. In the long run, lower commission rates hurt your rep firm, your principal and all other reps. Discount commission rate reps are a pox on the world of repdom. Only the largest can survive based on sheer sales volume. Reps in secondary markets will starve and perish. At first they may look fat (with more lines), but so do the malnourished children of Third-World countries. If you don’t like this analogy, I’m sorry. I’m just trying to emphasize a point.

Crossing Territory Boundaries

Many reps have been asked by their principals to cover multiple corporate customer locations because their representative has been highly successful with the division in their territory. The principal and the customer see this type of coverage as a major benefit because the prevailing sales rep understands the account culture and serves as a single point of contact (SPC). Please do not assume that one rep is infringing upon another rep’s territory. My personal experience is that we were asked to cover factory-direct house accounts. Crossing territory boundaries is here to stay, brother rep, and it’s not my idea. If it makes sense for the principal, customer and your rep firm, it’s a classic win-win-win! Again, don’t fight it and get with the program. SPC is gaining momentum, and the best and the brightest are taking full advantage of it. Crossing territory boundaries may not sound nice, but it’s another survival tactic and a growth tool as well. Lack of change equals stagnation, and things that are stagnant rot. Dead things rot. That applies to reps as well as fruits and vegetables. Don’t vegetate!

Diversify

Diversification is a good thing, if it’s done the right way. As an example, electronic reps can get into other related businesses; i.e., electrical, sound, security, etc. — but not flower pots or birth control. Pick a market such as medical, construction, or, I painfully submit, war-related commodities.

Plea to Principals

Please be more considerate when asking for reports. If you consider your reps to be the best and brightest, the sales are not going to increase in direct proportion to the number of reports you require. In fact, the opposite may be true. In surveying my rep friends, they tell me their best lines require few, if any, reports. Wow — how’s that for a common thread? Fewer reports equal greater selling time, increased sales, loyalty and favorite line status — repeat, favorite line status.

Why Reps Are Leaving the Business

Below are the results of an informal survey on why reps are abandoning the ship (their business) and, in many cases, the industry:

• Diminishing commission rates.
• Diminishing account base.
• Increasing number of frivolous reports.
• Increasing factory visits.
• Unreasonable demands on time.
• Frustration of having to work with incompetent regional sales managers (not this author’s comment).
• Hours required to get the job done.
• No longer fun.
• Lack of group unity.
• Total aggravation/grief factor.

Summary

The rep business is not for the faint of heart or risk-averse. Like the Marines advertise, it’s for the select few — the best and brightest. How do I know that? Think about it. How many sales managers are leaving their perfectly safe harbor of corporate security to venture into the rough seas of repdom? See my point?