More on Shared Territory Development Fees

During the course of researching and writing the article on shared territory development fees that appears in this issue of Agency Sales, one manufacturer offered one of his most pressing reasons for failing to embrace the concept.

The manufacturer asked, “What happens if I’m in the midst of going from a direct sales force to a nationwide rep network? Obviously, one of the reasons I made this move is that the use of reps is recommended from a fiscal point of view because they don’t get paid unless or until they sell something. At the same time that I move from direct to outsourced sales, I want to gain coverage in territories that weren’t previously covered. In those areas I don’t have any existing business — they would be true missionary efforts.

“Now, more and more I’m encountering reps that point out to me that because I don’t have any existing business in their territory that they’re reluctant to embark on a missionary effort on my behalf. They will, however, give the line a try for a period of time if I agree to pay them a ‘shared territorial development fee’ over an agreed-upon period of time. I understand why the rep is making this request, and I don’t totally reject their philosophy. But, how can I conceivably afford to pay these fees, or what I might refer to as ‘retainers,’ to all the reps that might show any interest in working with me. I’d be out of business before I know it.”

When this response to the concept was presented to one rep, he was quick to suggest that whatever the manufacturer is planning to do in terms of working with reps, he should do it in a gradual manner. “Instead of trying to cover the entire United States all at once and face the prospect of any number of rep firms making similar requests, why not start in just one territory? Why not identify one of his most strategically important territories, locate a rep there, initiate his relationship with the rep and fine tune things before moving on?

“The concept of shared territorial development fees should not be confused with permanent retainers that reps will always be drawing on. Rather, the shared fee we’re referring to is something we’re hoping to eliminate as quickly as possible — in other words, as soon as I develop enough business to cover (in commissions) the amount of that fee, the fee goes away.

“By completing his roll-out in a gradual fashion, this manufacturer could quickly learn if reps are for him. At the same time he can learn from his mistakes in one territory and make sure they don’t happen in another.”

Branding Yourself, Not Your Principal

The importance of the rep firm branding itself was the focal point among a group of reps. In the course of the conversation some reps related the following: “I recently had a prospective principal ask me for the names of my current principals. While it’s hardly a secret whom I work with, I didn’t tell him before asking why he wanted that information. Wasn’t it more important to the principal who and what I was and what I did in the territory as opposed to the names of the principals I worked with?”

In response another rep voiced agreement but offered some of his own thoughts: “I’ve got a couple of principals that publicly list me as their sales rep. But what occupies prominence is my name and the agency’s name. They take second billing on the business card.

“What I always do is promote the fact that I strive to develop long-term relationships with my principals. As a matter of fact, I can boast of the fact that three of my six principals have been with me for well over 25 years. However, one of the many realities of this profession is that principals can come and go. I’m here to stay. That’s why my agency name is what the customer will always see prominently.

Cranking Out the News

One extremely successful rep firm has developed an easy method to get the word out whenever something newsworthy happens to his company. With the aid of a communications specialist, here’s what they’ve done: “For years we’ve been looking for the most effective means to publicize our agency. By publicize I mean contact the appropriate publications (e.g., local newspapers and trade industry trade magazines/newsletters) whenever we take on a new line, announce personnel changes, receive an award, etc. It seemed like every time something happened, we’d be reinventing the wheel in order to generate and send out a press release.

“With the help of an out-sourced expert in the field, we built a media list. By media list, I mean a complete listing composed of key contacts, addresses and email addresses, of all the sources that we should be contacting. Then we developed a format for a press release. Now whenever we need to publicize something, the work can be done and sent out in a matter of minutes.”

Speaking on the subject of how much this costs, the rep explained that the primary investment was up front. “We paid an hourly rate for the development of the media list. Now that cost doesn’t occur again, since all we do is update it annually. Then for each press release, there’s a nominal cost. Whatever it costs, however, is minimal compared to the exposure and benefits we receive.”

How to Tell if a Prospective Principal Is Serious

“I’ve probably been approached by prospective principals in every conceivable manner,” began one rep. “I’ve had direct mail, email, cold calls, notes on a bulletin board at a trade show, etc. One thing I’ve adopted as a practice, however, is to suspend any judgment until at least our second contact.”

He continued that in his opinion, the level of professionalism contained in that initial contact is hardly indicative of the principal’s philosophy of working with reps.

“Consider for a moment that the principal’s approach to reps develops because:

• There’s a new sales manager who’s worked with reps in his previous job and wants to do it again.
• The company has discovered that it’s too expensive to field a direct sales force.
• The company may not have worked with reps in the past and doesn’t know the most effective means for getting their attention.

“In any event, whatever the reason for turning to reps, there’s a certain amount of immediacy to the principal’s actions. As a result, his first effort may not be his best. I’ll forgive just about anything in the beginning,” he continued. “It’s that next contact that is so important. It’s there that I can find out:

• If he’s serious about working long-term with reps.
• If he’s committed to the rep way of going to market.
• If he’s geared up to support a rep network
• If there’s a ‘rep champion’ located somewhere in the company.
• If he’s knowledgeable about working with reps. Does he work with reps already and what do those reps think of him?

“I know all about the fact that the first impression is a lasting one. But if I determine we’re looking at a good fit for both of us, I’m more than willing to give a principal a second chance to make a good first impression.”

How to Conduct Due Diligence

As a follow-up to the previous item, a panel discussion at a rep meeting earlier this year detailed some of the most effective means for a rep to conduct “due diligence” when he’s making a decision concerning the principals he’ll go to market with. Among the points made in the discussion were:

• Trade show attendance — attend an industry trade show and walk the aisles. If you see an interesting product line, stop, talk to the sales manager and gather all the information you can. It may be just what you’re looking for.
• Association membership — Industry rep associations are ideal locations to prospect for lines. MANA, as an example, has an online directory that lists their manufacturer members where reps can search for potential principals. Many of MANA’s sister associations (e.g., NEMRA, ERA) do the same.
• Customers — Your existing customer base can let you know what other products or services they need. They may even know a manufacturer who doesn’t have any local sales force.
• Reps in other territories — Stay in touch with those reps you meet at your principals’ sales meetings. Some of them may know companies looking for reps in your territory.
• Reps in your territory — If your fellow reps know what kind of lines you’re looking for, they can alert you when they hear of a manufacturer looking for a rep in the territory.

Mixing Martial Arts and Negotiations

We’re not sure that the information contained in a new book, Black Belt Negotiating, will work all the time, but some of the concepts that it espouses sound interesting. For instance:

• Overcoming fear of the blow — Even the best martial artists get hit — often. The difference is they’ve learned how to take it — and how not to be afraid.
• Reading the opponent — Knowing the techniques an adversary is likely to use is the key to crafting an effective response.
• Identifying vital striking points — The issues most important to the opponent offer the best opportunity to weaken him.
• Dealing with dirty fighters — Not every fighter — or opponent — conforms to accepted codes of honor. Here’s how to subdue an unscrupulous counterpart while keeping your own conscience clear.

If that piques you interest, give it a try: Black Belt Negotiating by Michael Soon Lee. American Management Association, 256 pp., paperback, $15.