What follows is a sequel to an article that appeared in Agency Sales in 2004.

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The first MANA seminar I attended was in 1986 in Anaheim, California. There were about 200 independent reps who paid $180 for an all-day program. If you charged reps $180 for an all-day program today, you will not get 200 attendees. Needless to say, the rep world needs to adapt or die, because the status quo operating mode does not bode well for survival — let alone success.

When I worked with three-time Indy 500 Winner Bobby Unser on the book Winners Are Driven, he had several philosophies on what allowed him to succeed. Many of these philosophies applied directly to the Evolution or Extinction 2004 program:

“My job wasn’t to make everybody happy. My job was to get the team focused on making the car go faster. That means we have to make sure we have the best team with the best chance to win. Sometimes it meant changing relationships — even with car owners and sponsors who were not willing to commit the financial resources to field a competitive car and team.

“The race teams that have a plan for the race are the most likely to win. But the plan changes as soon as the race starts. Then the team that adapts the quickest during race is the team that wins.”

With an ever-increasing demand for independent sales representatives, the sales rep should be in the driver’s seat when negotiating with principals not only for the line, but for a commission rate commensurate to what they bring to the table for the manufacturer. However, the trend of commissions has been anything but upward over the last 10 years. There are two reasons for this:

1. Manufacturers’ representatives have failed to adapt to the changing business environment.
2. They have not sold or reminded (through actions, communications, and documentation) the manufacturers on the value they bring to the manufacturer and customer.

A major point in the 2004 Evolution or Extinction programs was for the rep agencies to re-evaluate their principals, customers, and markets for sustained financial growth. Some reps in the audience were apprehensive about this. This was understandable, especially when you consider agents are much more loyal to their principals and markets than the other way around. Reps like the comfort and security that a long-term relationship brings to the table. They like to have that “silver bullet” principal, customer, or market that “lasts forever.” But in this business climate there are no silver bullets and nothing lasts forever. And loyalty as a business strategy for agencies spells disaster. Reps need to take a more — excuse the term — Mafia-type approach to holding on to their relationships with their lines: It’s not personal, it’s just business.

During the 2004 workshops, some reps provided great inputs, suggestions, and words of wisdom regarding change and how to adapt their businesses. Some of the key points follow.

Why Change Markets, Customers or Principals?

Look at change as opportunity — both change directed by the agency and change from external factors. This was a very interesting dynamic in the programs. More often than not, groups had people simultaneously dreading change as a harbinger of bad things to come, and those who openly embraced it as opportunity. It wasn’t a coincidence that the people who look at change (principals, markets, customers) as opportunity also have growing, thriving agencies.

Become pro-active by focusing on the business objectives of the agency rather than re-active when principals and customers focus on their business objectives at the expense of the agency.

Agents only get paid for their time. As a part of their business improvement process, they must seek ways to increase their value: pay/unit time. This can only be accomplished by continuously selling their value as a principal-to-customer business facilitator. They also must seek ways to increase the value of their business.

With globalization, technology, mergers, acquisitions, and market changes, agency line cards are constantly changing. Therefore, agents must continuously — as an aspect of normal business operations — be seeking and establishing relationships with new principals and new markets.

Recipe for Success — Attributes of Representative-Friendly Principals:

• Selling through independent reps is a belief from the top of the manufacturer. When it starts at the top, typically the organization culture follows.
• Timely and accurate commission statements. As trivial as this seems, it is incredibly significant because it establishes a relationship of trust and keeps the relationship (not just the agent’s time) a valued one. Also, it reduces the stress and time it takes for the agency to pay someone to chase commission checks and discrepancies.
• Agreeing on a stretchable, but achievable, sales bogey with the agency and increasing commission rates after achieving an agreed bogey. More is more. And make sure the salesperson at the agency that brought in the extra business or helped achieve the bonus is rewarded. When we present this concept in our manufacturer programs, manufacturers tell us that sometimes the rep agency owner keeps the bonus and does not reward the salesperson. Not a good idea.
• Provide qualified leads from advertising and show participation. This actually applies to direct field salespeople as much as independent agents. But in the case of a manufacturers’ representative, the principals that provide pre-qualified time earn significant mind-share. Also, pre-qualified leads shorten the sales cycle. And, for the manufacturer, they get immediate (by qualifying leads themselves) feedback on the quality of their advertising or marketing dollar.
• Mutual employee development. Several manufacturers are helping recruit and train employees for their independent representative agencies. The catch is the trained employee is a product specialist for that manufacturer’s product line for at least one year.
• Constantly creating new products. It is no coincidence that every time I asked the audience about their principals who were constantly introducing new products that these principals were the agency’s top-producing line.
• Responsiveness: Principals who return e-mails and phone calls punctually with an answer are refreshing, and very successful.
• Investing in territory growth through retainers or factory-direct market support personnel.

Red-Flag Issues Making a Continuing Representative-Principal Relationship Questionable:

• Agents fear getting an order because that’s when the problems start.
• A constant battle to get paid — either accurately or punctually.
• Commissions get cut on repeat business after one year under the naïve assumption that in today’s intensely competitive world it doesn’t cost much to keep existing customers. The flip side of this is if it is that much harder to get new customers than it is to keep existing ones, why not pay the representative a consultative retainer fee for the years it takes to land the big ones?
• A sliding scale commission for lower prices, but not an escalating commission scale for selling at a higher price.
• Your line is taking more time percent-wise than it is providing dollar-wise. A 40 percent income line is still a dog if it chews up 60 percent of the rep’s time.
• Constant reports that take away from selling time while the reports themselves are either not used, or used as a means to pound people for results.
• No new product development.
• No investment in new systems, capital equipment, or automation.
• Little or no customer service culture or attempt to create a customer service culture.

Some attendees expressed concern that the strictly-business approach advocated in these workshops with principals would come off as too confrontational, and that the “market” just couldn’t support challenging reduced commission pressures. Their manufacturers claim that everyone must share in the economic downturn. But that is why an agent is paid a commission: so that when the economy does enter a recession, the cost of an outside sales force fluctuates to the economic barometer. The cost of paying an independent agent is already about one-half to one-quarter less than a direct salesperson (Cherry Connectors Study, Keystone Conference), without taking into consideration the additional cost advantage of using independent agents during a downturn. Therefore, there is no need in an economic downturn to reduce the commission rate whatsoever. If a principal is forced to reduce commissions to remain financially stable, there is a bigger problem than the reduced commission check to the representative. And if the “market” won’t accept the value of the independent representative, then the representative should find a market that does.

Addition by Subtraction

Sometimes you have to add by subtracting. By eliminating a market or principal (or even some dog customers), you can focus more time on your good principals and growing markets. This also sends notice to the industry (customers and principals) that your business and line card are a reflection of your desire to adapt and grow as a business. You reduce the stress of trying to float with a sinking market or waste time managing a poor principal relationship. All of this results in better performance for the worthy principals in valuable markets and higher income per time spent for the representative.

Bobby Unser said there was one thing on his mind every day: “How can we make the car go faster?” Likewise, if a rep wants to be driven to succeed, he needs to think one thing: How can we make more dollars per unit time? Adapt or die.