This is the first of three installments of a Small Business Guide to help manufacturers and sales representatives understand each other better, so that their relationship is not adversarial, as it is in many instances. Both parties need each other, and a mutual understanding should create a positive partnership that will yield more profits for each, while extending the duration of their relationship.

Parts II and III will appear in the August and September issues of Agency Sales magazine. A link to this complete e-book may be found on MANA’s website: MANAonline.org.

A manufacturers’ representative, also known as a sales representative, sales agent, a broker in some industries, or simply a rep, is an independent business person who acts as the sales arm for one or more businesses, comprising one or more products or services. Most reps are paid a commission for their sales efforts, rather than a salary. Some reps are permitted to take a draw (or advance) against expected commissions; others are not. They are responsible for their expenses. The commission can vary greatly — from 2 percent to 20 percent — depending on such factors as:

• The selling price of the product or service.
• The channel of distribution.
• Whether the item is advertised.
• The extent of the rep’s services.
• The difficulty of the selling task.
• The competitive environment of the product.
• The industry tradition.
• The power of the rep vs. that of the manufacturer.
• The respective reputation of the parties.
• The respective negotiating skills of the parties.
• The manufacturer’s margins on the product.
• The potential volume of the product.

(In certain industries like pharmaceuticals, reps are paid a base salary with performance bonuses.)

Who Becomes a Rep?

In order to use reps effectively, it is important for you to understand why people become reps in the first place. Some do so out of the desire to be independent, to set their own hours, escape company rules and dress codes, and generally be the masters of their fates. Others like the fact that being a rep involves very low start-up costs, and also has no “ceilings” imposed on their potential income (other than by the limits of their own time, energy, and talent, of course).

Perhaps counterintuitively, some people see the rep’s life as a relatively secure one. If you don’t work for a corporation, the kinds of downsizings, mergers, and bankruptcies that worry many corporate employees hold no terrors for you.

And finally, some people become reps because they think their progress will be impeded in a corporate setting. Maybe they’re members of a minority population, or women, or just free spirits. For whatever reason, reps in this category have decided that there are unfair hurdles in their way in the corporate context. Rather than trying to jump over them, they head in a different direction entirely. Think of reps as entrepreneurs, because that’s what they are.

Why Work With a Rep?

There are two perspectives on this question: the manufacturer’s, and the buyer’s.

From the Manufacturer’s Point of View:

• Reps bring in sales without the burden of a fixed salary or benefits. They are a variable cost.
• They give the manufacturer a relatively quick means of access to their customers.
• Many reps already have a relationship with the targeted buyer, and in some cases with other personnel in the target company.
• They have industry- and customer-specific knowledge that can be very valuable to the manufacturer. In many cases, they’re well positioned to solve problems that arise with key accounts.
• Many industries have trade shows where all the buyers come to one location to visit their present suppliers and potential new ones. In many cases, a new manufacturer can’t exhibit at their industry show because it’s sold out or their lack of seniority gets them a poor location. The rep can often solve this, as they have a good location and can show your line in their booth on a lower shared cost, and the bonus that there will be heavy traffic.

From the Buyer’s Perspective:

• Reps can fight the buyer’s fight with the manufacturer for more favorable buying terms.
• Reps are easy to contact.
• They can keep the buyer aware of industry trends, including competitive shifts.
• Buyers turn over frequently, making reps valuable to the buying company as (1) an informal “training” resource for new buyers, and (2) an informal “institutional memory.”
• Buyers also know that reps are more dependent on them than the manufacturer is. Because of this, they trust the rep more than the manufacturer.

How to Find and Select a Rep

First, ask yourself the fundamental questions: What are my objectives for the rep? To build volume? To maintain volume? To get access to top management? To help get bills paid on time? In servicing the accounts, how many and what kinds will they cover? What will their sales goals look like?

Next, think through the conditions under which the reps will work. Will they have to accept “house accounts” in their territories (accounts which you will control centrally)? What will the commission setup be, and what expenses (if any) will you pay? How long an agreement will you seek? What kinds of selling (e.g., demonstrations) will be involved? How much help and service are you willing to give your reps, including advertising of the product? Are there certain compatible lines you will want them to carry and conversely, lines you don’t want them to carry?

Based on the above, think through the resources, experience, and characteristics you want in a rep. Do they need a showroom? Do they need experience? (A key decision: Would you rather have a hungry young rep, or a more established rep with less time to give to your line? Both approaches have their merits.) Do they need to know above-buyer-level personnel in key targeted accounts? Are they detail-oriented?

How will you make your decision on whom to hire? Do you want more than one interview? Are references required, and if so, who will check them? (The two best places to check references are with buyers in the territory, and companies they currently represent and used to represent.)

When you’ve got these kinds of questions answered in your own mind, start trying to find the right person or people to fill the bill. As with reference checking, a good technique is to call buyers to whom you want to sell and ask them for recommendations. Alternatively, call a rep whom you trust and ask him or her. (Believe me: they all network, and the word will get around.) This has worked best for me over the years.

Check the appropriate media, and advertise in them. Reps looking for positions run ads in trade publications; you can scan those, and also place your own (“position offered”). Running an ad in a regular newspaper also can be a good idea. Call editors of industry magazines and ask them for recommendations. Visit trade shows and trade buildings. If you have a booth at a trade show, put up an ad there. Call up trade associations and ask if they maintain current listings. Check search engines like Google, where I found the Manufacturers’ Agents National Association (MANA), which has a very professional website where manufacturers can find sales reps to sell their products to targeted customers. Conversely, reps can locate new manufacturers with products that can appeal to their customer base. Check them out at www.manaonline.org.

And finally, find out if someone else has already done your work for you. Some industries produce books listing reps in all geographic areas. Many quality manufacturers, moreover, run trade ads listing the names and addresses of all their reps. Surely you can think of some way to use lists like these productively.

(Next month: Reps’ complaints about manufacturers and manufacturers’ complaints about reps.)