© Gianna Stadelmyer | Dreamstime.com

When it comes to learning what’s on the minds of reps, there are few better places for manufacturers to visit than MANA’s LinkedIn discussion group. It’s there that manufacturers and reps alike will introduce subjects that concern them. Then they sit back and wait for responses, and responses are just what they get. For instance, here’s what happened recently when a manufacturer wanted to know what others thought about having to pay reps over and above their normal commission.

A manufacturer began the discussion with the following: “I wanted to comment about rep compensation needing to change in order to reflect the costs of doing business for representatives. I would ask this: What has fundamentally changed that causes the need for a stipend in addition to commission? If the answer is that the number of potential accounts has reduced as the result of consolidation, it sounds as though the representative actually has an opportunity to sell more with fewer calls, thereby reducing the representative’s cost exposure.

“I express frustration because I find it difficult to get many of my representatives to do very basic tasks — follow up on warm leads in a timely (less than 45 days!) manner, follow up on written quotes issued by the factory, etc. When seeing this, and seeing that representatives are looking for more protection from variable commissions, I become concerned that many representatives may end up pricing themselves out of the market. That’s just my two cents….”

Typical of what usually occurs on the LinkedIn site, a rep quickly responded with a slightly different view: “I think you are oversimplifying your frustrations. There have been many changes in the last 10-15 years in the rep industry including many agencies closing their doors as a result of a combination of higher costs ($4 gas vs. $.99 gas, etc.), slow market conditions and customer pressures to remove professional salespersons from the equation. Another factor you mentioned is customer consolidation, which, if the home office is in your backyard, can mean fewer calls (unless you now have to cover the entire country), but if it is 1,000 miles away, it means no business at all.

“Your products likely do not have issues with Internet or big-box retailers, etc. However, I am sure you have been dealing with reduced margins from import competition (if not, it is only a matter of time). All aspects of your business are important, but if I had to put them in order it would be:

• Quality of product.
• Quality of sales force.
• Everything else.

“Are you sure you want to go cheap on the second most important part of your organization?”

Keeping the conversational ball in play, the manufacturer responded, “While I don’t disagree with your comments, isn’t asking for a stipend (salary) plus commission structure just walking up to the door of being a direct employee? Remember, if I have a choice of paying someone a fixed cost or a variable cost for performance, I will almost always choose variable. In many ways, that is the number-one reason many manufacturers work with independent representatives. If a manufacturer is forced to choose a fixed cost (new-market development costs not withstanding), it raises the very real decision for the manufacturer to now determine if he wants to pay someone who is 100 percent beholden to him (a direct employee), or someone that is not.

“To answer some of your other questions, we are actually seeing growing sales, and growing margins. I would also say that I’ve found through dozens of interviews with potential independent representatives that many do not understand the basics of the sales process, including basics such as quote and lead follow-up. That all said, what I might be seeing may be indicative of the industry I am in, and the quality of representatives in that industry, not independent representatives overall.”

The rep responded: “I am not a big fan of stipends — if you can believe that. When reviewing a manufacturer-rep contract, I am more concerned with territory or market protection (again this may be industry-specific to different degrees). House accounts, satellite locations, etc., can all undermine a rep’s efforts and profitability. In other words, you spend countless hours working a customer quote only to find out the job went to a Grainger, Ferguson, etc., in your territory where you did not receive commission for the sale.

“Our business is heavy on the start up for new vendors and we have required a ‘retainer’ to start the data building process which is then deducted from future commissions at 20 percent per month until paid back. I think this has worked out well for everyone involved.”

The Well-Rounded Rep

The timing of a conversation with a manufacturer couldn’t have been better since this issue of Agency Sales magazine focuses on what it takes for a rep to be considered a “professional” by his principals. According to this manufacturer, here are some of the things he values in a rep: “The rep I’m going to align myself with had better be someone who’s well-rounded and isn’t just focused on closing the sale. What I truly value is the rep who thinks strategy and planning — not just how many of what product the customer says he needs. And I’m not done yet — the rep I’m looking for should be as interested in the business pages of the news and Wall Street as he is in the sports results. He’s got to be someone who’s always one step ahead of the customer, not only anticipating his needs, but exceeding in meeting those needs even before the customer realizes what his needs are. In other words, he’s got to possess a mindset that says, ‘I’m going to be there waiting for the customer.’”

Budgeting for a Rep Sales Force

The value of the information manufacturers can garner by attending MANA’s manufacturers seminar was never more evident than what was recently heard from a manufacturer. The manufacturer was in the midst of making a switch from a direct to an outsourced sales staff. He had done enough homework to convince himself that this was the right decision, however, one of his comments showed he had a bit more to learn. “I’ll be happy when this change is made because then I won’t have to do all the planning or budgeting I had with a direct sales force.”

Not so fast my friend! Just because there’s an absence of that direct sales force, that doesn’t mean you can forget budgeting for sales. Naturally, reps will handle the details of their own businesses, but the manufacturer still has to support the rep sales team — and that brings with it some of the same budgeting and planning you had with your own direct staff.

Consider trade shows, for example; and, what about sales literature and advertising, not to mention an Internet presence. Then there’s field trips to work with your reps in their territories. These and other expenses have to be planned and budgeted. If you don’t budget for them, a lot of the effort your reps expend will be watered down by a lack of solid follow-up.

So, sure, budgeting for sales is as important when selling through reps as it is when you sell with a salaried sales force. In fact, most reps are willing to give you some guidance as you perform your budgeting. Remember, many reps actually got their start in corporate sales departments, and many of them were senior sales executives, with budgetary responsibilities before they started their own agencies. Since you’re working with them, ask them for advice.

Filling Some Territorial Holes

After a manufacturer was satisfied that he had reps working well in his major market areas, it was time to turn his sights to some of the less-productive territories. Here’s how he did it.

“We started appointing reps for our less productive areas, but in our opinion none of them were working out all that well. It wasn’t necessarily their fault; there just wasn’t enough business to sustain a rep’s interest and enthusiasm. However, we noted that many of these territories were located adjacent to our major territories that were being served very well. As a result, we decided to offer the territories to the reps next door. At the beginning, most of them weren’t very interested. They already knew what the potential was and what it would cost to get the business. But, we countered by offering them a slightly better incentive to make up for the increased expense of getting the business in the poorer-performing territory. Once we did that, they came on board. This has been productive for us and it has helped the agents get additional lines in those territories that are far more productive than our line will ever be. It’s been a win-win for all parties.”