While there appears to be no one way to engage in negotiations between independent reps and principals, there are a few words that both sides would be well-served to keep in mind while working on the terms that will build the foundation for long‑term relationships between the two. That’s the opinion of manufacturer Charles Ingram and rep John Aiello when they are asked what their mindset is when they square off to negotiate with someone on the other side of the desk.

Among the most repeated words they use to describe the process they’ve engaged in over the years are: communication, education, fair-mindedness and reasonableness. According to the two, if reps and principals regularly fall back on those words, chances are they’ll dramatically improve their chances for negotiating success.

If rep and principal approach negotiations in a “reasonable” manner, ideally the agreement they reach can often go up on the shelf and be looked at rarely, according to Charles Ingram, Eriez Magnetics, Erie, Pennsylvania. Ingram, no stranger to the pages of Agency Sales, maintains that “This doesn’t mean the two parties always agree; but it does mean both sides attempt to align what could be their divergent strategies.” How and why can this be done? — because both sides have decided to be reasonable.

The word “reasonable” can mean different things to different people, says Ingram. “In terms of how it applies to negotiations, let’s view it as coming to a fork in the road. You’ve obviously got a choice as to which path to follow keeping in mind that you want to stay within your guidelines. What’s important is to agree that it’s all right to disagree. Sure you can reach a point where that disagreement can affect the relationship. But whatever you do, and whatever you agree upon, has to work out for both sides. Obviously there are some grey areas that come up during the negotiating process, because not all reps and principals work the same way. These are the things that have to be resolved. Perhaps these are areas that can’t be agreed upon and not crossed over. Once again, it’s all right to disagree. It’s a little bit like interpreting the law.”

Understanding Expectations

An aid in that effort to “interpret” the terms of any agreement is the ability to communicate and understand the expectations that each side has of the other. According to Ingram, “My sense is that those negotiations that fail and the relationships that ultimately fail, do so because one or both parties don’t fully understand what expectations of each other are. That’s why it’s so important during negotiations to put those expectations right up front. At least you then have them on the table for both sides to consider. Failure to do that ultimately results in one side being disappointed with the performance of the other and it’s not unusual to hear something like, ‘We’re doing what we thought you wanted us to do.’ How many times have we heard a manufacturer say, ‘This rep isn’t doing a good job for us’? Once again, that’s probably because expectations weren’t agreed upon at the outset.”

Where did Ingram and other successful manufacturers learn these effective negotiating techniques? “Nothing beats experience,” he explains. “If you’ve been in business for a while, operated with integrity and established a reputation for communicating well with your reps, you should be in pretty good shape. If you can tell a rep that you’re speaking with that he’s free to contact any of your other reps to learn about how you operate, you shouldn’t have any problems. It all comes down to experience being the absolute best teacher. All of these things considered together will make your life a lot easier when it comes to negotiating with reps.”

Given his and his company’s history of successfully working with reps, Ingram notes that as the subject of negotiations is considered there have been some changes over the years that manufacturers ought to keep in mind as they approach the negotiating process.

“One of the first things I’d note as a trend is that rep agencies are evolving from being simply territorial salesmen to performing the marketing function. Way back all the rep had to do in terms of marketing was present his line card. My sense is that this trend began primarily as manufacturers began pushing more responsibilities — including marketing — onto reps. Certainly with the assistance of technology, reps have gotten much better at marketing their companies, their capabilities and their skill sets. Now reps have their own brand name; they’ve become expert at securing cooperation from their manufacturers. Basically, they’re experts in their fields.”

Concentrating on the Good Things

“A second trend I’d point to is that what’s evolved over last several years is that it’s become evident that reps and manufacturers are both very good at some things; yet there are some things they struggle with. I mention this because the historical concept of a rep having a territory defined by geography is changing a bit. Where once the rep had everything that was inside that territorial bucket, now, more reps and manufacturers are agreeing that reps shouldn’t be spending time in markets that they’re not good at. Instead, you might have more reps selling to different industries within a defined territory — and the reps never really run into each other. What we’re seeing is that there are more and more reps who are truly confident in the markets that they’re expert in and they’re agreeing to operate that way.”

Keeping all these factors in mind, Ingram notes that the “win-win that rep and manufacturer are looking for from their negotiations will never happen if either side just moves forward looking for all they can get out of the relationship. That attitude simply won’t work. You’ve got to establish solid relationships and trust. You’re wasting your time if all you want is what is best for me. Ideally, successful negotiations will result in a 1 + 1 = 3 situation. If that occurs, who’s the ultimate beneficiary? The customer.”

A Negotiating Mindset

Seconding Ingram’s emphasis on the need for reasonableness, John Aiello, PSE Associates, LLC, Guilford, Connecticut, adds some notions as to what’s needed to ensure negotiation success.

Responding to the question, “Is there a mindset you have to put yourself into when approaching negotiations?” Aiello notes that it’s certainly best for the rep to approach the negotiating table with a feeling of confidence and to be fully informed about the manufacturer he’s speaking with. “Our approach is that we’re the leader in our field. It’s hard work and we do what we do better than anyone else. At the same time, it’s very difficult for the manufacturer to do what we do.”

Armed with that confidence, he continues that it’s important for the rep to be sure they’re dealing with a “credible supplier for my customers. That’s first thing you want.”

Moving on from there, Aiello maintains that “Since I operate in very competitive industries, I’ve got to be sure the line I’m considering is complementary to what I already represent. I’m looking for market niches and a leg up on the competition. At the same time, I’ve got to be sure that a potential principal offers products that are of value of my customers.

“Realistically, even before I sit down with a manufacturer I’m knowledgeable about their capabilities. What I’m looking for in terms of the negotiating process is a ‘fair deal.’ Part of that entails wanting them to put some ‘skin in the game.’”

Investing in a Rep’s Success

In referencing “skin in the game,” Aiello explains, “Principals have to come up with some money. If they don’t have any skin in the game, they’re not really invested on how you as a rep succeed. All they care about is themselves. There are some prospective principals that don’t want to provide the rep with a marketing fee. Their reasoning is that they’ve been sold on the fact that rep selling is cheap —until something is actually sold.” He adds that there are a number of reps out there who will operate without marketing fees, “but not me. Quite honestly, I can’t blame the reps who operate that way and there are some who do quite well at it. My approach is that I’m not afraid to walk away. I’d say my hit ratio with prospective principals is around 30 percent. That means I walk away 70 percent of the time.”

In addition to being confident, conducting homework prior to negotiating and not being afraid to walk away, Aiello has some other negotiating practices he shares.

Best teacher — “ I’ll have to admit that at one time I used to take just about any line at any time. As I got more into it and have been forced to pay a lot more attention to business and cash flow, you have to pay much more attention to your negotiations.

“When it comes to preparing for and actually conducting negotiations with a prospective principal, my experience as a rep has probably been the best teacher. In addition, there’s a tremendous amount of information on the subject that I’ve received over the years from MANA. I read Agency Sales articles related to negotiating in addition to the other material the association sends me. It’s really changed how I conduct business.

Education — Aiello explains that education plays an important role in the negotiating process. “I make every effort to educate principals before we even sit down at the table. I send them a cover letter with information about the agency and an article from MANA detailing what the advantages are of working with a multi-line rep. I include some basic information about selling and encourage them to attend a MANA seminar. A lot of them have strange notions about working with reps that have survived over the years and part of the education is letting them know that’s not the way it’s done.”

Win-win agreement — “Obviously we want a fair agreement for both sides and the last thing we want is for the principal to be placed in an uncompetitive situation. But at the same time, he’s got to realize that I’m in business to turn a profit, I have overhead and expenses (perhaps not as great as his) and I have to cover them. As a result, when everything is considered, what do you want from your negotiations? You want to walk away with a win-win agreement for yourself, the manufacturer and naturally, the customer.”

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MANA’s “Steps to Manufacturers’ Agent Professionalism” Program

MANA defines itself as the association for professional manufacturers’ reps and those who aspire to be professional. We believe the more professionally you operate your business, the more successful you become. The greater your professionalism level, the higher the quality of principals you sign up. The higher their quality, the greater your sales and commissions.

This issue of Agency Sales magazine examines professional manufacturers’ agents and principals negotiating fair, rewarding and workable agreements with their trusted partners in profits.

The agreement a manufacturers’ agent negotiates with a principal governs how they work with each other. The agreement also determines the compensation you receive in the event the agreement terminates. When you negotiate the agreement, prior to the start of the relationship, the dollar value is minimal. At the time the agreement terminates, years later, the dollar amount can be significant.

Professional manufacturers’ agents negotiate fair and balanced agreements that protect both parties and retain knowledgeable attorneys to review them prior to signing.

MANA members and associates may access the various articles and other presentations that address the importance of reps and manufacturers working with business plans by visiting the “member-only” section of the MANA website (MANAonline.org).

Educational Resources

Legal reports:

Manual for the Creation of a Rep-Principal Agreement is a 40-page how-to publication that includes a sample rep-principal agreement and details for developing new markets.

List of MANA Member Attorneys — a complete list of the rep-savvy attorneys that work closely with MANA, its members and associate members.

“Example of Rep Menu Services for Missionary Line Launch” — Service menu list allows prospective manufacturers to choose what territory development services they determine are most important.

“Sample Letter to a Principal Concerning Product Liability Coverage” — Guides reps and principals on including reps as “additional or co-insureds under the principal’s product liability coverage.”

“Intellectual Property Protection Guideline” — Single paragraph guideline covering rights that reps retain in terms of intellectual property during the course of the rep-principal relationship.

Webinars:

Negotiating Better Contracts — MANA’s Jerry Leth walks reps through the steps to ask for reasonable clauses in the rep-principal agreement. Also emphasized is the need for reps to seek competent legal counsel.

The Legal Contract — MANA attorneys Mitchell and Barbara Kramer, Kramer & Kramer, LLC, explain how to put the rep-principal agreement in legal terms.

Teleforum:

In Negotiating Contracts, MANA’s Jerry Leth and consultant Nicki Weiss are joined by MANA member John Aiello, PSE Associates, LLC, Guilford, Connecticut, to provide real-world tips on how reps can effectively negotiate contracts with their principals.

Agency Sales articles:

“Inviting the Bull Into the China Shop” — MANA attorney John Schoonover emphasizes the need for savvy reps to retain legal counsel on more than just a “last resort” basis.

“Back to Basics: Why Contracts can be a Rep Agency’s Most Valuable Asset” — MANA attorney Barbara Kramer stresses how contracts can be used strategically as part of the overall business plan to protect an agency’s capital.