This article is the fourth in an ongoing series exploring the subject of MANA serving as the association for professional manufacturers’ agents and high-quality principals that work with each other as partners in profits. This month the subject of shared territorial development fees is examined.

Introduce the terms “territorial development fee” or “retainer” into a conversation with an independent rep and chances are there will be an animated reaction. The questions are: Will that reaction be positive or negative? Do such approaches to developing new business work, or is there a downside?

On the negative side it’s not unusual to hear the following:

• “I’ve tried speaking to my principals about the need for them to have some ‘skin in the game’ when there’s no existing business in the territory, but they haven’t been responsive.”
• “I’ve given up on the idea because if I don’t like a line on the principal’s terms (e.g., no financial backing to develop new business), I know there are plenty of other reps who will rep them. Those aren’t the manufacturers I want to work with.”
• “I don’t believe in them because such fees are a distraction. I will never take on any line unless I believe in it and I know I can develop profitable business in my territory. Any type of ‘retainer’ agreement might cause me to rep a line simply for the retainer or to carry them for a period of time beyond which it’s worthwhile for either of us.”

Then there’s the experience of Russ Sorrells, account manager, Advanced Solutions for Manufacturing, LLC, Fort Mill, South Carolina, who explains that “passion” for the process of working with such fees is a needed ingredient to make it work.

“I have tried to go there in the past with principals but have not been extremely successful with it,” he explains. “It’s likely because I am not extremely passionate about the approach.

“Here’s how I look at it: At the end of the day we as reps have two customers to satisfy — principals and customers. In serving those two, it is my responsibility to develop business for my principals in the territory. If I do that job well, I am well compensated for the effort.”

Examining the Down Side

He then goes on the describe the downside of such development fees: “Principals providing me with a development fee could potentially reduce the incentive for me to develop them more quickly or even cut them from my line card more quickly.”

Sorrells adds that he has had some arrangements in the past where new principals have compensated for a portion of existing business. “I’ll admit this can work well because it demonstrates the principal’s willingness to give up something and acts as a type of ‘incentive.’”

He notes that when “I first started my agency, one of the principals I represented offered me a draw of $6,000 per month for the first six months, followed by $3,000 per month for the next six months. Obviously this was very helpful for a young agency. Fortunately, we hit the ground running and had everything paid back by the tenth month. After that we no longer required the funds.”

Despite that positive early experience of a principal showing a willingness to share in the cost of developing business, Sorrells maintains that when it comes to such fees, “I don’t like something for nothing and feel they might actually be a burden to our profession and generally could put reps in a bad light.”

A Former Rep’s View

Some similar views are expressed by Mills Rendell, president, Zeus Battery Products, Bloomingdale, Illinois. The former rep turned manufacturer says, “I have thought about retainers or development fees a lot over the years and I have to say I have never been a fan of them. Much of my thinking goes back to why a rep takes on a line. I never took on a line unless I had some idea where I would go to sell it. I can’t imagine why a rep who has to manage his time would take on a line that was not being used by his current customer base. The strengths of a rep are his connections in the territory and that’s what he has to offer to the manufacturer. The easiest sale is to bring a new line into an existing customer. The hardest sale is to try and bring a new line into a new customer. Why would a rep want to do that?

“I understand the approach to ask for money so he can have his salespeople develop your line, but if you think about that you realize it does not make much sense. I am currently president of a battery company, and I have had a number of rep firms come to me with that approach. The ones who make these offers are usually a young firm with a couple of salespeople who are looking for seed money to keep the company afloat. A seasoned firm that has roots in the territory would most likely never ask for an upfront fee. If the rep knows his territory and has established contacts over a number of years, he will know where to sell your line.

“I will say I have offered a larger commission rate for the first year to help in developing the territory. I can honestly say the larger commission has not ever increased sales that I can recall. Multiple-line selling is an art and the firms that get it are still in business.”

The Other Side of the Argument

Lest the reader of this article believe the anti-shared-territorial-development-fee reps dominate the discussion on this subject, please read on.

Over the years MANA and Agency Sales magazine have explored this subject with reps who have developed plans to communicate/educate principals as to the merits of them financially participating in their reps’ efforts to develop business where business previously did not exist. For instance, consider the thoughts of a few individuals that have appeared in the pages of ASM in the past:

• A few years before taking over the reins as MANA’s President & CEO, Charles Cohon, CPMR, offered his perspective on the subject from his vantage point as the head of Prime Devices Corp., Morton Grove, Illinois. According to Cohon, when he has been contacted by a manufacturer with little existing business in the territory, “I’ll explain that while I’d like to represent him, there has to be the prospect of my agency receiving shared territory development costs. After all, it’s simply not fair for me to exert an effort on his behalf when he has nothing in the territory right now. However, I’m quick to point out that I can bring to bear on the effort six salesmen who are professional, backed by a secretary and all the assets of my agency.”

He went on to point out that the requirements for shared costs are hardly exorbitant, but, “I need something that shows good faith and commitment on the part of the principal.”

• Echoing Cohon’s views was Bob Johnson, CPMR, The Growth Partnership Co., Green Village, New Jersey, who said: “…since the manufacturer has no existing business, why should I have to bear the market development cost all on my own? Wouldn’t his willingness to share in the effort show a commitment to me (the rep) and also to the potential of the territory?”

• Preemptive and prepared are words that have guided Joe Cook, Eastern Technologies, Inc., Raleigh, North Carolina, when he was quoted in ASM: “The rep must be preemptive in his effort to educate and communicate with a principal. Before we even sit down for that first lunch with a prospective principal, we’ve sent an informational package to them explaining that because so many changes have occurred in the industry, business between the manufacturer and the rep has to be conducted in a different manner. It’s all about being prepared.”

• Words of warning were used by another rep when he cautioned reps about venturing into “pioneering water” without some sort of negotiated fee acting as a life preserver. According to Gary Yantis, Midtec Associates, Inc., Kansas City, Missouri, “Today a rep who does much pioneering is soon out of business. That quiet and mysterious huge principal paying the bills of the rep firm but expecting little in return no longer exists, if any ever did. More principals today expect a larger share of time than their commission justifies. A rep who has extra selling time today is just as mythical — or as I say, out of business….”

The Cost of Developing Business

More recently, Mike Kozak, Lynx Associates, Oakland, New Jersey, has composed a three-page Sales Agency Agreement that describes his company’s practice in this area:

“…Since there is very little existing business in the Territory which would immediately generate commission, in consideration for sharing the financial burden in developing the Territory, the Principal agrees to pay the Agency ______ per month on the fifteenth (15^th) of the month for the first twelve (12) months of this Agreement….”

When he’s asked to describe the typical manufacturer reaction to this approach, Kozak explains that there really aren’t any surprises when it comes to negotiating with prospective principals. “It’s only after we’ve discussed how business is conducted and covered the cost of doing business that a prospective principal sees our Sales Agency Agreement. In our initial conversation we’ve asked them what they already have in existing business. If the answer is ‘not much,’ then we’ve obviously addressed the cost of conducting business for them.”

By way of example Kozak uses a figure of $4,000 per month to enable a rep to talk about a line. “It’s interesting that with some industries, principals are shocked at that figure and decided immediately that they can’t afford it. For those principals, they might view direct sales as the way to go. Some other industries, however, don’t even blink an eye at that figure.”

In order for a principal to fall into the “not blinking” category, Kozak says the rep has to do some work. “The responsibility for communicating with principals and educating them as to the rep way of conducting business rests firmly on the shoulders of the rep.”

He goes on to maintain that the communication/education begins early on in the principal-rep relationship. “Here’s how I’d approach it,” he says. “When a prospective principal initially contacts me, I let them know that I’d be glad to spend a couple of hours with them to let them know how reps operate and how I work specifically. But I also say to them: ‘I need you to contact MANA to determine if you fit the model of a principal that should work with independent reps. If you fit the model, then join the association to take advantage of what it offers.’

“If every rep followed this process, we wouldn’t have to spend so much time educating principals about reps.”

No More Free Work

Bob Black thinks along similar lines as Mike Kozak. Black, The Identity Group, Inc., Colleyville, Texas, borrows a practice from major league baseball as he notes that “Too many principals think they have the latest, greatest idea that is an automatic sell. At the same time, they don’t want to pay anything other than commission to roll out their product. Quite frankly, we no longer work for free — but, we do provide an option for those manufacturers who want to enter the market reasonably with the opportunity to make the majors.”

He continues that “Our thought process is closely related to professional sports’ minor league program whereas you have to start at the lower levels to work your way into the majors.”

In a nutshell, here’s what he explains to prospective principals.

After posing the simple question: Do you have a product that needs immediate market penetration? Black points out that customers view relationships as the most important aspect of working with a company. The problem is the prospective principal is working with a blank business card. Black’s agency (or rather his and the agencies he’s aligned with) is not.

It’s then that he’ll introduce the principal to The Rep Alliance, “a cooperative effort of four rep groups that use their combined years of personal relationships and knowledge of the territory to expand your (the manufacturer’s) business.”

In addition to Black’s The Identity Group, the other rep agencies are: Pinto Marketing, Reisack Sales and Marketing and Tuso Marketing.

Black acknowledges the manufacturer does not need full-time representation, a long-term commitment and certainly doesn’t need empty promises. On the other hand, what a manufacturer new to the territory does need are:

• Relationships
• Immediate acceptance
• Highly visible acceptance
• Impact
• Market knowledge

And that’s what Black and the members of the Rep Alliance offer — for a price. But, here’s where the Rep Alliance differs from other retainer or shared territorial development fees.

“We offer two separate ways to take advantage of our services:

• “Launch Pad — for a one-time payment of $5,000 a manufacturer receives detailed information of the reps’ marketing plan, direct access to the best accounts, communication of pre-determined promotions, and follow-up in terms of what results have been achieved and future planning.
• “Infusion — For $1,000 per month or commission (whichever is higher) the manufacturer receives immediate penetration, including promotional e-blasts, use of social media and sales presentations where applicable.”

Black explains that the Rep Alliance’s innovative approach to working with prospective manufacturers springs from the fact that the marketplace has changed. “I don’t like to use the term “value-add.” Our task is to provide services that make a customer (in our case distributors) want to have us call on them. We don’t just go out and make calls on customers; rather we’re a marketing team that provides marketing services.”

Once again referring to the sports analogy, Black says, “Think about baseball’s minor leagues. That’s where kids new to the business get a chance to see how the true professionals work. So too is it with us — manufacturers are provided with an affordable way to see how true professional independent reps work.”

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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 the terms for independent manufacturers’ reps to take on lines in territories where there is no existing business. Where once the rep would be paid only when he sells something, times have changed for many. Now reps are looking for manufacturers who are willing to invest in the rep’s efforts.

MANA members and associates may access the various articles and other presentations that address the importance of reps and manufacturers working together to ensure future success in the territory by visiting the “member-only” section of the MANA website (www.MANAonline.org).

Educational Resources

Special report:
Developing New Markets with Professional Field Sales Reps — this joint MANA-ERA white paper provides guidance for manufacturers lacking a market presence. Among the topics covered in detail are:

• Why manufacturers outsource sales to reps
• Why reps pioneer lines
• The risk/costs accompanying pioneering efforts.
• Why manufacturers should invest in their reps’ pioneering efforts.
• The ROI manufacturers can expect from pioneering efforts.

Agency Sales articles:

“Pioneering: Successfully Prospecting New Lines” — Two opinions (one from a rep, the other from an industry consultant) discuss the question of whether manufacturers should invest in the rep’s effort to develop business where business doesn’t exist. The rep has placed the subject squarely on the table in his discussions with prospective principals. Taking a stance apart from the rep, the consultant maintains that such “retainers” aren’t always the ideal path to follow.

“Pioneering Revisited: More on Shared Territory Development Fees” — Taking the stance that “the rep has a history of working with customers in the territory, he knows where the business is and can deliver it quickly for the principal,” reps back up their position that principals ought to have some “skin in the game.”