© Gstockstudio1 | Dreamstime.com

The subject of shared-territorial development fees is one that seems to never go away and, in fact, would appear to be gaining increased interest from independent manufacturers’ representatives and added attention from manufacturers.

Recent communications with Agency Sales magazine and discussions among manufacturers and agents on the MANA LinkedIn discussion page would indicate that more and more agents are raising the subject in their initial discussions with prospective principals. At the same time, manufacturers are listening and learning about the time, money and effort agents expend in order to develop new business in a territory.

Here’s how one representative began a discussion of the subject: “I’m in the beginning stages of negotiating with a new principal and they are open to discussing a start-up retainer. What’s my best approach at dealing with this so that it doesn’t become a sticky wicket during the closing portions of setting the agreement in place?”

In short order, agents offered their opinions.

One agency owner explained that in his opinion, “There are real costs to starting up and taking on a new line, including training, trial sales, etc. On the one hand, it’s reasonable to ask a principal for those funds. On the other hand, I tend to think principals ought to also ask you about those costs — onboarding, training, etc. I always feel the greatest challenge is to develop a territorial marketing plan that includes what is the plan to succeed. That’s the greatest formal part of the agreement. Are you prepared to help execute the principal’s territory plan?”

A fellow agent offered that he’d “recommend that you develop an emotional and true interest from them (the principal) first, and spend time demonstrating the value and work that you will be performing, before opening discussions about the shared new territory development fee. You need to have created respect and recognition and have them convinced you will deliver what they need to succeed. So I would recommend that you spend time listening and reformulating, understanding what is key for them. Figure out if you can deliver it, and then present your request for retainer.”

A three-tiered approach when considering the development of new business was forthcoming from an agency that had some history in this area. According to the agency owner, “We have three programs when discussing a new venture with a new supplier:

1. No retainers on existing business of $500,000 or more in territory.
2. One time Launch-Pad into the marketplace, $5,000 one-time cost for 30-day consulting of Top 100 accounts and introduction, associations and event planning, e-mail blast and social media training for the industry.
3. $1,000 per month retainer for 12 months, or commissions, whichever is greater.”

“We also have a one-time $500 start up for website and marketing material.”

The agency owner explained that “We really don’t like the monthly retainers, the reason being that we tell them it takes 12-18 months to build a territory as we have been doing this for 15 years. After three to six months, the sales are not there and then it becomes very sensitive, and in most cases, results in a termination for both parties.”

Here’s a workable approach from another agency: “We had a new principal a few years ago that gave us monthly retainer for I think the first year. They had a small chunk of existing business, but not enough for us to go out and actively promote their products to the level they wanted in the first year. The retainer was set up that commissions from new accounts would count towards the retainer and thus lower the monthly retainer. So essentially we were being guaranteed a minimum each month. So, you’ll want to think about whether the retainer should be in addition to whatever commission you would be normally due.”

More advice came from the president of an agency that wouldn’t take on a new line without some sort of sales incentive: “We do not take on principals who do not have business in the territory without what we call a “sales incentive.” It is unlimited in terms of time in as much as it is an earn-out on future commissions. Our minimum is $1,500 per month and the maximum is $5,000 per month depending upon the market capability for the product. We do not make statements as to how soon they will get their money back; however, we do provide monthly reports relating to the calls made on their behalf and the results. In our opinion the sales incentive answers a lot of questions regarding the future of the relationship and the integrity of the principal and the capability we are promoting on their behalf. It also holds both of us accountable. In the markets we serve it can take three years or more to take a project to commission status. If you take on a principal who does not have business in the territory all you are doing is demonstrating what you think your time is worth.”

And finally, another agency owner offered that “We never know if the new line will be able to sustain itself when we take on a missionary line and neither does the principal. We offer the contact information gained from our sales efforts as a marketing study for the territory. If at the end of the one year marketing effort we and the principal decide to part company, the principal has a complete list of the customers and contacts and the record of our effort. We download this information monthly from our contact software. This plan goes a long way to wrapping up the deal because the principal gets something tangible for the marketing fee.”

Perhaps indicative of what some principals think of such approaches was this from the national sales manager of one manufacturing company: “I thought I would chime in as a principal. We hired an independent rep late in 2012 to sell in a region where we had very little presence. The rep requested a territory development fee and we negotiated what I thought was a fair agreement. We paid the rep $1,500 per month for the first 6 months and $1,000 per month for months 6 though 12. After the first year there was no territory development fee included in the contract language. This type of arrangement worked well for us, in this particular case as the principal and the rep felt that it was fair.”

Adopting a Straight-Forward Approach

When a manufacturer undergoes a reorganization of its sales and marketing departments, there’s bound to be some misgivings on both the independent representative and the manufacturer’s side. When such a move took place for one manufacturer, he was faced with the dilemma of how to allay any fears his outsourced sales force might have. “One of our staff suggested that we get our reps’ attention by implementing some sales incentives and even conducting a sales contest, but I decided to go in a different direction — one of total honesty. I figured that it was best to let our reps know everything that was going on. When any decisions were made affecting the rep sales force, they were all notified well ahead of time and their advice was sought out. Looking back, this was a successful approach. It did a lot to allay their fears and, in fact, most of our reps felt that their relations with us had actually been strengthened. Bottom line, they felt they were more a member of the team than ever before.”

More Manufacturers Seeking Out Fewer Agencies

When an independent manufacturers’ representative was queried about how prospective principals find him, he related that in the past year he’s probably received more calls from manufacturers than ever before in his agency’s 20-plus year history. “In speaking to some of my fellow reps, I think I’d attribute this trend to the fact that the variable cost of using an outsourced sales force is more attractive than ever before. It’s really quite simple as I see it: the rep gets paid when he sells. The more he sells, the more he (and the manufacturer) makes.” He cautioned, however, that forward-thinking manufacturers should be looking for more than just the cost advantage of working with agencies. “If all a manufacturer is looking for is lower-cost sales, I wonder if they’re really the ones we want to establish long-term relationships with. Shouldn’t they be looking at the other value-added attributes we put on the table?”