Initiate a conversation on the subject of the how and why of representing principals that have no existing business in a territory and it’s inevitable that independent manufacturers’ representatives, prospective principals and business consultants will very quickly address the concept of shared territorial development fees.

Simply stated such fees are those paid by the principal to the rep during the period of time the rep develops business in the territory where no business previously existed.

The continued timeliness of the subject was proven when speaking with Hank Bergson, president of Henry Bergson & Associates, LLC, and the former president and CEO of NEMRA (National Association General Merchandise Representatives).

According to Bergson, who together with Kris Hefly will be conducting MANA’s latest Manufacturers’ Seminar in Chicago next month, not a great deal has changed with the concept of pioneering, and it remains a topic of consideration for reps and principals. “Pioneering for a new manufacturer or a new product line is extremely expensive for the independent rep,” he maintains, “unless he can perceive an immediate demand that offsets his start-up costs. Furthermore, it’s understandable that it’s going to be very difficult for a principal to get an ‘A’ level rep to develop new business in a territory unless that product line offers something truly unique. But moving beyond the basic concepts of retainers or fees to cover start-up costs, the principal has to be certain that his line is a good fit for the agency and is a line that enhances what they are already selling. On top of that, whatever effort is expended by the rep has to have with it a financial reward in near time.”

Historically, according to Bergson, “Manufacturers often arrive at the process of having reps develop new business for them with the following philosophy: ‘Here I am with a new and better mousetrap. I’ve got an outsourced sales force (i.e., independent reps) in place that I don’t have to pay unless they sell something.’

“But there’s more to it than that. How are you going to get the attention of the ‘A’ level rep without paying big-dollar retainer fees? The answer to that is really a matter of product fit.

• Is the new product truly innovative or will the rep respond that I’ve already got something like that?
• Will the new line or product generate business for existing lines?
• Does it solve problems for the customer?
• Are you sure there are no conflicts with the rep’s existing lines?”

If those are all questions that the manufacturer had better be able to answer, he then has to be able to determine whether the new offering is a “winner.”

When all things are considered, the question remains, has any progress been made over the years with this concept of shared territorial development fees? According to Bergson, that question will only be answered “If and when the manufacturer and rep have a mutual understanding of their marketplace and agree on a strategic plan for marketing and sales. Sure, the decided-upon agency might be a really good agency and maybe matches the manufacturer’s line with other product offerings. But maybe the new product needs differing sales techniques. If the rep is equipped to interrelate with the desired market influencers and at the end of the day, get the order, then it’s a fit. Having said all that, however, all considerations — including the payment of a pioneering fee — have to be considered.”

Pioneering Considerations

Bergson is hardly alone as one who has given considerable thought to this subject. Consider what Jon Crowley has to relate. While admitting that he and his agency “have failed in every imaginable way” in dealing with pioneering or missionary work, Crowley, president of the 85-year-old Charles P. Crowley Company, Irwindale, California, explains that “I would recommend a multi-faceted approach when considering a potential opportunity.”

“The first thing an independent agency has to consider is if it’s a large or a small agency. There’s no right or wrong answer here. If you’re a large agency — such as we are — you can probably devote resources to the missionary line and still more easily absorb the success or failure of the effort than a small agency. Conversely, it’s the small agency that may have difficulty dealing with the impact of this line that doesn’t have existing business.”

“Is the manufacturer a large or small company? Once again, there’s no right or wrong answer, but a larger manufacturer may be more inclined to pull the trigger on working with a rep. They may have less patience and not be as committed to the rep business model. In addition, you should determine how long the manufacturer has been working with reps.”

“Is the manufacturer a foreign or domestic company? Foreign manufacturers are not always familiar with the U.S. rep business model and difficulties can arise. Maybe it’s just cultural differences or maybe we haven’t educated them sufficiently, but problems can develop.”

“Finally, is this a stand-alone product or an extension of an existing product line and how does it fit with our current product offering?”

Admitting that shared territorial development fees were missing from what he already discussed, Crowley explains, “I’ve never had much success in making a case for myself with a manufacturer. I tend to go in an entirely different direction and concentrate more on protecting myself in other areas via the terms of the contract before I sign on with a manufacturer.”

Relying on Guidelines

Hardly a stranger to the subject of pioneering or missionary work, Tommy Garnett, CPMR, CSP, offers that “I’ve frequently come across opportunities to represent products or companies that have no existing business in the territories we work. As a result, I’ve got to admit I have mixed feelings on the subject.”

Garnett, president of Garnett Component Sales, Wake Forest, North Carolina, explains that when such situations present themselves, he and his agency rely on a series of guidelines. “We all know how difficult it is to take on something that has no market presence. I’ve done it in the past and probably will do it again in the future. However, we don’t do anything without considering a number of factors.

“Our first step is to confirm that a new line represents a good core value and cultural fit for us. Does the manufacturer believe in the same things we do? If the answer is yes, we’ll continue to talk.”

The next consideration, according to Garnett, is, “We’ll examine our line card and determine if the new opportunity is a synergistic fit with our existing lines. Is it truly something we want to add to our portfolio? Then it’s time for us to make a determination if taking on the line is going to be worth the time and effort we expend on it.

“Next, we have to consider sales expectations. That would include evaluation of market, territory and competition, plus many other factors. We would then project and build a sales strategy and create a scenario of what that effort would look like for the next 12-18 months.”

“Finally, GCS would initiate the conversation of financial support during this initial launch period. We feel this is necessary for a few reasons:

• “First, since there is no existing business, it’s important for us to receive compensation to demonstrate mutual shared expenses and allocation of time while generating business.
• “Having the manufacturer contribute in this manner shows us that he’s committed to the effort.
• “Finally, it’s an example of both of us having some ‘skin in the game.’”

In conclusion, Garnett notes, “When all factors are evaluated and financial support is not a viable consideration for the principal, then we may conclude this opportunity is not a true partnership and opt to pass on the line.”

Coupled with those views, a perusal of the archives of Agency Sales magazine shows that over the last several years, the subject of shared territorial development fees is one that has hardly been a stranger to this publication’s pages. A little more than 10 years ago, reps and consultants offered views that are consistent with those included in this issue of Agency Sales.

One independent manufacturers’ representative explained that when he was approached by manufacturers that didn’t have any business in his territory, he responded to their approach by saying “Sure, I’d like to work with you, but there has to be the prospect of my agency receiving shared territory development costs. After all, it’s simply not fair for me and my agency to exert an effort on the manufacturer’s 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 a full complement of salespeople who are all professionally backed by an able inside staff.

“I’m aware of the fact that it’s going to be predicable that the manufacturer will counter with the time-worn argument that the reason he’s interested in working with a rep is that reps don’t get paid unless they sell something. Plus, what difference does one more line make if I’m already calling on those accounts anyway? Then it’s up to me to educate him as to the fact that a cost is expended whenever I include a line in the sales presentation of my synergistic product offering.”

He concludes by noting that while his requirements for a shared cost are hardly exorbitant, “It’s important to recognize the fact that I need something that shows good faith and commitment on the part of the principal.”

Another veteran industry observer offered this opinion: “Even with complete due diligence, it’s often hard to know if a principal who is new to the territory will adequately support the rep for the time necessary in order to succeed. When the principal pays a monthly stipend, they feel that they have an investment to protect and those quotations and engineering designs tend to come out of the factory a lot faster than for the rep who agreed to work simply on straight commission.”

“An industry consultant familiar with manufacturers that take their products to market through reps offered the following: “If the rep can benefit equally and quickly from a principal relationship (e.g., the new principal’s capabilities plug a hole in the rep’s current line card and makes the rep an even more valued ‘overall’ resource in the marketplace, or the rep sees immediate and future potential in selling the principal’s capabilities to current customer), then I don’ see any need for paying a retainer.

“Reps are integral to jump-starting a manufacturer’s marketing efforts. As important as it is for a rep to be integral to the manufacturers’ efforts, it’s perhaps more important that the rep currently has synergistic lines on his line card and that he is intimately knowledgeable of the manufacturers’ products and the needs of the marketplace. However, it’s reps that lack the aforementioned attributes that set themselves up for requiring a shared-territorial development fee or some other form of retainer.”

While his previous comments would appear to place this consultant in the category of one who is anti some sort of developmental fee, he left the door open with another view: “Although I typically work on behalf of a principal on any rep organizational development project, I look to find reps that can benefit a principal, but can also benefit from a relationship with a principal. If it’s only a one-way relationship in which the principal needs a rep to penetrate a specific market/prospect base where the manufacturer currently has no business or few relationships, then I believe a retainer is justified. That would be considered pure market development (‘missionary’) work to benefit the principal.”

In conclusion, another independent rep offered his thoughts on the subject of pioneering that differ from those previously stated. His strategy is to embrace “missionary” or “pioneering” lines — but in the absence of a retainer or some sort of shared fee. According to the rep, “Pioneering has been successful for me without a retainer or sizeable residual. However, I’ve only considered a line when certain criteria are met. For instance, the product must be something that I can introduce into more than 50 percent of my current customers; or, it offers a value-add, or niche and is not a ‘me-too’ product. An additional consideration that I always keep in mind is if I don’t currently represent this type of product, would I virtually be inviting my competitors in to fill my prospect’s void?

“If these criteria are met, it will result in the efficient use of sales time with little or no additional cost to my sales efforts. Even so, there’s still no guarantee that I’ll take on the line or be very successful with it. However, the risk-to-reward is usually more favorable to the rep.”

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