Earlier this year, Agency Sales focused on the importance of reps communicating with their principals regarding the importance of having existing business in a territory before they take on a line. That discussion obviously struck a chord with one of our readers as the following letter and subsequent conversation shows.

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Letter to the Editor

I would like to take this opportunity to formally compliment you and all the contributors to Agency Sales for the high quality of your publication. In my mind the August 2017 issue was exceptional inasmuch as it devoted much of its content to the subject of pioneering fees. (Two articles in the August issue addressed the subject of pioneering fees: “Should Reps Blaze the Pioneering Trail?” and “Teaming Up on the Pioneering Effort.”)

Mike Hansen

I have earned both an engineering degree and an MBA and have spent 35 years in technical sales (i.e., 15 years as a salaried sales engineer and 20 years as an independent sales agent). In my mind the answer to the question “Should the independent sales agent be paid a retainer to pioneer a new line?” is “Absolutely yes!” Independent sales agents are in a service business just like accountants and attorneys, etc. Whenever we are engaged by a principal we should be compensated for our time and expertise.

If a company balks at a pioneering fee, I challenge them to look at their company’s financial report/income statement. An accurate income statement will report earnings per share for common stock and include separate entries for both marketing and general sales and administrative expenses.

• Marketing expenses, advertising, promotion, etc., and depending on the industry a company needs to budget one to two percent of gross sales revenue.
• General sales and administrative expenses cover the cost of a company’s direct sales channel (i.e., salaried salespeople or independent sales agents). And once again, depending on gross margins, industry, etc., a company needs to budget five to 25 percent of gross sales revenue to adequately cover its cost of sales.

In the past, companies have boosted their earnings per share by cutting their marketing/general sales expenses and many of these companies have gone out of business because their customer base was not diversified. In today’s market where the typical sales cycle can be two-three years, companies like GE are admitting that they have ignored strategic marketing/sales for too long and they are devoting more resources to these line items on their income statement. If GE is doing it, then doesn’t every company need to? In my opinion accountants and attorneys will not work for free and neither should the independent sales agent.

In addition, I thought Eddy Mindlin’s article (“Teaming Up on the Pioneering Effort”) was spot on.

Keep up the good work!
Mike Hansen
Integrated Sales & Services, Inc.
Waukesha, WI

Subsequent to the receipt of his letter, Hansen expanded a bit to Agency Sales on his thoughts concerning pioneering fees. According to Hansen, “I had spent years as a salaried sales engineer for large manufacturers. In that capacity I received a salary and a bonus. When I decided to open my own agency in 1994, I’ll admit I knew very little about the business. Through SCORE I worked with a rep who served as a mentor. What I learned from my first day as a rep was that I required two things from manufacturers:

• First that there be existing business in the territory.
• And second, that revenue from the manufacturer would fund the sales and marketing campaign.

If no revenue-producing business is turned over to me from day one, I’m not afraid to walk away from the business.

Somewhat predictably, he notes that his requirement for a pioneering fee very often fell on deaf ears. “Very few manufacturers wanted to hear about it. They wanted to move ahead with no ‘skin in the game.’ When that happens, I’m not afraid to walk away.”

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