The following by Scott Lau, Scott Lau Consulting, Midlothian, Virginia, appeared on MANA’s LinkedIn discussion page earlier this year. His consulting firm specializes in working with independent manufacturers’ representatives to increase sales and profitability and with small and medium-sized American and international manufacturers of architectural products to improve sales force effectiveness and increase sales.

While the emphasis of his column is on the effectiveness of the independent manufacturers’ representative in the building materials industry, his message certainly applies to other industries.

The goal of building material manufacturers is to maximize sales at the lowest possible cost and at the same time maintain an outstanding service reputation with their customers. Should the sales team be comprised of sales employees, independent manufacturers’ representatives, or a combination of both?

A sales employee is totally directed and paid by the manufacturer. An independent manufacturers’ representative, or “rep,” is a firm that sells products of many manufacturers. The manufacturers’ rep may also help his manufacturers market their products or even be a distributor of products. Reps can be small, one- or two-person operations, or they can be larger firms with multiple branches covering large geographic territories.

For many reasons large building material manufacturers seem to prefer using employee sales teams in recent years. Many are overlooking the benefits of a rep. For small manufacturers or startups, independent manufacturers’ representatives are an ideal choice for the sales team. This type of sales team helps keep sales costs down and can gain quick entry into key markets.

Advantages of Using Independent Manufacturers’ Representatives

Cost of sales efforts — Sales costs are directly tied to sales volume. Since a rep is only paid commission on products sold, there are no fixed costs of salary, fringe benefits, travel, or other sales expenses. If sales volume decreases, commissions also go down. Although the cost of a sales call varies widely from industry to industry, information from the Manufacturers’ Representative Educational Research Foundation (MRERF) indicates that the estimated cost of an individual sales call for a sales employee might range from $250-$500 per call. This cost includes salary/commission, fringe benefits, other sales costs, and overhead. For a rep sales team, these costs are paid by the rep organization.

Long-term personal relationships — These are a key to the success of any business. Individual reps normally work in a smaller geographical territory than a sales employee. Since a manufacturers’ rep owns his business and lives in his territory, his personal relationships are built over decades. Sales employees turn over much more often due to promotions, resignations or terminations, and for many other reasons.

Proximity — Since a rep lives in the compact territory he covers, a contact for service to customers is close by. When an architect or engineer or a buying customer requests an office or job-site visit by a representative of the manufacturer, a rep can often make the visit within a few hours. Since a sales employee normally covers large geographic territories, his office may be a number of states away from the customer, so a personal visit to handle a service problem or discuss an important order normally takes longer.

Preparation and industry-specific expertise — A rep is a trained sales professional. Even if a rep is relatively new, he likely has some past sales experience. He may already have been trained as an employee of a manufacturer. A manufacturer has modest or no expenses for sales training, beyond specific product training.

Overlapping sales opportunities — The multiple lines handled by a manufacturers’ rep allow a rep to operate his business with the lowest possible selling costs per line represented. A visit to a customer to sell or service a product of one particular manufacturer can lead to a sale or a sales lead for one or a number of other manufacturers the rep is representing. This synergism between lines leads to increased sales opportunities for all manufacturers represented.

Market information — Because a rep operates in his geographical territory for decades, he has a broad range of contacts both directly associated with the manufacturers he represents as well as with other businesses and friends. A rep is well-positioned to provide his manufacturers feedback about new product opportunities, marketing programs, competitive information, etc.

Continuity of relationship and coverage — Most reps operate with some type of succession plan, either within a family or with other employees. This assures a manufacturer of continuity of business relationships and territory coverage over decades.

Advantages of Using Direct-Hire Salespersons

100 percent control of the time and activities of the sales employee — Many manufacturers have a sales philosophy, detailed reporting systems, a highly technical product or a long pre-selling period which better suits an employee sales team. The manufacturer does not have to deal with multiple and varying operating procedures of manufacturers’ rep organizations. The employee must follow standard manufacturers’ operating procedures.

Training and sales management — Sales training is provided by the manufacturer. Employees can be taught using the specific sales philosophy, techniques and methods that are particular to the manufacturer. This training makes the sales team more homogeneous than a manufacturers’ rep team. Sales management can be less complicated than overseeing a team of reps.

Single product-line focus — The manufacturer does not have to be concerned with his sales team splitting their time selling other products.

Ease of hire — There are numerous sources to find sales employees including head hunters, newspaper advertising, the Internet, and a manufacturers’ network of contacts. The sources to locate suitable manufacturers’ reps are more limited. MANA (Manufacturers’ Agents National Association), contacting the reps of other manufacturers in the same industry, and using the manufacturers’ network of contacts are the best sources.

International preferences — Many foreign manufacturers do not have manufacturers’ reps in their home countries, so they automatically prefer an employee sales team.

Conclusions

In the building materials industry the benefits of a manufacturers’ representative sales team normally outweigh the benefits of an employee sales team. This is particularly true for manufacturers of technical, architectural products that require sales and marketing effort with architects and engineers to gain inclusion into specifications. Calling on architects and engineers requires a unique set of sales skills which take years to acquire. Many manufacturers continue to depend on an employee sales team because they are not familiar with managing a manufacturers’ rep team, and/or their management prefers having 100 percent control of their sales team. With a sales employee team that is oftentimes turning over due to promotions, resignations or terminations, and for many other reasons, maintaining a professional employee sales team with the skills necessary to call on both architects and engineers as well as the buying customers is very difficult.

Another alternative for manufacturers is a hybrid organization comprising employee regional managers combined with manufacturers’ representatives. The reps can report to a regional manager or to the director of sales. This organization allows a manufacturer to use sales employees in large, key markets where they want tight control of sales activity or in markets where they cannot find a manufacturers’ representative. Reps can be used in all other territories. A strong, well-established, and qualified rep might even be considered for key markets. This hybrid sales strategy allows the entire sales team to cover smaller territories more efficiently, to build and maintain strong personal relationships, and to hold down total selling costs.

Whichever direction a manufacturer may choose, the decision should be made with consideration of all sales organization possibilities. Tradition alone shouldn’t define a company’s sales strategy.

More From LinkedIn

The value of reps vs. a direct sales force is hardly the only important subject addressed in MANA’s LinkedIn discussion page. What follows are the thoughts of a long-time MANA member (John Roba, The John D Roba Company, Inc.) on the subject of call reports — something that has frequently been addressed in this space.

“As a long-time MANA member, I have found that one of the most frequently discussed subjects is call reports. Jerry Leth, MANA’s vice president and general manager and longtime liaison to the membership, recently told me he gets at least three calls a month regarding the subject.

“Many years ago I was visiting a new principal for orientation and to discuss strategy for the product line. As we were wrapping up the meeting, the sales manager very nonchalantly said, ‘Oh, by the way, we require call reports.’ During the course of the day, I noticed a pile of call reports sitting on his desk. I could not resist the temptation of pointing to them and asking if he was behind in reading the ones he had. He stammered a bit and then admitted that being so busy, he had not gotten to them, but would catch up soon. Quite frankly, it was apparent that by the time he read the reports he had — if he read them at all — the information would be obsolete. This launched a long debate on the merits of call reports and their overall value.

“Most of the principals I have worked with over the years have recognized the time constraints put on the professional outsourced sales team and have been very content knowing they are well-represented, and the salespeople produce outstanding results. However, there are times when sales managers demand call reports. Sometimes they are well-meaning, but unfortunately they also attempt to control the team in a very unproductive way.

“Good communication is essential between parties, and to do their job properly, every sales manager needs quality information from the field. However, the representative looks at call reports as against IRS independent contractor regulations, time-consuming, unproductive, and taking valuable time from their core objective — selling. As members of the team, we need to be able to work together in a way that produces the greatest benefit between parties resulting in a win-win partnership. The question then becomes what is good communication and how much information is necessary? Is it a simple straightforward product line or is it one that is very intricate that requires more detail?

“In my particular case, after a long conversation the sales manager admitted to me that reviewing call reports was a tedious and time-consuming process. Although some of the information was valuable there was a lot of peripheral information that was not needed.

“The answer was simply providing a quarterly productivity report. It gave a brief description of all pertinent information that the principal was looking for, it was short and to the point, and they loved it. This became standard procedure with this company and as they admitted later, it freed up a lot of their time.

“They now read all the reports on a timely basis and are much better informed than they have ever been. It was a home run for all concerned and greatly enhanced our relationship with this principal. It worked so well we used it with great effect with other principals when the circumstances required it.

“This solution was a good way to compromise a very delicate situation. The key word here is compromise and looking back over a 40-year career, the ability to properly communicate, negotiate and compromise is paramount to long-term stability and success.”

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