What Happened to Straight Commission Reps? — Part TwoBy Charles Cohon
Last month I answered a manufacturer’s question about why manufacturers’ representative agreements increasingly include clauses covering Life of Part/Life of Program (LOP/LOP), shared market development fees, and/or extended post termination commission.
This month I answer that manufacturer’s follow-up questions:*
“Let’s say my rep Fred closes a major order at Acme Company and I give Fred LOP/LOP commission on that program. Later I replace Fred in that territory with a new rep, Nicole.
“When that program comes up for renewal, Nicole is managing negotiations for a reorder that is still commissionable to Fred due to LOP/LOP.”
- “Why would Nicole work hard to maximize the selling price on this reorder?
- “Why would Nicole work hard to keep this reorder from going offshore?”
Why Would Nicole Work Hard to Negotiate the Best Deal for Her Principal?
Nicole plans to write new orders with Acme and earn LOP/LOP commission on those new orders. Nicole knows that if she lets prices tumble on this reorder it will be harder to get a good price later when Acme’s next new project comes up. Maintaining a good margin now serves Nicole’s interests when she negotiates with Acme on the next project.
Of course, if the principal still has lingering concerns about Nicole’s motivation to maximize the selling price, the principal can always give this negotiation extra attention and oversight.
Why Would Nicole Work Hard to Keep This Project From Going Offshore?
Once Acme starts sourcing its projects offshore, Nicole will face offshore competition on every future project she quotes to Acme. Nicole will do everything she can to avoid having Acme starting to source its projects offshore.
Bottom line, most manufacturers would love to be facing a situation where they had so much business that managing quotes for reorders became a major undertaking. After all, you had to get the orders in the first place for reorders to be an issue. And getting orders is exactly what reps do best.
* The manufacturer’s comments have been edited for clarity and brevity.