A manufacturer that was about nine months into his initial experience with an outsourced sales force raised the question about how he should handle split commission situations.

One of his MANA-member reps was quick to provide him with a discussion on the subject that appeared in the pages of Agency Sales several years ago. Two of the highlights from that discussion follow:

• “Commission splits are fairly common in engineered products. There are many different ways to fairly compensate all parties involved. The main thing to remember is that the compensation needs to be based on how much influence each agency has in the overall completion of the sale and the agency responsible for the effort at the point of start-up. Other efforts that may deserve a portion of the commission would be the agency involved in the engineering of the project, training of personnel, etc.”
• “Normally we see commission split into a one third, one third, one third scenario. One third at point of origin, such as engineering; one third at point of purchasing, potentially in the sale location as engineering; one third at ship-to location. This is not always the best scenario for retaining salespersons and maintaining motivation.”

Why Is Synergy Important?

In answer to that question a manufacturer offered: “You immediately gain the benefit of association with the reps other lines and their leads. We get the benefit of the leads generated by their other principals. When they make a sales call in response to one of these leads, the rep has an opportunity to sell our products as well. In addition, his other lines complement ours and support the sale of our complete line of products. For example, there’s one product that we don’t manufacture that goes hand in hand with our product line. We know we couldn’t properly field a direct sales force without that other product. What the rep does for us is carry that product from other manufacturers. As a result, there’s a perfect marriage for us. This is one of the major reasons other manufacturers want our reps to handle their lines. We have the best rep organization in this market and other manufacturers want to jump on. We welcome them.”

Signed Contract Equals Professionalism

Agency Sales has made it a habit to profile MANA-member agencies. In the course of interviewing the heads of various agencies the importance of having a written contract between rep and principal is always emphasized. It’s not only reps, however, that value the importance of having a written contract. For instance, one manufacturer recently weighed in with his view on the subject: “I’m wary of the rep that doesn’t introduce the subject of a contract when we’re negotiating. To some extent it causes me to question his professionalism — and I know how MANA is constantly emphasizing the importance of professionalism. I’m not new to this game and I fully understand that there are some reps willing to take on lines notwithstanding the risks of taking one on in the absence of a written agreement.

“A contract works two ways, however. It not only protects the rep, many times guaranteeing payment for pioneering work or safeguarding their rights when it comes to post-termination compensation. But I prefer to look at it from my side of the desk, and that means it also protects me and my company. The well-written (with the aid of an attorney) contract is fair to both sides. Just as important, it spells out all that is expected from both sides. As the relationship grows and develops, there should not be surprises in who should be doing what. It should all be spelled out beforehand. I not only recommend that reps insist on contracts, I’d say the same thing to my manufacturing peers.”

Keeping an Eye on the Future

When asked recently whether her agency had a succession plan in place that was shared with principals, the owner of one agency was quick to respond with “Yes, but I’ve got to admit some principals are interested, but many don’t really seem to care.”

Speaking with several manufacturers that boast of long-standing relationships with their rep networks, most stress the importance of knowing what their agency plans for the future are. One manufacturer in particular noted: “It’s been gratifying to me that I don’t even have to address this question with several of the agencies I have long-tenured relationships with. These are the agencies who believe in — if not insist upon — joint planning, yearly evaluations (i.e., us of them, them of us), goal setting, etc. The others, and I’ll admit it’s a fairly small number, seem to bristle at the fact I want to know how they plan to continue our relationships into the future.”

Agency Sales, MANA, and any number of reps who have been interviewed by this publication over the years would agree with this manufacturer’s observations. It all comes down to communication and planning. Just as the rep needs to know how the manufacturer plans to address the future, so too does the manufacturer need details that will impact how he or she will be able to meet the needs of a specific territory or customer segment.

Not Enough Thank-Yous

When speaking with one manufacturer about his relationships with his reps, the manufacturer thought for a moment and made one very important point: “I’ve got to say ‘thank you’ more often to the reps who continue to do such a good job for us.” More than that, however, he offered a couple of other steps he normally takes that not only show how much he appreciates his reps, but serve to incentivize them:

• Have the company owner, president or sales manager phone reps regularly to let them know how much their accomplishments are appreciated.
• When a rep has gone above and beyond the normal effort, send off what he called a “gotcha” note that lets him know you’re aware of what he accomplished — and that you appreciate the effort.
• Regularly send thank-you notes and emails. “These let the rep know how much you value their contributions and that you’re aware of everything he’s doing for you.”

Timely Communication

Serving as a timely follow-up to the previous item, one manufacturer described how one of his very best reps made sure the manufacturers knew exactly what was going on in the field.

According to the manufacturer, “If I ever had any doubts concerning how this rep was working for me in the territory they were all put to rest when he proposed the execution of a monthly telephone conference call that would include all the major players from his agency with all the decision makers in our office. The rep took charge of the call by making use of a number of provocative prompts that would jump start the conversation. Among those questions would be a number that pertained to what we were doing with the major accounts in the territory. He’d follow that by letting us know exactly what activities he was involved with for all of his and our customers and prospects.

“The call was never complete until both sides agreed upon what action plans we’d take before the next call.

“To say I’m overwhelmed by his approach is an understatement. And add to that the fact that he’s dramatically increased sales for us in the territory.”

The Value of Quality Lines

When deciding upon what agency to go to market with, two manufacturers offered complimentary views on how much value they place on an agency working with other quality manufacturers.

One manufacturer noted that “When one of our long-standing reps decided he was going to retire, we were immediately faced with the problem of filling a gap in our coverage. Because we had a great deal of long-standing business in the territory, we undertook a very extensive search process to locate the rep that was going to be the right fit for us. When we eventually signed the rep, we made sure we kept uppermost in our mind the fact that they already had a long history of going after top lines and getting them. Once we added that, our recognition of their professionalism, enthusiasm, and knowledge of the territory, our choice was a virtual no brainer.”

A second manufacturer explained that while she is relatively small, she still had good luck working with reps. “One of the reasons we’ve had the level of success we enjoy is that before making the choice of whom we go to market with, we carefully weigh the other lines a prospective rep is working with. I’ll carefully go over the entire line card and contact several of the reps non-competing lines in order to learn what they think of the rep firm. Since we are non-competitors, they’ve always been very forthcoming with me. Perhaps the number-one thing I’m looking for in these conversations is to determine what their level of commitment is to their other lines. We’ve followed this path several times and I can’t say we’ve ever made a mistake.”

End of the Month Can’t Come Soon Enough

When a manufacturer was questioning the wisdom of having to pay increased commissions to several of his top-performing reps, one of his fellow manufacturers offered some words that sound like music to any rep. The manufacturer, who was the president of the company, said, “The best day of the month is the day I send out checks to our reps. And, the larger the checks, the better the day for me. As long as the checks are sizable, I’m one happy man. The bottom line is: the more they sell, the more they make — and more important than anything else, the more I make. I can’t think of a better relationship. Keep earning those checks.”

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