This is the 25th in a number of articles serializing The Sales Force — Working With Reps by Charles Cohon, MANA’s president and CEO. The entire book may be found in the member area of MANA’s website.
© robu_s | stock.adobe.com
William continued to explain the manufacturer’s costs, “Now, variable overhead, material cost and outside processing all are attributable to the new business. In-house sales costs and general and administrative costs are just like the fixed overhead: they are sunk costs that were already committed whether or not this new job was written, so I am going to strike through those dollar amounts as well, and write ‘n/a’ in those spots. Rep commission is attributable to the sale, so it stays in. Now let’s look at the new totals. I’ve put together the same document on the basis of those changes, and I’ve added the word ‘new’ to remind us that we’re talking about new added costs only, with existing fixed costs excluded.”
“As you can see, a rep who brings in incremental business that lets you more fully utilize your plant’s capacity can have a dramatic effect on your bottom line profits. And the beauty of this system is that once you develop some experience with my company and how to work with reps effectively, you can expand your rep network nationwide, or at least to as many sales territories as it will take to get your factory fully loaded, so you can add that second shift you want, and maybe even a third one.”
Jim watched Joe’s body language change as William made his case for incremental business. It looked like the carrot William had dangled in front of Joe might be enough to overcome some of Joe’s objections.
“William, if you really feel strongly about the changes you asked for, I don’t think we can sign the agreement today, but I’m willing to discuss those points with Jim and my attorney and get back to you with what we’ll be able to do for you. Jim, do you have good notes about William’s points?”
Jim nodded, and added, “I’m going to need to get William back to the airport, but when we get there I’ll go over my notes with him to make sure they’re complete.”
Joe stood up and held out his hand. “William, I enjoyed meeting you and I have to tell you that you really did give me some things to think about.”
They arrived at the airport with a little time to spare, which gave the two men time to recap the requests William had made. Jim hated the thought that if the deal fell through, the time he’d spent working to find a rep company like William’s would go to waste, and told William that he really hoped that the two companies would be able to reach an accommodation.
“I really want this to work,” said Jim. “I will do everything I can to get you as many of the points you requested as possible, but I hope that you’ll be willing to bend a little. When I’ve gotten Joe as far as I can, I’ll let you know how I did, and all I can hope for is that it’ll be good enough.”
“I won’t be unreasonable,” William replied. “I think if you do your best and I do my best, we’ll find an acceptable middle ground. I just hope that you can express to Joe the value that we’re bringing to your company. Please be sure he understands that we don’t expect to get rich from your line, but we’ll need some revenue coming in or we won’t have the resources we’ll need to make this territory grow.”
Jim’s meeting with Joe Troothe the next day did not start on a positive note. “You want me to pay sales commission to a rep company for sales we already have? Jim, are you nuts?”
Jim had seen Joe’s budding enthusiasm for the rep concept when William explained the contribution that incremental business could make to Troothe’s bottom line, so he was surprised that Joe had become so negative overnight. Apparently the need to give up some sales commission seed money to get the process going was so troublesome to Joe that the benefits of incremental business had faded from memory.*
A reminder from Jim of those bottom line effects brought Joe back up to a point where he seemed to at least be on the fence, but Jim could tell that getting Joe to soften his position further would be no small task.
Jim’s next argument was a little bit of help in changing Joe’s mind. “I’ve got to be honest with you, Joe. If we could hire William’s company for free, I don’t think we’d take good advantage of his services.”
Joe shot Jim a quizzical look, so Jim continued. “I’ll give you an example. Three kinds of sales leads come into our office. One source is trade shows, a second is responses to advertising we place in the trade press and the last is responses forwarded to us by trade publications that have published our news releases for free. When we pass these leads along to the sales force, what kind of marching orders do we give them?”
“As you know, Jim, when we get leads from a trade show, we require the sales force to follow up and file written reports immediately,” said Joe. “After all, when we spend $10,000 to be in a trade show, and another couple of thousand on transportation, hotels and meals, we’d better be able to tell that we got our money’s worth. At the end of the show it’s easy to do some quick accounting — if we have 100 leads and we spent $12,000 total, then each lead cost us $120, and we can’t waste a $120 lead. Leads from advertising we buy in trade publications trickle in more slowly, so we can’t calculate the cost per lead as quickly, but we know it’s a significant amount, so we still require written responses to those leads to be sure we get our money’s worth. Leads from news releases don’t cost us anything, so we ask the salespeople to follow up, but we don’t make it a formal process, because we don’t have to justify the cost.”
Joe paused. “Oh, I think I see your point. I guess it’s human nature to assign more value to things we pay for.” Jim stayed silent, letting Joe make his point for him.
“So I guess what you’re saying is that if we got inquiries from a rep and we weren’t paying him anything, those inquiries would fall to the bottom of the pile while we handled inquiries that were generated by the direct sales force that we’re paying for,” Joe admitted.
“OK, maybe you’re right. We may have a tendency to abuse a resource we get for free. You have me thinking at least, but I’m still not ready to jump into the rep concept with both feet. You’ve still got some convincing to do.”
Joe smiled, remembering his initial resistance to Jim’s salaried sales force concept, and how he’d come to respect Jim’s instincts. “He hasn’t led me down the wrong path yet,” thought Joe, “but I need to know his level of commitment before I let him run with this.”
Jim’s reply was direct. “We do marketing experiments all of the time — running advertising in different publications, varying the trade shows where we exhibit, offering special promotions and sales contests to our distributors. I have to admit that for Troothe this change would be an experiment. We haven’t used a rep in the past and I can’t guarantee that adding them will pan out, but it really isn’t any different from taking a booth in a national trade show we haven’t used before. It’s an experiment, but I really think it’s a worthwhile one. Our competitors are using reps, and I think it’s important for us to go through the exercise, understand the process and give it a fair shot.”
Joe thought for a minute before replying. “OK, maybe a rep would give us a different level of marketing we don’t currently enjoy. And maybe you can compare that to trying a new national trade show. But I can try out a new national trade show for $12,000. Paying William the commission on our two big accounts in the territory would cost twice that — and I’d rather take a flier on two new national shows than one new rep.”
To be continued next month.
MANA welcomes your comments on this article. Write to us at [email protected].
* Professor Matthew Bothner, “Losses Loom Larger than Gains” (April 5, 2003). Lecture presented in Strategy and Structure. University of Chicago, Chicago IL.
