Over the course of four days association members participated in a free-wheeling MANAchat on the subject of developing new markets.

The sessions were entitled “Market Development Fees”:

• What are they?
• Why are they necessary?
• What strategies should you use to convince your prospective principals they need to offer market development fees?
• How long should such a fee last and how do you determine the amount?
• Are market development fees mandatory every time you sign a new principal?
• What do you provide the manufacturer in exchange for the market development fee?

The 53 independent reps who took part in the chats described their experiences negotiating with or persuading their principals as to the benefits of participating in such programs.

At the outset of each daily discussion participants were asked for their definitions of such fees whether they’re called shared territorial development fees, retainers, etc. While there were various definitions, in general, the reps’ experiences showed that such fees were understood in the following ways.

1. “A manufacturer comes to the conclusion that there’s business to be had in a given territory, but the time it would take and the cost of hiring a direct employee to replace a competitor wouldn’t be a profitable venture. Since the rep model recommends itself, the manufacturer approaches a rep to work the line. From past experience, however, the manufacturer has determined that not all reps perform as well as they would like. Here’s the catch: some reps might take on any line — they’re probably the ones that don’t perform that well. It’s the true professionals, however, that will sign an agreement that calls for the manufacturer to pay a monthly fee, for a period of time, while the rep works to establish business.

“Payment of that fee shows that the manufacturer is willing to make an investment in the effort. In making that investment, with a top-performing rep, they feel that they will eventually get their investment back.”

2. “If there are no — or limited — commissions for a prospective principal in a given territory, you ask for money up front in order to develop the territory. Reps, just as anyone else, don’t want to work for free. That’s called charity. The fact is, it’s going to take time and money to develop customers. The time and money I spend on that effort will take away from where I’m already making money. The manufacturer should realize that they should compensate the rep for that work. Really good reps out there will not take on a line without existing business in the absence of a development fee. The manufacturer realizes he has a choice: ‘I can sign you with a development fee; or, I can sign someone else who won’t require such an agreement.’ It’s up to them.”

3. “I look at it this way, a territorial development fee is a way to supplement your efforts while you develop the business when there is none. You’re able to treat that line as a priority and the fee provides you with some revenue and helps you pay for the gas and other travel expenses while you’re working on a line.”

Before leaving this subject, it was emphasized that there is a great deal of information on market development fees that appears on the MANA website (www.MANAonline.org).

Implementing Strategies

Having stated their rationale for the existence of such development fees, the reps in the MANAchat offered a variety of strategies as they communicate with prospective manufacturers.

One of the first rationales was offered by a rep who said, “My message to a prospective principal is very simple; if they want me to go out and work for them, I need to be compensated. If I’m not compensated, then I simply walk away. It’s imperative that principals come up with some ‘giddyap’ in the game.”

A second rep noted, “A manufacturer’s willingness to invest in the effort allows us as reps to separate the wheat from the chaff. It tells us who’s serious, and who isn’t. If they’re not willing to invest to gain access to my customer base in return, then the relationship isn’t going to work.”

If those two previous statements lay out reps’ reasoning, their strategic approach to convince manufacturers as to the viability of such fees follows a clear path of offering something in return to the manufacturer for their investment. The consensus among the chat participants was that “you have to give them something extra in addition to making calls and following up.”

According to one rep, “The approach I’ve followed is to be right up front with a prospective manufacturer. As an example, one manufacturer recently located me through my MANA membership. What they’re selling is foreign to me and I let them know from the start that I wasn’t the person for them. They have been insistent, however, and keep on saying they know I’m the rep for them.

“What’s going to have to happen here is that I’m going to have to learn a whole new selling language in order to work with them. Their response to that was that ‘We’ll help you and give you whatever it is that you need — and we’re going to compensate you during the process.’

“This is an example of the type of conversation I think you need to have in order to make the relationship work.”

Look to the Past

Another rep offered that he relied on his considerable past experience in negotiating such fees. “I’m thinking about what I accomplished with one principal. I had access to his CRM. At the beginning of our relationship I came up with a number of targets that I would reach. What resulted was a major ‘data dump’ of valuable market information that all grew out of my more than 20 years of experience in the territory.”

This subject of strategies that reps might employ to educate and persuade manufacturers as to the value of market development fees led directly to a discussion of the need to provide the manufacturer with “something” in order to prove or indicate that the rep is, in fact, prioritizing his product or line in the marketplace. To that point, one rep indicated he provided principals with detailed quarterly reports in return for a $2,500 monthly market development fee.

Admitting that he hasn’t entered into a market development fee arrangement in a few years, another rep recalled that in his past he’s relied on the “commitment” argument to persuade a manufacturer that such an arrangement is worthwhile. “For instance, your agreement on such a fee shows you’re serious about conducting business in my territory. In return for that commitment, you can count on me for reports on important developments in the field and to accommodate you when you come here for a field visit. You’ve probably had no connection with customers in the territory and they won’t be super interested in meeting with you. I’ll plan on providing your entrée to those customers and I’ll spend however many hours are needed in the car with you traveling from one customer to another.

“If you are serious about our relationship, we’ll lay out all the groundwork necessary to get the job done.”

The Cost of Conducting Business

Yet another rep offered, “If a manufacturer has some business in the territory, we might take a risk on him and work with him to develop new customers in the absence of such a fee. However, in general, we look at the need for such fees as simply the cost of doing business for the manufacturer. I know, they all say ‘You’re calling on these customers anyway, so what’s the expense? It’s minimal, right?’

“My strategy is simply to let him know that we’re already successful with our eight existing lines. I don’t need anything more. If you’re asking me to do some missionary work, that’s going to take time away from my other lines and I’m not willing to do that in the absence of some form of compensation; hence the need for a market development fee.”

Finally, a rep that simply refers to these fees as retainers maintained, “We approach the subject this way: It’s happened that we’ll get a request from a customer for a product that we don’t represent. We follow up by approaching the manufacturer because we want to let him know that there is some business to be had. Next, we’ll let him know we’ll work with him as long as we’re paid a development fee.

“In another instance, we’ll simply let a manufacturer know that we’re aware of business from our past experience; and, we can document it. Sometimes this will convince them.

“Frankly, when it comes to these agreements, I feel that the request for a shared market fee puts the onus on upper management of the principal. If we’re successful with our approach, then we can plan on receiving the full support of the manufacturer when it comes to the type of support we need in the field.”

In the end, all of the MANAchat participants agreed that there should be no fear in walking away from a manufacturer that resists investing in the reps’ efforts. As one rep put it, “There are some manufacturers who will never like the concept. They think we’re just here to take the risk for them when they have zero business. We’re going to provide all the leg work in the absence of leads, advertising, or other forms of support. That’s not the way we conduct business.”

MANA welcomes your comments on this article. Write to us at [email protected].

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List of MANAchat Participants

MANA wants to thank the following members for their contributions to “The Need to Invest in the Rep’s Efforts” Agency Sales magazine article. They made these contributions by participating in the MANAchat that discussed market development fees. These online virtual meetings create a platform where members exchange information on how to successfully operate their manufacturers’ representative businesses. Jack Foster, Agency Sales magazine editor, wrote the article using the information and knowledge these members provided during the MANAchats.

Thank you! We sincerely appreciate the time you took to participate in the MANAchats and particularly the information and knowledge you shared.

Dena Armstrong
Double A Sales Southwest
Phoenix, AZ

Derek Bair
Bair Marketing
Lenoir, NC

Bill Birchfield
Quality Marketing
Charlotte, NC

Eric Blythe
Advanced Engineered Products
Titusville, FL

Tom Buddenbohn
Budd Sales Co.
Arlington, TX

David Burke
Halpin D. Burke & Son, LLC
Fenton, MO

Jamie Callihan
JLC Industrial, LLC
Amelia, OH

Earl Carter
CADE Architectural Resources, Inc.
San Francisco, CA

Ryan Christian
Vic Myers Associates Corp.
Albuquerque, NM

Claudia Cort
Cort Design & Marketing Group, LLC
Eden, MD

Carlton Davenport
Vic Myers Associates Corp.
Albuquerque, NM

Darren Foster
Rocky Mountain Integrated Solutions, Inc.
Bluffdale, UT

Stephen Fowler
Process Equipment Resources & Consulting
Bridgewater, NJ

Chuck Given
American Manufacturers Agency Corp.
Oxford, PA

Dorothy Gosnell
Gosnell Medical Sales, Inc.
Lake Elsinore, CA

Dan Gunther
E P I
Kansas City, KS

Lucy Hernandez-Dayton
Ardent Sales, Inc.
Long Beach, CA

Tom Hoarty
Process Control Products
Burlington, MA

David Houchins
Motor City Industrial Marketing
Old Mission, MI

David Ice
Ice & Associates, Inc.
Lawrence, KS

Tom Kitchin
Kitchin & Sons, Inc.
Richmond, IN

John Lanzillo
The Zonk Group, Inc.
Plano, TX

Kristopher Mancha
Sentralloy Industrial Products
Houston, TX

Eileen McCardle
Robert McCardle Assocs., Inc.
Haddonfield, NJ

Matt McCroskey
McCrosco, Inc.
San Clemente, CA

Mike Mullen
Baton Rouge LA

Matt Pansing
Midtec Assocs., Inc.
Lenexa, KS

Rick Pierce
Pierce Marketing, LLC
Dayton, OH

Steven Powell
The Smythe Company
Corvallis, OR

Shannon Reddish
HIRA
Newnan, GA

Kevin Rehberger
MDB Supply, LLC
Roswell, GA

Jon Russell
Datacom Sales, Inc.
Grand Prairie, TX

Larry Schrock
L. Schrock
Woodstock, GA