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The February issue of Agency Sales magazine profiled a MANA-member firm that at its beginning was willing to take on any line it could secure. Once the agency turned the corner to profitability, however, the agency owner explained, “Now we keep our product focus narrow and limited so we can effectively serve the objectives of the manufacturer, designer, builder and distributor.”

And elsewhere in this issue of Agency Sales, we describe how at its inception one agency took on 60 lines of products to represent. Now that agency has whittled its representation to a dozen because there’s no way you can keep track of that many lines.

This leads up to the importance of the subject matter of a MANAcast earlier this year devoted to the subject of Line Profitability Analysis.

At the outset of the presentation, MANA’s President and CEO Charley Cohon stressed the importance of regularly conducting a line profitability analysis when he said, “After you’ve signed on with a manufacturer to represent them, you may find that after three or five years, things have changed and you’re not really dealing with the same company.”

What can happen is that for any number of reasons (e.g., the company is purchased by another company; the manufacturer’s lines have changed and they no longer work for you; or, the rep firm simply decides the effort it puts forth isn’t worth the return it receives in commissions), it’s in the best interest of the rep firm to move on.

The process for arriving at that decision should be something the rep constantly keeps in mind and an analysis should be conducted frequently.

Performing the Process

When it actually comes to performing the analysis, Cohon explained that “One of the first things a rep should do is to take out their line card and separate primary from secondary lines. Usually there will be one, two or three lines that actually bring in the most in terms of commission. Then when you get to your secondary lines, you want to make a determination as to what might not be a great fit for the agency.”

He explained that the secondary lines that hold the most promise to continue with are those which are truly complementary to your primary lines and you’re able to ride the coattails of the primary line when it comes to presenting them to customers. What happens is that the agency ultimately earns a good return with a reasonable effort on those secondary lines.

As an example of a secondary line that might not be in the best interests for the agency to continue to represent, Cohon used the example of the automotive market. “Let’s say for example that you’re a rep with a line of adhesive products who calls on automobile tier-one suppliers. You can imagine that there are any number of adhesive products — products that allow pieces to stick together — that are needed in the production process. As an example, there might be adhesive products that are sold in 55-gallon drums that are a great fit for the agency. Well, along comes a manufacturer CEO for the adhesive lines and he looks at the profitability of selling those products in 55-gallon drums. He determines that the company is losing its shirt selling the product in drums. On the other hand, the company has realized tremendous profit in selling the very same adhesive to craft stores in one-ounce blister packs.”

Presented with the dual challenge of selling the adhesive in one-ounce blister packs and selling them to craft stores, the agency probably will make the decision that it’s no longer profitable for them to represent that line. As a result, a decision must be made. “This is obviously a glaring example, but it serves to show that a line may no longer fit on that agency’s line card.”

Contributing Factors

Cohon emphasized that there are a number of intangibles to consider when making the evaluation of what lines to carry. Among the considerations that an agency ought to weigh are:

• How well does the secondary line fit with the agency’s primary lines, i.e., those lines that you spend most of your time with?
• Is the secondary line what would be considered a “door opener”? In other words, is it a line for which the customer would normally make time to see the rep?
• Weighed against the effort expended to sell the line, how much income in commissions does the secondary line generate?
• While the agency may have their “toe dipped in the water” with the secondary line, what is the potential for future sales? Is it going to take off at some point?”
• Is this line one that would serve to generate leads for the future?
• Is the line easy to work with? (That always gives more weight for retaining a line.)
• Is the line usually price competitive?
• Is the line one that quickly responds to requests for quotes and is the manufacturer flexible to deal with them?
• Does the principal provide quality products on time and pay its commission on time?
• Are there a lot of post-sale issues and does the principal require a lot of reports?
• Is there an absence of house accounts?
• Is the line one that helps the rep break into new industries?
• And finally, is there a chance the agency is already carrying too many lines? According to Cohon, “The number of lines an agency should represent varies by industry. I’ve seen firms with as few as six lines. However, in the lighting industry it’s not that uncommon to have 50-60 lines of lighting fixtures. In order for an agency to do a good job for its principals, it should be sure it’s representing an appropriate number of lines.”

These are all issues that the rep ought to keep in mind as it works its way through the analysis.

Prior to Resigning

Continuing his discussion of the analysis process, Cohon issued a word of caution considering what it should do when and if the decision is made to resign a line. According to Cohon, “In the interest of supporting the rep business model, if a rep decides a line doesn’t fit on its line card, you want to give that manufacturer notice that it’s simply not a good fit anymore. At the same time, you should respectfully suggest that it’s time for them to sign on with another rep. A good case can be made at this time that it would be beneficial for the rep to conduct some research to have two or three of your fellow reps to recommend that would be a good fit for the manufacturer.”

In addition, he noted that prior to resigning a line, it would be a good time to pull out and read the original agreement that was signed between the rep and the manufacturer. “There might be words that affect the mechanism on how you resign the line. You might have commissions that are due to you. You don’t want to lose credit for orders already sold.” He concluded by advising that prior to resigning a line, it would be wise to consult with a MANA attorney.

Throughout the MANAcast, Cohon and moderator Jerry Leth, MANA’s vice president and general manager, urged MANA members to avail themselves of information pertaining to line profitability analysis that may be found on the association’s website (www.MANAonline.org). Members will find the manual under the “Steps to Rep Professionalism” program in step 7, “Analyze Your Lines for Profitability.”

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