At the outset of his presentation during a MANAcast devoted to the subject of Line Card Profitability Analysis, MANA President/CEO Charley Cohon used the analogy of Olympic rowers to make a point.

According to Cohon, “Manufacturers’ representative firms have a lot in common with Olympic rowers. Just to qualify to compete we have to be fast, agile and impressive performers.

“But when it comes to line card profitability analysis, some of us forget what Olympic rowers know: To be winners, you have to take the boat out of the water regularly to clean and wax the bottom. And before the rowers get back in the boat, make sure that all of them really still belong on the team.

“Instead of doing regular maintenance, we just row harder. Instead of replacing weak line card performers, we just row harder. We row harder instead of solving problems, and that’s a certain way to lose a race. So too is it with independent reps who fail to look closely at their line cards. They may have three lines that bring in two-thirds of their income, but they fail to realize how much work it takes to sell those lines. It’s a little like the rowers failing to make sure that they have the right rowers in their boat.”

As an aid to conduct a line card analysis, Cohon referred to the “Steps to Rep Professionalism” program, which may be found on the MANA website (www.MANAonline.org). Step 7 is “Analyze Your Lines for Profitability,” under that title are a number of variables that should be included in any analysis. Among the subjects that he went on to discuss were:

• Does this line provide better-than-average sales support?
• Is this line easy to do business with?
• Does this line ship on time?
• Does this line have unusually high quality?
• Has this line made a long-term commitment to reps?

Following his presentation, Cohon opened up the chat to questions from participants. Among the subjects discussed were:

“You spoke about reaching the point where the rep has to move along from a principal. During any part of the process — prior to making a decision — do you approach the principal and say that, looking forward, we need this or that from you?”

According to Cohon, “You always need to have the freedom to have those conversations with your principals. Once you know that the current situation is unacceptable and that you’re ready to terminate the relationship if things don’t change, then the fear of termination leaves the conversation.

“But at the end of this process, you’re going to see one of two things. First, there will be some lines that are absolutely obvious. You’ll realize that this principal is simply not a good fit for your line card. If this principal called me today and offered me the line, I’d simply turn it down. Then, the decision is easy, he simply doesn’t belong on your line card.

“On the other hand, there may be someone who is borderline, and you want to continue the relationship. If it’s salvageable, sure, salvage it. You’ve considered many of the intangibles I’ve previously listed. Then you can have that frank conversation. You can let them know that if they can’t ship on time or provide a good quality product, then you’re going to leave. But, after considering everything, and you decide you’re not doing yourself any favors by hanging on, then make the decision to terminate the relationship.”

“Is this something that should only be undertaken on an annual basis?”

In response, Cohon said, “While we suggest conducting this analysis annually, I would even suggest that if any of your principals have been purchased by another company or there has been some sort of major shakeup in management and it’s not the same company you started with, you may want to conduct the analysis on a special ‘one-off
basis.’ When changes in management occur, it may not be the same company it was just six months ago. Then it’s the right time to look at the situation and make the hard decision. For instance, what if the new sales manager has telegraphed the message to you that they’re going to be difficult to work with. That will help you make a decision.”

“I’m just starting out as a rep and don’t have many lines. How careful should I be in taking on lines?”

Cohon confessed, “When I started out as a rep it was hard to go out in the world with just one or two lines. I understand that situation. But this tool is not just a tool that guides you to keep a line. It allows you to look at lines and determine which ones are profitable and which ones deserve your time and effort.”

He continued that it’s important to compare what you’ve got to do to make a dollar on a line.

• Determine if you have a line and you have to spend 50 cents in order to make a dollar.
• Then there’s the line that you spend a dollar to make a dollar.
• And finally, there’s the line where you have to spend $1.50 to make a dollar.

“You’ve got to focus your activities on those lines that are going to bring in the best return for your effort.

“Once again, this isn’t something to simply decide whether to pull the plug or not. It will help you determine whether you’re spending too much time on lines that don’t give you the return for your effort.”

He went on to introduce the possible presence of what he referred to as a “sleeper principal.”

“You say to yourself that this looks like a good product line for me. I’m going to work on it for a year to just introduce it into my territory. I do that with the understanding that there probably won’t be any commission for the first year. That is the ideal opportunity to ask the principal to share in your development cost. It might be that this will cost $3,000 out of pocket a month for that first year. It’s the ideal time to approach the principal because once a contract is signed, it’s very difficult to get the manufacturer to support your pioneering or territory development efforts. It’s simply a matter of you knowing you’re going to lose money at the beginning. You certainly have the freedom to ask for their investment.”

That scenario was followed with a question of “How much is appropriate for the manufacturer to contribute?”

According to Cohon, “We have to define what the manufacturer wants from the rep in order to determine what they need to contribute. If, for instance, they want you to make four sales calls a month and keep them apprised of what’s happening in the territory, that’s one thing. If, on the other hand, they say they need 15 calls and want detailed reports, the fee is naturally going to be that much higher. Figure out what it would cost you to provide that service and say, ‘I’ll split that with you 50-50 for a specified period of time.’ If they’re not agreeable, suggest fewer sales calls.”

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Line Card Analysis Works

The MANAcast devoted to line profitability analysis was both “timeless” and “timely.”

It was timeless because it recalled the experience of the McDonald brothers in the 1950s as they examined their own product line. Known primarily for their hamburgers, the brothers had reached a point in their business where they were seeking to achieve efficiencies. As detailed in his 1996 book, The Fifties, journalist and author David Halberstram wrote: “Their menu was surprisingly large, including hamburgers, hot dogs, barbecue, and all manner of sandwiches. However, when the McDonalds checked their receipts, they found that 80 percent of their sales consisted of hamburgers. ‘The more we hammered away at the barbecue business, the more hamburgers we sold,’ Dick McDonald said later. So, they decided to get rid of the labor-intensive barbecue and sandwiches and narrowed the menu to the venerable American hamburger. That would allow them to mechanize the food-preparation process as well.” Their action allowed them to cut the menu from 25 items to nine, with hamburgers and cheeseburgers leading the parade off the grill.

And the chat was timely because just last month Agency Sales described how MANA member James Industries, Inc., experienced success when it examined its line card. As quoted in the February issue of Agency Sales, agency owner Dan Wolfskill explained: “Just two years ago we parted ways with a principal that represented 50 percent of our business. Sure, that was a painful experience, but while they represented 50 percent of our income, they also consumed 80 percent of our time and effort. We made the decision, got over our stage fright and moved on. As a result of making that change, we surpassed the business that we lost.”

Or take a look at this from a May 2021 article from Agency Sales entitled, “The Time-Honored Practice of Evaluating Lines”:

“The knowledge you gain from a profitability analysis can do nothing but increase your awareness of what each line represents to your firm and how a line’s relative importance changes from year to year. From the analysis, you should be able to determine:

• If you are truly making a profit on an individual line.
• Which lines are paying the bills.
• If you are spending too much time on a particular line.
• If the amount of time spent on a line is an asset or detriment to your firm.
• Which lines are slipping in terms of commission.
• Which lines are ‘high pain and high maintenance.’

“A better understanding of line profitability will also help improve your relationship with principals. Your awareness of how important they are to your firm will be beneficial to all. In addition, you can use the analysis to focus your salespeople on selling what is profitable for them and the company.

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