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Just as manufacturers should weigh the financial benefits of hiring an outsourced sales staff vs. independent manufacturers’ reps, so too should reps weigh whether hiring a direct employee vs. working with a sub-rep is the best way to expand or cover a territory. That was just part of the subject matter covered during a MANAcast by John McNellis.

McNellis, a former MANA Board member, heads McReps, Inc., Oconomowoc, Wisconsin, a national multi-person agency that works with a mix of both direct and sub-reps. The agency has represented specialized component manufacturers for more than 48 years. It focuses on custom-engineered parts from special materials to original equipment manufacturers (OEMs).

At the outset of his presentation McNellis made the point that just as manufacturers, reps have a choice when it comes to creating their own sales force. They can hire employees, or they can outsource the sales function to sub-reps. There is, however, quite a difference between those alternatives.

According to McNellis, “The first thing to think about when considering which path to follow is to conduct a cost analysis. That’s the very same thing a manufacturer does when the manufacturer decides upon having the fixed cost of a direct employee vs. the variable cost of an independent rep. If you hire a sub-rep, you have the obvious advantage of being able to expand and support your territory without controlling the reps. The obvious disadvantage is that you have less control. Just as you, they are independent. As a result, there may be a variation in their feedback, time allocation and reporting. At the same time, those sub-reps will have other lines and you have to consider how much effort will be devoted to your lines.”

Soft Costs

Another important part of the cost analysis, he maintained, is considering what he termed “soft costs.” According to McNellis, “When working with sub-reps there is the issue of management and communication time, not to mention time devoted to handling issues for that rep. All of these efforts may take resources from your own ability to sell to your customers.”

He added that perhaps the best territory to consider for the use of a sub-rep is a territory where the rep firm already has some existing business and predictable decent growth potential for the future. “If you select a territory with no growth potential, that will probably stunt the rep’s efforts and result in a poor outcome.”

After conducting a cost analysis, the firm is faced with the task of considering what it is to look for in the ideal sub-rep and how to find candidates.

Sub-Rep Attributes

Using a guideline of “hiring slow and firing fast,” McNellis urged agencies to make a list just as if you were hiring a direct employee. On that list should be the qualities you would want the sub-rep to possess. “You’d want them to be persistent, good communicators — both verbally and in writing. You’d also want them to be good collaborators and dedicated to the craft. Then you’d want them to possess the technical knowledge that fits into your category of lines. In selecting a sub-rep, you must be prepared to spend time upfront during the search and recruitment process. That will pay dividends later on.”

When it comes to finding prospective sub-reps, McNellis noted that his agency networks with other rep firms in their efforts to find common interests. “We also make sure to search Agency Sales magazine for the last 12 months to locate rep firms that have recently joined MANA.” He added that we “also go to our customers and ask them who are some of the best sales reps who are currently calling on them with synergistic products.”

Once a potential sub-rep is located, he continued that it’s important to set up a formal written agreement, similar to what you have with a principal. You need to have a sub-rep agreement that includes additional clauses explaining that the sub-rep must adhere to the agency’s agreement with the principal and a non-compete clause. You also want to include information that pertains to executive quarterly summaries for your principals, and CRM requirements. “We also include a clause that the sub-rep should return all electronic files upon termination. Sometimes that’s easier said than done, but at least if you do it, you have a leg to stand on if there is a disagreement.”

Agreeing on Expectations

Next is establishing expectations. “Once you have determined with the sub-rep what the potential is for them in the territory and ensured both sides that it’s a win-win proposition, all other items pertaining to expectations are discussed. Among those expectations are communication and the need for the sub-rep to provide ongoing feedback from the territory on a regular basis. That feedback should include customers’ contact details, leads and problem follow-up. You also want to ensure that the sub-rep will attend all pertinent sales meetings and teleconferences. Remember they represent your agency; they are an extension of your agency and must have a visible presence in the territory.”

Training and Education

Not to forget the important aspect of training and education for the sub-rep, McNellis explained, “We have a five-step process that actually covers both our direct and sub-reps:

• “We provide them with the principal’s website information and literature.
• “We conduct joint sales calls with them at both existing and potential customers. During those calls, the sub-rep is observing. During these calls, you make sure that you ask all the important questions for the sub-rep to gain an understanding of your agency’s style. This also gives them a feel for the type of customer that you are selling to.
• “Once that’s done, we bring them into our office and conduct additional technical training. We will train them on the basics and then go more in-depth with our principal’s materials and products.
• “Then we allow the sub-rep to go out on their own to call on small existing customers. This allows them to gain a familiarity with the territory.
• “Fourth, we then pay for the expenses for the sub-rep to travel to our principal’s factory for additional training. We travel with them to ensure that the principal is happy with the selection that we’ve made.
• “Finally, we follow up with any additional training that is needed — more is always needed.”

Following McNellis’ presentation, there were a few questions pertaining to the use of sub-reps from attendees of the MANAcast. Among those questions were:

• How do you approach or notify your existing principals to let them know that you now have a sub-rep working with your agency? According to McNellis, “The obvious hope is that you have a good working relationship with your principal. We’ve been working with sub-reps for 25 years and we never had a problem. What we generally do is let the principal know six to nine months in advance of what our plans are. They’ve all bought in to our process.”
• What is the commission split with your sub-reps? McNellis explained, “We split 65 percent-35 percent, with 65 percent going to the sub-rep. They have done the majority of the work and our sub-reps have found that is acceptable.”
• What are the sub-rep’s communication requirements with the agency? “We ask our sub-reps to use our CRM system and we’ve found that to be a good and easy tool for them. In addition, phone or computer communication is more than acceptable.”

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