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I am not aware of any recent studies detailing what percentage of independent manufacturers’ representative businesses are single-person or multi-person agencies. During my 46 years as a rep, I met hundreds of reps at manufacturers’ sales meetings and rep councils. Most of them owned single-person agencies or agencies that included family members.

Business Model

Prior to launching my agency in 1975 I had earned both industrial engineering and MBA degrees. My work experience included nine years with two Fortune 500 companies where I managed sales teams and inside sales support teams. A multi-person agency was a logical business model for my agency.

My agency represented manufacturers of roofing membranes, insulated metal panels and complementary products for the commercial construction industry. After 12 years, our team had grown to three outside salespeople, two inside support people and me. After 17 years, because of a downturn in the economy and product problems faced by one of my key manufacturers, I changed to a single-person agency business model. I operated as a single-person agency for the next 29 years.

Selling Services

In a single-person agency the owner is in full control of how customers are serviced. You establish the close personal relationships with each customer needed to become their preferred vendor. The owner handles all the details required to meet the needs of each customer.

You are also in control of the relationships with your manufacturers. You establish the appropriate contracts and provide the level of communication that each manufacturer requires. You make close bonds with and develop respect from your manufacturers, which is critical for long-term business relationships.

A multi-person agency normally provides a wider range of services to customers and to their manufacturers. There are both an outside sales team and an inside support team. You might offer warehousing, subcontracting of installations, or purchase/resale options. The principal sets pricing and profit margins. This business model can likely generate larger sales volume and profits than a straight commission business model. There is higher risk, but a higher reward.

Management

A single-person agency principal is on call every day of the year to fulfill the needs of customers and the expectations of each manufacturer. There is no one to fill in for the principal to take time off, for sick leave, or for vacation. The ability to be on call is significantly easier now. When I launched my business, no one imagined a personal computer, internet, or cell phones. Now you can communicate with customers and manufacturers from anywhere, even on vacation.

In a multi-person agency, you must manage a team of salespeople and sales support staff. These groups are available to fill in for the principal to take time off. Appropriate management systems for planning and reporting are necessary. Additional systems are required to assure the agency remains in compliance with the never-ending list of local, State and Federal regulations. The principal is the human resources manager unless he can afford to hire out these services.

A multi-person agency requires a larger computer and communication system than a single-person agency. Although salespeople might work from home, the inside sales group normally requires an office to work efficiently. An office is also needed for company meetings and to cultivate a company culture. Higher sales volume and income is required to pay for these types of non-sales assets and functions.

Your time management system is more critical in a multi-person agency. In either a single person or multi-person agency no more than 20 percent of the owner’s time should be spent on administration and management. At least 80 percent of time must be devoted to selling.

Although a single-person agency requires administrative time for sales and personal planning and for an appropriate level of reporting to your manufacturers, you are only managing yourself. Management is simpler and less costly than in a multi-person agency.

Another major challenge for a multi-person agency is setting appropriate salaries and commissions. When I started my agency, I paid salespeople a salary plus a commission bonus. I wanted them to feel I was committed to their success. Most of my rep friends chose to pay salespeople straight commission. In hindsight I would choose a straight commission plan. Each salesperson develops their own internal motivation. A straight commission plan encourages salespeople to work as hard and smart as they can. They need the principal’s support, but they also need “skin in the game.”

Although the need for a competent accountant and lawyer is important for both a single person and a multi-person agency, these consultants are more critical for a multi-person agency.

Succession Planning

For either business model manufacturers you represent expect and deserve a succession plan prior to your retirement. Without a succession program, a manufacturer can lose their market share within two years or less. I found most single-person agencies can establish workable succession plans if family members are part of the business. When there are no family members, there are options, but each one is challenging. I tried making a transition to a sub-rep who I had worked with for a few years. The timing for both of us was wrong. It did not work out.

In a multi-person agency, a succession program can be developed with one or more of the employees. The plan needs to be in place well before the principal retires. Your manufacturers must have confidence in the employee or employees who will eventually own and operate the agency.

Conclusion

Which type of agency is better? It depends on the personality of the owner, the manufacturers available for your agency to represent, the size of territory in which the manufacturers grant you rights to sell, and your initial investment capital.

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