Don’t have house accounts unless there are genuine and compelling reasons for them. Have this understood up front.

Those sound like words to live by and, in fact, many reps and principals have lived by them since they first appeared in Agency Sales close to 30 years ago. That doesn’t mean house accounts have gone away or that reps have successfully discovered some sort of magic formula instructing them how to live happily with them.

What is clear, however, is that the presence of communication, trust and a well-crafted contract between principal and rep would appear to diminish concerns with these pesky house accounts. Conversely, the absence of one or more of those elements makes concerns with house accounts larger than the proverbial “elephant in the room.”

Typically the subject of a house account will rear its head in a scenario similar to the one that follows: A manufacturer wants to take that next step to increase its presence in a territory. A sticking point is that there’s already some business in that territory that the manufacturer maintains the rep played no role in obtaining. What’s the manufacturer to do? Keep the customers as house accounts or turn them over to the rep? What’s a predicted reaction by the rep to whatever decision the manufacturer makes? (That last question will probably garner the expected response.)

Situations such as this are hardly unheard of or unusual for the manufacturer who has successfully built up his business entirely on his own. The expected result is that he’s going to be reluctant to turn that business over to someone else. The thinking is that the newly appointed rep did nothing to get the business. As a result, why should he benefit from the work of others?

Ask the Right Questions

But, there’s another way to look at the situation. Now that the rep is in place and the manufacturer has made the decision to increase his sales staff with an out-sourced resource, is he going to want to continue to service the account at the same level he did previously? If he makes a customer a house account, is he convinced that he’s pulling out as much business as he can from that account?

And finally, is the manufacturer truly interested in selling as much as he can and is he committed to the rep way of going to market? To put the shoe on the other foot, what would the manufacturer think of a rep who holds back some of his customers?

There are obviously many questions that have to be asked and answered before the manufacturer decides what he’s going to do.

Based on hundreds of interviews conducted by Agency Sales with MANA members over the years, it’s clear that the majority of reps are interested in taking on a line only if they have all the business that comes from that territory. The thinking goes that it is commissions generated from an existing account that will assist them in jump starting their efforts with potential customers who haven’t purchased that line previously. Actually, they look at the commissions on house accounts as some sort of territorial development or pioneering fee.

Alternative Commission Plans

Receiving a full commission isn’t the only way to approach the house account, however. Over the years, many reps have described their successful efforts in coming up with alternative plans when they discover that a manufacturer wants to hold on to some house accounts. For instance, they’ll agree to call on a house account for a reduced commission on the volume that transpired during the first year that is equal to the volume that was done with the account for the previous year. Here’s the catch: any business they bring in from the house account that’s in excess of that volume for the first 12 months is fully commissionable. Then, after the first full year, all commissions from the account go to the rep.

A number of manufacturers have agreed with this approach, and ultimately they find that there is considerably more business available to them from the house account than they were able to develop when it was handled directly from the home office.

It’s also hardly unusual that the manufacturer finds that it’s less expensive administering, selling and servicing that house account with a rep than it was with the direct salesperson.

Communication, Trust & Contract

If the above is a fairly typical approach to house accounts, conversations with a couple of independent reps lend credence to the words “communication,” “trust” and “contract” that appeared at the beginning of this article.

Matt Gardner, president of Gardner & Gardner, Inc., Martinsville, Indiana, maintains that “There’s really not an issue with house accounts as long as there is full communication up-front and we can agree on everything prior to signing a contract. It is certainly necessary for the house accounts to be disclosed and discussed prior to a rep taking the line. The rep should evaluate how the house accounts will affect the market and make an informed decision. For a manufacturer to declare accounts ‘house accounts’ after entering a contract with a rep is highly unethical and unfortunately often happens.” He continues, however, that even when there is full agreement at the outset, success is not guaranteed. “What’s happened to us on more than one occasion is that we agree on everything, sign a contract, get the business, then the manufacturer pulls the account from us. We’re getting the feeling that as the economy continues to labor, this is becoming more common. Then you’re faced with doing what you can to get your commissions, and it’s a matter of considering how much it’s going to cost you to recoup what you earned. And the manufacturer knows this.”

Based on his years of experience, Gardner, whose company has served the decorative plumbing and hardware industry for more than two decades, has learned to recognize some red flags when dealing with potential principals. He advises, “Be careful if the manufacturer:

• “Says they won’t accept any purchase orders unless they are sent directly to them by the customer.
• “Requires the rep to send information on prospects directly to them.
• “Offers a payment (in our case $35) for leads to be sent directly to them.”

He adds that manufacturers who operate in this fashion don’t do much to build trust between themselves and the rep.

Gardner, whose company works with a number of Internet accounts, did add that there could be occasions when a house account could work in the rep’s favor. “In our case, if the Internet retailer has done a good job of creating brand awareness for the line we represent, that can help generate business. For instance, if I’m selling to plumbing wholesalers and if my customer can walk into a distributor and recognize the brand/product that I sell, this certainly works in my favor.”

Importance of an Agreement

Sid Ragona, Ph.D., wastes no time agreeing with Gardner when he emphasizes the importance of a signed agreement that covers the existence of house accounts. According to Ragona, “Everything depends upon the agreement that was signed. If you signed on knowing that there were house accounts, then there is nothing to complain about. If the agreement says that the manufacturer will not set up house accounts and then they unilaterally declare a juicy account as a house account, they will owe you the commission for selling in your territory. After the fact, you should decide if these are the people you want to continue to represent.”

Ragona, Ragona Scientific, in the Rochester, New York area, continues: “With some companies I sign on, I give them a certain amount of time to close sales that they are heavily invested in. If they are unable to close them by a mutually-agreed-upon date, those sales convert over to me at full commission. Ragona, whose company provides service and information on instrumentation for surface characterization and advanced microscopy, explains, “Sometimes, I’ve negotiated a lower commission for a house account. I certainly respect the fact that the manufacturer put all the work into an account. We’ll negotiate to the point where I’ll receive a 5 percent commission vs. the normal fifteen percent. Then we agree upon a time when the territory is exclusive to me.” Many of the contracts he works on are in the range of $200,000 to $500,000 and have a sales cycle of 2–3 years.
Ragona is reluctant to offer advice to other reps when it comes to house accounts. He’ll only venture that “When I’m dealing with house accounts, I always call on the customer during the conversion period. I want to ensure that we have a happy customer when I eventually take it over. Ultimately, I’d say it’s in the rep’s best interest to turn house accounts into their accounts. I also wouldn’t necessarily walk away from a principal who had house accounts. I’d have to consider what is in my best interests.”

Calling on Competitors’ House Accounts

And finally, reps in general would be well served to keep in mind the opportunities that house accounts can provide. As outlined in an article that appeared in Agency Sales three years ago, Doyle Evans, president of Pinnacle Marketing, Inc., Raleigh, North Carolina, maintains that:

• “Once found, house accounts can be low-hanging fruit for a multi-line manufacturers’ rep. Even though the direct supplier may call these ‘key accounts,’ truth is, house accounts are often taken for granted by suppliers, as they assume their business is safe or ‘locked in’ and they have a tendency to drop their guard.
• “Eventually, the diminished service level (of the house account) is felt by the customer and a business opportunity portal is opened. In other words, the competition becomes vulnerable. Usually, these opportunities are centered on competitiveness and/or technological change. However, quality issues that aren’t properly addressed, or alternative channel fulfillment needs can also create an opportunity for the astute representative. Nothing is absolute, but my experience tells me that I have a better chance of covering a house account than an account covered by another manufacturers’ representative. Like me, my rep colleague will be calling on this customer often, monitoring and protecting his business, whereas the direct salesperson does not always have this luxury. The factory-direct representative usually has other ‘big picture’ duties that can take priority over single-account activity.
• “Since the direct salesperson has a single product offering, it is difficult to compete with the consultative selling approach of a multi-line manufacturers’ representative. I take advantage of this as I find customers expect me to know their business and look to me for a total solution to their product design needs. Even with product breadth, it is still shallow selling for the direct approach. The odds favor the multi-line manufacturers’ representatives with a strong line card to gain early access and involvement in their customer’s new product designs.
• “Finally, I know my competitor’s reps are missing this revenue stream that these house accounts would generate to support their territory maintenance and development. They may even be struggling to make the line profitable within their respective rep businesses. Also, the house account mentality often means that these suppliers do not fully empower their reps or treat them as valued business partners. The idea is to identify the house accounts, recognize the signals for needed support and act accordingly.”