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During an agenda break at an industry meeting earlier this year, the president of a manufacturing company fairly new to working with independent representatives, posed the following scenario to one of his peers: “Here’s something I’ve run into several times. One of my reps did absolutely nothing to get an order, but he expects me to pay him the commission. I don’t understand his thinking.”

His fellow manufacturer, who admitted to having worked with an outsourced sales force for more than 35 years, jumped at the opportunity to respond. According to the second manufacturer, “You’ve got to realize that there are some tradeoffs in the relationship between principal and agent. Experience has shown me time and again that reps perform many tasks for my company — all without receiving a single dollar in compensation. Let me give you an example: I can’t count the times that a rep has done a tremendous job selling a project — including gaining a price premium — only to lose the order because their manufacturer could not meet a customer’s needed shipping date. Or, how about all the marketing intel I’ve asked reps to gather and communicate to me — once again, without receiving compensation.

“And, let’s not forget reps’ missionary efforts or time spent trying to iron out problems between the manufacturer and the customer. So sure, the occasion may arise when it appears the rep hasn’t done a great deal to get the order, but I can’t ignore all the other times when he’s gone far beyond what was expected of him and hasn’t been compensated.

“I guess what this all comes down to is understanding the relationship and being fully aware of expectations. From day one, if both sides understand the terms of the relationship, concerns over being compensated or not compensated for various activities won’t be a matter for debate.”

Ingredients of the Partnership

There’s much more to the relationship between independent manufacturers’ representatives and their principals than the former just paying the latter accurately and on time. Truth be told, according to one manufacturer who boasts of a long tenure with a number of agencies, “There’s much more that we’ve been sure to include in the consideration of what constitutes a relationship. Among the other variables we’ve been sure to include in our relationship are these:

• Adopting a philosophy where we believe our agents are truly independent.
• Providing prompt and accurate communication on all matters of importance.
• Immediate attention to requests, quotes, samples, etc.
• We consider them as true professionals and members of our corporate family. As a result, we’re always seeking their advice and counsel.
• We’re firm believers in the value of factory visits and insist that they be conducted on an annual basis.”

Being Open to Learn From Others

Never underestimate the value of networking opportunities and sharing best-practice experiences with industry peers. That was the message the president of one manufacturing company delivered to Agency Sales following his attendance at an industry meeting. As an example, the company executive related a conversation he had with one of his non-competitors. “I’m new to my present company and one of the first things I decided to do was to take a close look at changing from a primarily direct sales force to independent manufacturers’ representatives. When I made that suggestion, I immediately got some push-back from other company executives. As a result, when I attended one of our industry’s annual meetings, I was anxious to learn the thoughts of some other company executives. I was looking for some information and ammunition to bring back home to bolster my opinion. I got just what I was looking for.”

In a nutshell, he continued, “Another manufacturer quickly spelled out his reasons for working with reps. According to him, the most easily recognizable value of using agencies to market products is the low cost of sales coverage that they provide. Since the independent manufacturers’ representative is an independent business person who derives income solely from commissions, he or she assumes the risk for success or failure of their efforts. Here’s what that means: no sales, no income; and he or she bears the expense of office operation, staff salaries and other sales expenses. As a result, their sales cost per product is much lower than if a district office had been established. The agency method of selling provides a sales cost that is directly related to sales volume.”

The manufacturer went on at length to detail other benefits of working with agencies, but perhaps his greatest message was the benefit of meeting with others who are in similar positions to him and their willingness to share information — in other words, he didn’t have to reinvent the wheel.

The Reason for Call Reports

After reading the main feature article in the January issue of Agency Sales, the vice president of sales and marketing for a manufacturing company noted the following on MANA’s LinkedIn discussion: “Again, we have learned that ‘…no manufacturers read them (call reports),’ and that ‘they take away time from the field.’ While these are valid points (particularly the second), I am surprised that no one asks the tough question: Why are manufacturers asking for call reports? Is it because the reps are not actually communicating with their principals, despite the article indicating otherwise? While the magazine remains ‘rep-centric,’ I am disappointed that there is no culpability from the representative side as to their communication, causing this ‘need’ for some sort of formal reporting to be created.”

Indicative of the fact that the subjects of call reports and communicating remain important and timely in the agent-principal relationship, there were several immediate responses to the manufacturer’s points. For instance, a fellow manufacturer noted, “I agree that communication between a principal and its representatives is always a challenge, but call reports are an irritant and do not improve communications. In our organization we believe the primary role of our agents is to make our ‘phone ring.’ We also believe our representatives are our eyes and ears in the marketplace and expect them to keep us advised on what they are seeing in the markets we serve. To facilitate that effort we require a quarterly review. It’s a one to two page synopsis of territory activity to include competitive activity, potential opportunities, problems, etc. It’s our belief that if the rep agency is doing its job, a quarterly report is not a burden. Our experience shows that we communicate frequently with our most successful reps via telephone and e-mail and there’s a strong correlation between the rep’s sales numbers and the amount of communication between us.”

Complementing that view, the first manufacturer offered, “We also agree that there is a strong correlation between good communication and the rep’s sales numbers; additionally, we do not ask for call reports. That said, it is most likely an indicator that the representative is not communicating that a manufacturer is forced to resort to call reports to get any level of information from that representative. There are significantly fewer ‘non-professional’ sales rep organizations than professional ones. What I’m trying to say is that call reports are a symptom of a problem (poor rep communication), not the inherent problem itself.

A Different Approach to Expansion

“After achieving the coverage we wanted in our major markets,” reports a manufacturer with a long record of working with independent manufacturers’ representatives, “we were looking to expand into some less-productive territories. The problem was we had difficulty finding agents to work those areas. We signed on a number of agents but none of them really worked to our satisfaction. I’ve got to admit that it really wasn’t all their fault. The problem was there just wasn’t enough business for a rep to spend a great deal of time on our line. What we did, however, was offer the territories to reps who were already working in adjoining territories. At first, the majority of them weren’t all that interested. They were aware what the potential — or lack of potential — was and they knew what it would take to get the business. What we did then, however, was to offer a slightly better incentive to make up for the increased expense of getting the business in the poorer-performing territories, and they all accepted our offer. This has been successful for us and has helped the agents get additional lines in those territories that are more productive than our line will ever be. I’m safe in saying this worked out for all of us.”