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If there’s one constant in every interview Agency Sales conducts with members it’s a question concerning the need for reps to educate their manufacturers as to what they actually do for them in the field.

A failure to perform that function ultimately can lead to some manufacturers making assumptions that all reps do is walk to the mail box each month to collect their commission check.

After he was approached by one of his manufacturers with a request to accept a commission cut on a major account, one MANA member recently reached out to Agency Sales magazine to detail his unique approach when it came to educating his principal.

According to the rep, “The manufacturer contacted us late one Friday looking for some help with a problem. We have one customer that brings us about one million dollars in commissions each year. A good deal of the customer’s products come from overseas. Annually it remains as one of our top four customers. Obviously, they’re very important to us.”

Here’s where the manufacturer’s problem comes in — and he looks for the rep to help him unilaterally with the solution. “The manufacturer had a new sales manager who had just been there for a couple of months. He, together with the company CFO and their accountant get on the line with me. While they admit that we finished the year very strong, they overlooked something. Products that they brought in from overseas were subject to a 13½ percent tariff. That’s something they never planned for. Their message to me was ‘We didn’t account for the five percent commission that we were paying to you guys. We did some calculations and we’d like to take .7 percent of your commission with you receiving 4.3 percent moving forward.’”

Say No to Reductions

The rep admitted that he was less than enthusiastic with this plan. “Historically my agency doesn’t agree to commission reductions. The agreement in general is that for each sale, the manufacturer receives 95 percent, and we receive our commission — five percent. My measured response to their request was, “Let’s think about this….” In the past year we had grown their business by $3-million and brought on three new people to handle the business. I suggested I go back to my team and work on a plan that would allow us to earn the same amount of money we would have the previous year. Let’s be fair. After we’ve done our calculations, let’s all get together in person at the plant to make sure that this is the right decision moving forward. They agreed to that approach.”

The rep explained, “I went back to our agency team members and pulled all the data we could find relating to what we do for the manufacturer. Not surprisingly, the cost of everything had gone up — health care, cost of meals, hotel stays, airline ticket prices, cost for a gallon of gas. We pulled all that data together in a PowerPoint and went back to the manufacturer.

“We were all situated around the table and I opened the meeting by letting them know we had taken the time to digest their proposal and were more than willing to discuss it, but first I had to acquaint them with what had happened to our cost of conducting business. I threw up the PowerPoint and walked them through our data.”

Among the data points he highlighted for the manufacturer were the fact that gas had gone up by 21 percent, hotel stays by 14 percent. “In addition, I let them know that our rep in the Midwest traveled an average of 781 miles a week for them. I broke down the cost of gas for that one rep and projected what the increases were going to be for the coming year. Bottom line was that if their cost of business had increased, so had mine.”

Asking for an Increase

He continued that after considering their proposal and doing some of his own math, instead of accepting a decrease of .7 percent, he felt an increase in commissions to 7½ percent was called for. “I let them know I was serious. Their initial response was surprise and to laugh but then I went on to explain that if they felt I should agree to a commission cut because of a tariff they didn’t plan for, I felt since I had grown their business by 48 percent in the Northeast alone, I’ve earned an increase. The laughter stopped and they responded by saying they wanted to digest the information I provided them.”

Long story short, “They called me back in two weeks, said they had talked it over and wanted to keep the commission at five percent. I agreed and we moved on from there.”

In explaining his approach to discussions with the manufacturer, the rep noted that “While I’m selling their products, the expectation is that while they should realize a profit, I should be able to run my business on a profitable basis. From the beginning of our relationship our agreement was that I would earn a five percent commission as long as I continue to grow sales. The understanding also is that they signed me on so they wouldn’t have to deal with any increase in the course of conducting business that I may encounter. By the way, I would be willing to accept a decrease in our commission that was based on a lack of performance on my part. The fact that they ran into a problem because they didn’t anticipate a 13½ percent tariff is not my problem.”

When he was asked what his reaction would have been had the manufacturer not backed down on their request for the cut in commission, the rep responded “I entered our conversation optimistically. I didn’t think the manufacturer would fail to get my point. I never thought they were going to terminate us. They only did the math on their side of the equation and didn’t balance it out for what we did on our side.”

He added, however, that this scenario is one that reps should anticipate from day one of their relations with principals. “Whether you’re new on the job or fairly well established, we all need to do a better job of letting manufacturers know that we’re not their employees. I’m an independent business person who is putting my time and money on the line to make more money with them. Remember, I don’t cost you anything. I only get paid if I sell your products. When all outcomes were considered, I felt this ultimately was a way to get closer to the manufacturer.”

He concluded by explaining that “Even some members of my own organization have a certain amount of fear when it comes to addressing this situation with principals. I think their fear is that the principal will calculate the math from their own perspective and fail to acknowledge what the rep does for them. You really can’t tiptoe around this subject; it’s something that has to be addressed right up front. We can’t have the manufacturer believe only what he wants to believe. We need to have this conversation.”

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