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A rep and a potential new manufacturer have discussed signing a rep contract. The manufacturer’s products have no sales in the rep territory. The manufacturer is depending on the rep’s reputation with his customers to develop sales volume. The rep suggests the manufacturer pay a market development fee.

Naturally, the manufacturer wants to know what that fee would be, on what basis it would be established, and for how long the fee would be paid. As an alternative to a market development fee, I suggest both the rep and the manufacturer demonstrate to each other a commitment to a long-term sales outlook and relationship.

During my 46-year career representing manufacturers in the commercial construction industry, I represented more than 40 manufacturers. Only three of these had significant sales volume in my territory when I began representation. After I had been representing one of these manufacturers for a brief time, I requested they consider a market development fee. After a brief discussion, the manufacturer turned down my request. I represented this manufacturer for more than 25 years during which time I grew their sales volume dramatically. From the beginning we both had a long-term sales outlook. Our relationship worked out well for both of us.

Here is the system I used for selecting manufacturers that provided me with a reasonable assurance each manufacturer approached our relationship with a long-term sales outlook.

1. Developing sales volume takes time and effort for both a manufacturer and a rep. Few manufacturers have the means for projecting market potential in one geographic territory, particularly for a small territory. A rep must make his own analysis of the market potential and return on the investment of a manufacturer he is considering.
2.  Each manufacturer must have a history of commitment to an independent rep sales force. If a manufacturer is in the process of switching from an in-house sales force to a rep force, I discuss their plans not only with the sales manager but also with the owner or general manager. Gauge carefully if their plans are an experiment or a commitment.
3. A manufacturer with a long-term sales outlook should be expecting steadily increasing sales with some years up and some years down. None of the manufacturers I represented set specific sales goals. There were annual and periodic discussions of projected sales volume and targets, but never fixed goals.
4. Develop a strong personal relationship with each manufacturer including the sales manager and owner or general manager. Establish a routine of regular communication with each manufacturer requesting quotes, asking for sales, technical or service assistance, or providing sales and market updates.
5. Sign rep contracts with manufacturers that produce products that can be sold to my existing customer base. It is the long-term personal relationship with a customer base that is the largest asset a rep offers a manufacturer.
6. The rep contracts I signed were consistent with other contracts within the commercial construction industry. Contracts had 30-day clauses for cancellation for any reason. For a fair resolution of final commissions to be paid when either party canceled the contract, the relationship I had with each manufacturer was more important than the words in the official contract. When my contracts were cancelled for any number of reasons, I was always paid fairly. In several instances, I was paid commissions over a two- to three-year period after the cancellation date.

In my 46-year career selling architectural commercial construction products, I never met a fellow rep who had a market development agreement. The suggested alternative to a market development fee described above pertains to the commercial construction industry. A long-term sales outlook system worked well for me and the manufacturers I represented. I do not know what the rep-manufacturer environment is in other industries. A market development fee may work well in other industries.

Do you have a market development fee success story to share with our readers? MANA welcomes your comments on this article. Write to us at [email protected].