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While there are no hard rules when it comes to independent reps requiring market development fees from their principals, chances are when there is no existing business in a territory that subject is going to be front and center in conversations between reps and manufacturers.

That was just one of the topics covered when several manufacturers got together on a MANAchat to discuss the subject of developing new markets with independent manufacturers’ representatives.

Ultimately, when that subject is raised during negotiations, the consensus among the manufacturers participating in the chat was:

• It’s important to keep in mind that when there is no existing business in a territory, it’s going to take a great deal of time and effort to generate business.
• Reps can’t be expected to work for free — “They need something to help put bread on the table.”
• When instituted, these fees do not last forever — they have a set time limit that is established during the negotiation process.
• If sales wind up being more than expected, there should always be a provision to cease the market development fee.
• Look at such fees as an investment in the relationship rather than a cost of conducting business.

Kicking off the conversation on this subject, one manufacturer noted, “We’re just at the starting point on our journey with reps. We’re negotiating contracts with two rep organizations and the subject of market development fees has been introduced. We’re looking at a flat fee for a specified period of time. We’re doing that because we want the reps to be successful and for them to be successful, we recognize the fact that they have to be incented. All things considered, if they’re successful, that means that we’re going to be successful. Long term we want to pay our reps large commissions because that means we’re doing very well in the marketplace. In all honesty, if I could pay them $500,000 annually in commissions, I’d be happy. Our ultimate goal is to create a relationship that lasts a long time and to create that relationship we both have to be successful.”

Another manufacturer weighed in with the view that “I sell stamping products and have found that it’s generally a tough sell. In speaking with reps, the subject of a market development fee always comes up. I look at it this way — paying such fees is a risk you have to take. It’s too expensive for me to send out factory salespeople to cover the territories we want to impact. I’ve been satisfied with the results I’ve achieved in working with reps under such terms in the past.”

The group, the majority of whom have had experience with paying these fees in the past, agreed that there are no hard-and-fast rules regarding how much or for how long such fees should be paid. “That’s usually something that’s mutually agreed upon during initial negotiations before the rep even signs on.”

At the same time, the group agreed that when reps have taken on a line without the fees, their performance is usually less than desired if such a fee has been agreed upon.

Staying on that last subject, several of the manufacturers emphasized how important it was to keep a critical eye on reps who might take on a line and not make much of an effort to make sales calls. “Even when there might be some business in a territory, there are some reps who will do that. They’re satisfied to receive the commissions on existing business but never make an effort to expand the business. To head off such situations it’s critical to conduct your due diligence prior to signing on with a rep. Make sure you do all you can to get to know the rep and their reputation before partnering with them.”

In addition to discussing market development fees, some of the additional subjects covered by the manufacturers during the chat were:

• Getting to know the rep — One manufacturer asked, “How much time do you usually spend getting to know the rep before you have him sign a contract?” He continued, “We’ve had some reps who after just an initial 30-minute phone call will send us a contract asking for our signature.” The group was adamant that that’s not the way to initiate a relationship. Once again, the subject of due diligence was emphasized (e.g., check with other manufacturers the rep might work with, contact fellow reps and customers and ask their opinions). Then it was stressed how important it was to have a prospective rep visit the manufacturer’s place of business in order to get to know key executives and inside staff.
• House accounts — It was agreed that while most of the manufacturers want all existing business to go to their reps, there are some occasions when a manufacturer might want to retain a house account. If that is the case, this all has to be discussed ahead of time with the rep and agreement must be reached on how the house account(s) will be serviced.

Walking in the Rep’s Shoes

A sales manager who spent several years on the rep’s side of the desk explained to us how the time he spent in the rep’s shoes made his job that much easier today. “I know what problems they face in the field, and because I spent so much time as a rep, chances are I can provide them with some valuable guidance. In addition, since they know I was once a rep, it appears I’ve got a lot more credibility with them than someone else might have.”

One of the areas where his reps seem to value his guidance most is with sales presentations. Among the more generic tips he constantly passes on to his rep sales force are:

• Make sure the rep has properly targeted his customer — It’s critical that the rep has focused on the specific needs of the customer and keeps his presentation tightly focused on meeting those needs or solving his problem.
• Provide for give-and-take during the presentation — If only one person (the rep) is doing all the talking, the opportunity to learn what the customer needs and wants is diminished. Build in time for questions, but make sure you’re prepared to answer all of them.
• Stay abreast of the latest developments — There’s nothing better than a rep who is not only informed on all current applications but also on industry trends. When both elements are included in a presentation, the customer will be impressed. It’s up to the manufacturer to push his reps to stay informed.

Focusing on Communication

When the subject of reports and other paperwork that manufacturers invariably require their reps to complete came up, one manufacturer took the subject of communication away from paperwork and directed it to the area of communication in general. And instead of advocating for a quantity of communication, he pushed for quality communication between manufacturers and their reps. “I know that a lot of the paperwork we require our reps to complete is useless,” he maintained. “Much of it is silly, time-consuming and results in few positive actions taken after the fact. When our reps get their backs up concerning sales call reports that they doubt anyone has ever read, I tend to agree with them. However, all these complaints hardly lessen the importance of timely and accurate communication between us and our reps — especially as it applies to matters of importance.”

But having said that, he was quick to turn the conversation away from communication in paperwork form and toward honest, accurate and open communication between the manufacturer and its sales force. “One of our goals from the start of our relationship with any of our reps is to create an environment in which they can feel free to say anything — positive or negative — as long as our mutual goals are addressed.”

How, when and where does this communication take place? Anywhere, according to this manufacturer. “Whether it’s an industry meeting, trade show, plant visit, joint field sales call, or rep council meeting, the door is always open. And without patting ourselves on the back too much, I’m certain our reps have responded to this environment.”

By way of illustration, he cited a recent change in the commission plan that was communicated to reps. “We had most of our reps on a conference call so we could explain the plan. After explaining how certain commissions kicked in when special sales levels were reached, we asked for their feedback. As we painted the picture, several of them pointed out how this would cost them money. We asked for their feedback and refinements, implemented them, and both sides walked away happy. But, once again we could have never achieved agreement if this open communication environment wasn’t in place.”

Dealing With Rep Agency Ownership Issues

When a manufacturer had two of its top-performing agencies go through ownership changes in the same year, it was naturally a bit of a harrowing experience. However, once the dust had settled, he reported that what the agencies did and how they did it really smoothed the way. “I have to be honest in saying that both agencies’ previous owners kept me informed from day one of their planning process. They let me know the approximate timeframe when they were planning on leaving the business. On top of that, they made every effort to personally introduce me to the new owners and to allow us time to build a relationship before actually pulling the plug. If that wasn’t enough, both agency owners sought my advice and counsel during the process. What happened as a result of their careful planning is that we’re still conducting business and selling tons of products with both agencies.”

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