It’s very exciting and equally motivating for a representative to embark on the chase of a new market and/or a new territory. It’s what most of us live for. Well, the monetary payoff is the real reward, but the chase is our game. Manufacturers know this and will dangle the potential reward of future commissions in front of our eyes to reel us into their service. We frequently take their bait, but at what cost to the principal and to the representative? I believe that, years ago, the chase was easier than it is today. Not because I was younger then, but because now there seems to be so much less to chase. Who pays for the chase is of primary importance to an agency’s survival, to the overall health of our industry and to our way of life.
Frequently, a new line lacks a revenue stream that can offset the developmental costs, but that is no reason to avoid the challenge. The developmental costs can be offset in a couple of ways. Existing business could be made commissionable to the representative, a development fee could be paid by the principal to the representative, or a written principal/agent agreement could provide for some type of extended commission payments after termination. I prefer the last option to being paid a development fee, for a number of reasons.
The principal who pays a development fee should expect results for their payments. Of course, the representative should also expect results, but sadly results can be elusive, especially in today’s shrinking marketplace. In the absence of results, the money paid to the representative could be a sour point with the principal. It could hurt future rep/principal relationships and reduce the manufacturer’s willingness to engage more reps. Nobody wants this.
Frequently, sales managers will tell us their lines are an easy fit and won’t adversely affect our efforts with existing lines, since they are so closely related. To some extent, this is true. In the event that the manufacturer does not offset some of the inherent development costs to the agency, I strongly disagree. In that case, a new line could be doing more harm than good. New lines must be offered and accepted with caution. Care must be taken to discuss all aspects of the relationship, so all parties remain whole regardless of success or failure.
If any of the developmental costs can be offset either in the beginning with a development fee or later in the relationship, with a long-term cancellation and/or life of part agreement, both parties can grow together at an even pace. The idea of long-term cancellations and life of part agreements are not new, but they are not easy concepts for some to accept. Both can go a long way to offset the true cost of new territorial development, while spreading the risks/rewards more fairly between the parties.
