Eatman Associates - Manufacturers' Representatives -
What is a Manufacturer's Rep ?
A manufacturer's rep is a contract sales agent,
generally working as a shared resource for several companies. Reps are not
middlemen. They are merely an alternative to hiring employees to perform the
same function.
How do Reps Differ from Employees ?
There are several ways in which reps are
different, most of them positive for you and your customers. The biggest
difference is that manufacturer's reps are running a business .
Unlike sales employees whose function is narrowly defined, reps
participate in all functions of a small business, from strategy to finance.
Because of this experience, reps are better able to understand the needs of
other businesspeople - you and your customers.
Secondly, unlike sales employees, reps are generally paid straight commission. Reps
must sell in order to exist; there is no bimonthly paycheck which
comes no-matter-what. Thirdly, reps are generally the
"cream of the crop". Only the very best sales
people survive on straight commission, and only the brave have the guts to go out
on their own without the lifeline of a regular paycheck. Most reps have also an
impressive resume from their former lives as corporate minions.
Fourth, reps are more stable than employees. Unlike a
typical sales employee who has no ownership in the company he/she works for,
reps own their businesses. The investment necessary to start up a rep firm is
substantial, and thus reps are committed long term to the survival and success
of their businesses. Since that business is selling for your company, they are
therefore committed to the long term success of your business.
Fifth, reps are a "shared resource".
This is also true of sales employees in large corporations with multiple
product lines.
Whatever role the rep plays in the sales of your product, remember that a
rep must conduct his/her business in such a way as to be an asset to customers.
In the end, a rep must continually find ways to
leverage its principals' technology and other assets to make real improvements
in the function and competitiveness of the customers' end product. There
is an old adage in the rep business - "You can get new principals, but you
can't get new customers."
What Size Rep Firm is Right For My Company?
In most rep firms, the top 3 or 4 lines generate 75% of the income. Because of that, reps have to take care of their best lines. If they don't, they will lose those lines and be forced to lay off people. When choosing a rep, ask yourself: Is my line big enough to be one of the rep's top three or four lines? If not, is the prospective rep convinced that your line can grow in his territory to become one of those top lines within a couple of years? If the answer to the above two questions is "no", you might consider a smaller rep firm.
"Complimentary Lines"
Conventional wisdom is that you hire a rep with so-called "complimentary lines". A first consideration is to ask whether the rep is primarily oriented towards calls on design engineers (custom, niche, and leading-edge product focus) or towards calls on purchasing agents (commodity, mature product focus). Another important consideration is account focus. Does the rep have an existing business relationship with your key customers? A rep whose call focus most closely matches the requirements of your product is more likely to be successful. In the end, though, success really depends upon the willingness and ability of the rep to do whatever your organization does not do well. For example, a continuing dilemma for niche component manufacturers is "How do I find the small number of decision makers for my product? How can I be certain that these decision makers consider my company and its products when those products are needed?" For niche manufacturers, traditional advertising reaches too large an audience, and is thus ineffective and prohibitively expensive. A rep firm with the right customer contacts may be the solution, but a certain amount of marketing skill in both the rep organization and at the principal's house is essential.
Startup Firms and Reps
Reps traditionally offered a great advantage to startup firms operating on
limited financing. Commission-paid reps were "free" unless they
sold something. What actually occurred was that the rep invested
in your startup company. In this respect, a rep is unlike a direct
sales person who is making no investment in your company. When reps
invest in your company, they expect a payback commensurate with the risk; that
is, they expect to be paid handsomely if the venture is successful.
Comparisons between a rep's compensation under these circumstances and
the compensation of a direct sales employee are therefore inappropriate.
Recently, some reps have been asking for monthly fees to help defray the costs
of pioneering new lines until the commissions generated are substantial enough
to properly support the effort. This is a result of the tech recession
of 2000 - 2003, which killed off a lot of rep firms and left the survivors with
more leverage.
Reps are a “domestic labor contractor”. That is, they are tied to domestic labor
rates, domestic benefit rates, domestic travel costs….. all of which have
skyrocketed over the last 20 years. Many
manufacturing companies have solved their labor cost problems by outsourcing labor-intensive
operations to
This
situation begs for a rethinking of the historical commission rate structure.
Managing Sales People in Remote Locations
Managing a far-flung empire of direct sales employees is neither trivial nor cheap. Large companies can afford to have remote field sales management and offices full of employees in every major market. They have the ability to supervise and train new sales hires locally. Without that "critical mass", small companies who hire remote sales people suffer enormous management overhead as a result of having unsupervised solo players in remote offices. Stable, experienced independent reps are the right solution to this problem. Most reps have prior management experience with companies like yours, and all are self-starters - managing their own businesses. Reps can give you the freedom to run your business.
Getting the Most from an Independent Rep
In my 19 years as an independent rep, I see four major causes of poor rep performance. They are:
1. Choosing the wrong rep in the first place
Maximizing the number of "feet on the street" isn't usually the answer ,especially when those "feet" are everywhere except in your customers' lobbies. Many companies pick rep firms that are way, way too big for them, and then they wonder why they don't get any focus on their product. Prospective reps should square with principals up front, and tell them what kind of mindshare they are likely to get. In addition, your rep should either have an existing relationship with the accounts that you want to penetrate, or have the skills and time necessary to find and acquire the particular customer base that your company wants. Different reps have different skill sets.
2. Principal's lack of market knowledge
If you don't have a rough idea of how big the market is in the rep's territory, and who the major customers are, you cannot measure the rep's performance . A common mistake is to think that defining the market in the territory is solely the rep's duty. Principals in this mode default into a fantasy sales model that predicts ever-increasing sales (success!) regardless of the realities of the market. If the expected sales increases are not forthcoming, this kind of principal descends into a state of free-floating anxiety, not knowing where to turn, and often thrashing out wildly at the rep. Bad karma, this is.
3. Treating reps as "outsiders"
When you have gone through the trouble to hire reps, they are your
sales force. They are your sales force. Some sales managers go to bed
every night wishing it weren't so; praying for a staff of direct sales
employees to replace the reps. I've seen sales managers actually wish ill on their
reps, hoping that the reps fail, so that they can justify hiring employees to
replace them.
Reps are mavericks. Many of us risked it all just for the chance to be self-employed
and free. We don't spend all day writing reports to justify our existence, and
sitting in useless meetings. We are somewhat immune to having our priorities
rearranged daily to suit the political wind du jour.
That isn't going to change. If we behaved the way that our big corporate bretheren do, our efficiency would plummet and we'd go
broke trying to survive on common commission rates.
As I have mentioned in the above paragraphs, there are a lot of good things
about reps. Reps are as a class well above the level of the average employee in
both talent , work ethic, and stability. Reps are an economical solution to the
field sales problem, and reps often invest in startups and growing companies.
If you chose reps for your sales force, you are fortunate to be directing an
absolutely fantastic bunch of people. Use that talent for what it's worth.
Remember, if you have reps, reps are your sales force.
4. Categorizing Reps
Assumption is the Mother of all screw-ups, and categorizing reps is one of those assumptions. Reps' backgrounds vary, but most have previous lives in the service of larger companies, often in management. That background is available to you as an asset if you use it. To assume that reps as a class are inherently incapable of certain functions is a bad deal, and it can prevent you from getting absolutely stellar value for the commission dollars you pay. Some reps can perform functions for your company that are almost priceless - if you let them do so.
What You Should Expect from a Rep
Unlike a direct sales employee, a rep is managing a business. To be successful in the long term, a rep must have lines in all quadrants of the business cycle simultaneously. There will be some lines which were startups but are now producing income in excess of the effort provided. The investment payback from these lines is invested in funding sales efforts for new startup lines or for lines with significant growth potential. Mature lines with flat to negative potential growth should receive effort commensurate with the income they produce. When considering how much effort should be expected for a mature line, figure that you should pay a rep a bare minimum of 50% more than the monthly salary of a direct sales employee per man-month of effort. If this sounds excessive to you, consider how much a direct sales employee would really cost, including office, telephone, computer, auto, travel, benefits, and corresponding inside sales support salaries and overhead. So, to get the rep's perspective, ask yourself: Which quadrant of the business cycle is my line in? Am I a new startup that the rep should invest in? Am I a blooming startup in the payback mode? Am I a mature line with stable revenues and limited growth potential? Is my company dying; the market for my product declining? In each case, the needs and expectations of the rep will be different.
Motivating Reps
One thing I do know: reps will put out disproportionate effort
for people they like; for products they like, and for lines that treat them like
family.
Reps, like employees, respond well to commitment and stability. Every
successful rep must hedge the volatility of their existing lines. This
is done by either taking new lines, or by shifting effort to lines where the
relationship and compensation is perceived to be stable and the growth
potential is there. In either case, the outcome for lines perceived to
have an uncertain relationship or other volatile factors is usually less effort
on the part of the rep. The more the perceived volatility, the more the
hedging, the more lines the rep takes, and the more the effort for your line
gets diluted. Trust me, reps don't want it this way - it causes us to do way too much work.
Of course, another great way to motivate independent reps is to have dynamite product, superb merchandising and customer support, matchless quality, competitive prices, limited competition, and tremendous market growth potential. Would that we could all have those things, and sales be easy : )
- Jim Eatman, March 2002 - Rev. 7/06