How to Attract Qualified Manufacturers Reps

Manufacturers seeking to expand their sales coverage into territories in which they have no existing business are finding it difficult to attract competent representation under the standard form of agency agreement.

Rep Larry Robinson, quoted in an August 2003 article in Agency Sales Magazine, said, "I've found that the majority of principals don't have a clue concerning how much money it takes to launch a product or line. The misconception is that they contract a rep, products get sold and the money comes in. They don't know what it takes to get things moving."

"Missionary" work is expensive. The present cost of a sales call ranges upward from $250. Gas is up. Health care coverage is up. Increases of every kind continue almost daily.

In the words of one rep, "Few of us can afford to drill for oil — to actively promote a new line — when the principal has no business residual in the territory or offers no retainer to help support the effort."

The fact is that a rep must make a significant investment to launch a new line, an investment he hopes the principal will help to offset. A principal may, or may not, decide to offer a retainer. However, the lack of an offer to assist with start up expenses could dissuade talented reps from considering the representation.

"We are increasingly encountering reluctance on the part of better rep agencies to take on new lines where there is no existing business in the territory to be turned over to the agency or a retainer is not offered in lieu of turning over of existing business," according to Roy Koppenhofer of Pennswood Partners.

Reps have to make a significant investment when taking on "pioneering" lines.

"I've witnessed successful relationships built on a retainer of as little as $500 per month for six months. I've also seen reps ask for as much as $3,000 a month for three years," Koppenhofer said. "It's a matter of negotiation and a risk assessment by both parties."

Some manufacturers are reluctant to pay a set retainer or give over sales commissions that reps have not "earned." They feel that the rep offered such an arrangement will have no incentive to generate new business.

For manufacturers with an existing business presence in the territory the issue boils down to one of fairness. A determination must be made about how and when existing business in the territory will be turned over. In addition, the manufacturer must determine that the rep is the right one.

One solution, says Phil Koppenhofer of Pennswood Partners, is to "turn over existing business only after the rep has established a documented relationship with each existing account."

A "documented relationship" is created after the rep has visited the customer and is able to identify the names and functions of all the critical contacts within the business at that location. In addition, the rep submits a sales plan to maintain and expand the principal's business with that customer.

Another approach is to turn over existing business at a lower commission rate and pay a greater-than-normal rate for new rep-generated sales within existing accounts.

Offering a commission incentive for new accounts is also an excellent way to get the attention of the better-qualified reps. Conversely, commission rates that decrease as sales revenues increase will be viewed as a turn-off without some stark economic reason for the decrease (extreme pressure on profit margins, for example).

The optimum solution is to provide win-win opportunities for all involved. A commitment to sharing the cost of missionary activities with your new rep is oft times the best way to get the partnership started on the right foot.