Outsource your sales force? Why not? You already outsource your legal and accounting work, and you may also outsource bookkeeping, human resources, and other vital elements of your business. And the reason to outsource your sales force is the same as the reason to outsource those other functions — it’s a cost-effective way to leverage expertise that you could not afford on a full-time basis. Manufacturers’ representatives (also called manufacturers’ agents) are not just experts on your product; they also are experts in their local market area. And, unlike a direct employee who may be looking for the bigger paycheck that comes with being promoted from the Omaha office to the Chicago office, your Omaha manufacturers’ representative has roots in the community and has no desire to be “promoted” away from friends and family. Since his or her “inventory” is years or decades of experience in the Omaha market, why would he or she want to relocate and leave that behind?
Where Do I Find Good Reps?
To be sure you get to interview the best candidates for your line there are three key bases that must be covered: Existing customers, current representatives and rep trade associations.
- Existing customers and distributors are a great source of referrals to reps you’ll want to consider as candidates to represent your line. They know who they like to buy from and who does a great job for them. But existing customers and distributors are not the only source to consider. After all, existing customers can only tell you who sells to them. But you also want to sell to new customers you don’t currently sell to.
- If you already have reps in other territories, those reps know their colleagues in other territories and will be happy to give you a candid assessment of other rep firms and a referral to reps who do a good job.
- And to be sure you include the best possible rep in your interview process, you also need to review the websites of not-for-profit rep trade associations whose members work in your industry. For example, a searchable database for general line North American manufacturers’ reps is available on the website of MANA, the Manufacturers’ Agents National Association (www.manaonline.org), the largest not-for-profit rep trade association. Also available on the MANA site are links to industry-specific not-for-profit rep associations that specialize in industries like electrical, electronic, plumbing, or power transmission products.
What Are the Advantages of Manufacturers’ Reps?
Hiring representatives instead of a direct sales force avoids all the fixed costs of direct sales employees: Salary, medical insurance, workers compensation, human resources, travel and entertainment, and more.
If you have a relatively narrow product line, your rep can bundle your products with products from other manufacturers on his or her line card and include your product in a package deal you could not easily put together yourself.
Representatives have intimate knowledge of their territories. Most representatives have years or decades in their territories. That’s more than just market knowledge — your rep often has children who play in the same sports leagues and attend the same schools as your customers — a real advantage over a short-time direct salesperson who is just making a 1-2 year stop in the territory before moving to greener pastures.
What Are the Disadvantages of Manufacturers’ Reps?
You can set a high sales bar for reps, and they will achieve it, but you generally can’t tell them how to achieve it. Reps are independent businesspeople, and although they welcome a challenge and stretch goals, most will want to set their own plans on how to achieve those goals rather than allowing a manufacturer to dictate how those goals should be achieved. If you tend to be a micromanager, you probably will not be successful with reps.
You hire the rep because they own customer relationships that you want to participate in, but if you expect that you will come to own the rep’s customer relationships you probably will not be successful with reps. Reps bring their customers’ relationships to their relationship with you, but you will find that those relationships stay with the rep and are not transferrable to you.
How Do I Get More of a Rep’s Time?
It’s surprisingly easy. It’s really just basic blocking and tackling. Offer a quality product at a market-friendly price, ship the product on time, and pay the rep on time. This seems simple, but so many manufacturers lose track of blocking and tackling that if you do all the fundamentals well, you will be a stand-out on most reps’ line cards, and you will do well. Can you also get more of a rep’s time with a higher commission rate? Absolutely, but even a higher-than-average commission rate won’t get more of the rep’s time for a manufacturer if that manufacturer’s late shipments or quality issues embarrass the rep with his or her customers.
Do I Have To Pay the Rep Commission on Accounts I Already had Before I Hired the Rep?
Most reps expect to work hard to earn their commissions and understand that developing new accounts often involves investing their time into a long sales cycle. And they generally will use sales commissions for accounts that came with the territory to help finance those long-term efforts. Commissions on existing sales usually don’t cover all the rep’s costs to develop new customers, but they do help the rep offset some of those costs until sales commissions on new accounts start. Keeping existing accounts as no-commission “house accounts” may get your new rep relationships off to a rocky start, and many reps will decline to accept a new line that has house accounts.
So, If I Don’t Have Any Sales, Reps Will Work For Free?
Reps are in business to make a profit just like you are, so the results you can expect when you ask a rep to work “for free” probably will be disappointing. Reps who accept a “pioneering” line with no existing commissions can’t afford to take time away from manufacturers who are already paying them commission, so their efforts may be limited to “Oh, by the way, we also have ‘x’ if you need it.” If you need to hire a rep in a territory that has no existing sales, consider offering a monthly “territory development fee” or stipend to help with the costs of territory development in exchange for monthly reports on those pioneering efforts.
Now That We’ve Found the Right Rep, is a Handshake Good Enough?
No. Many a rep-principal relationship has turned sour because years later each party remembers the particulars of a handshake agreement differently. Or perhaps either or both of the parties who made the handshake agreement leave the company or retire, leaving the remaining parties to try to reconstruct what might have happened years ago. Your corporate attorney is generally not the right person to write that agreement. Rep agreements are a legal specialty, just like income taxes, human resources, or trusts. Not-for-profit rep associations can recommend a rep-savvy attorney in your area, and MANA offers specimen contracts that you can use as a basis for conversation with the attorney who will ultimately write your agreement.
So I Just Write the Agreement, and the Rep Signs It?
Not usually. Expect each rep firm to review the agreement and be prepared to consider minor, reasonable alterations to match the reps’ needs with your own.
Agreement’s Signed. So Now I Just Send Some Catalogs and Samples To the Rep and Wait For Orders?
If you do, the wait will be longer than you’d like. Get together with the rep and set mutually-agreed-upon expectations and goals. Then make a plan and work that plan, including training and joint sales calls into the territory.
Sounds Easy Enough. Now I Just Send E-mails To Reps In Every State and Start Interviewing?
Absolutely not!
First, a top-tier rep firm that is in high demand probably gets 3-5 manufacturer e-mail inquiries each week. And because many rookie principals simply send an email to every rep email address they can find, most of those emails offer products that do not fit the rep’s line card, wasting the rep’s time. For that reason, most email inquiries to reps go unread and unanswered. Recruiting a top-tier rep is just like recruiting any other top-tier executive. You will have to pick up the phone and call, probably at least several times, to get that executive’s attention.
Second, don’t try to hire more than one or two reps at a time. Bringing a new rep on board will mean lots of new calls into your customer service, quotation, and engineering departments, and the last thing you want to do is spend time and money recruiting the top rep firms in your industry and then bring on more reps than you have resources to support, extinguishing their initial enthusiasm with long phone queues and lengthy delays responding to new inquiries.
Hiring, supporting and retaining outsourced sales companies is not easy, but the rewards that come from leveraging reps’ resources on your company’s behalf far outweigh the time and effort you will need to invest to launch your rep network. And if you come up against an issue that stymies you, not-for-profit rep trade associations stand ready to help.
Charles Cohon is former CEO and President of the Manufacturers’ Agents National Association (MANA) www.manaonline.org. MANA is a not-for-profit trade association that brings reps and manufacturers together and helps them to develop the skills and tools they need to become professional partners in profit. Cohon brings two decades of experience as the founder of an extremely successful electrical rep company to his role with MANA. He earned an MBA with honors from the University of Chicago Booth School of Business and is a speaker and author on a variety of aspects of sales force outsourcing.