Tinkers to Evers to Chance

"Tinkers to Evers to Chance" were the words Chicago Cubs fans once chanted to dig their team out of a hole in a baseball game. When it comes to manufacturers’ representatives facing the specter of dealing with split commissions, perhaps a similar chant might be "Vigilance, due diligence and a good contract." At least that’s what two reps who regularly deal with split commissions recommend.

Understanding Split Commissions

As most reps know, here’s how the typical split commission scenario develops:

• The front-end work on an order is completed in Location A.
• A purchase order is cut in Location B.
• Final destination for the order is Location C.

Since each of the locations is in a different territory and might require the work of a rep in that territory, the commission ultimately is split among the participating reps. Consider for a moment this hardly unusual scenario and how it might impact you today. In the past, the rep who got the order was usually the one who got the commission. That’s not always the case today.

Complexities in Modern Sales

How about projects involving reps where the specifier and consulting engineers aren’t located where the product is going to be consumed? The specifying is completed at the designing location. Distribution negotiation and/or servicing of customers who are installing the product are in another location. Before reps and their principals can even begin to sort out who gets paid for providing various products/services, it has to be determined:

• Who specified it?
• Where was the purchase order cut?
• Who services the account at the end-user level?
• Is there after-sale service, including training?
• Who handles replacement parts?

Then there are the considerations of:

• What is it that the manufacturer is paying the rep to do — get the order? Achieve gross margin? Service the account?
• Does the rep know what’s expected of him?
• Are the right people being paid to do the right things?
• And finally, is the rep being properly motivated and compensated to do the job?

Reps Share Thoughts

Chris Ramsey, Castel Assocs., Inc., Victor, New York, maintains that split commissions are a matter of concern for reps and “more times than not they can be a source of frustration — if not downright hostility.” By way of example he cites his own real-world experience. “My partner and I had been servicing a company for more than 15 years. About five years ago, this company became a part of a larger corporation headquartered in the Midwest. From that point on, purchase orders originated from there. So while we continued to do our job of working to sell the product in our territory, since the order would originate elsewhere, all we were doing was waving goodbye to 10–20 percent of the available commission.”

How Commissions Are Split

In general terms, Ramsey says the normal types of commission splits he’s encountered have been:

• Purchase order origination.
• Engineering.
• Sales influence.
• Destination.

“If a rep can demonstrate that he’s been a major influence in one of more of these areas, then he’s entitled to his share of the commission split.”

Commissions Over Several Territories

Phil Zaks, Par Associates, Inc., Doylestown, Pennsylvania, says, “We’re used to it. It happens all the time on a couple of levels. First, for instance, are the situations where the purchasing has been completed on Long Island and then the order is shipped to Maryland. When that happens, it’s a simple matter of just splitting it between our salespeople.”

Things get a little complicated, however, when the order moves away from the East Coast. “Let’s say the purchasing is here and the shipment is sent to California. Obviously, I’m not going to be covering any territory or business on the West Coast. Over the years I’ve had plenty of experience when some of my larger accounts ended up buying plants in other locations in the country. As a result, I’d have to fly from Philadelphia to Kansas City to someplace in South Carolina to cover the account because of my full involvement. But, consider the case of us selling short-run stamping that amounts to a $5,000 order. The order may be placed here and then shipped to Georgia. There’s no way I’m going south to cover it. Let the rep there take care of it. That’s when the split with another agency is called for.”

Aside from the basic geographical concerns, Zaks adds, “When an awful lot of engineering work is called for in one location vs. another, then the split is going to be heavier with the up-front work vs. the ship-to location. But, basically we’re talking about case-by-case considerations here.”