Compensating Reps for Time Spent/Manufacturers--Why Join MANA/Vetting Prospective Reps--12/18

Compensating Reps for Time Spent/Manufacturers--Why Join MANA/Vetting Prospective Reps

It’s a question I hear all too often. “I’m the sales manager for a manufacturer, and my boss thinks our rep is getting too rich off a new order. I don’t know for sure whether I agree with my boss or not,” said the sales manager. “I can see the argument that the rep should be rewarded for bringing in a huge order that took five years to close, but the rep’s check last month was bigger than my boss’ check — that is not sitting too well.” My reply? The sales manager made the most obvious argument himself. The rep worked for five years before any commission was earned. Now the rep is being compensated for the five years of unpaid work leading up to the order he or she earned for your company. Each commission payment the rep receives covers both payment for that month’s shipments and an installment payment toward reimbursing the rep for all the unpaid work during the past five years.

But there is more to it than that. It will be easier to explain if I use an example. Let’s say you invested in 50 risky stocks five years ago. Most of the companies went out of business. Some of them earned you a modest profit, and one of them was a big winner. What was your five-year profit? Is the gain on the big winner your five-year profit? Of course not. You calculate your net profit by totaling all your losses and all your gains. Consider that the rep had many losses on prospects in which he or she invested time and effort that never returned a cent of commission. These losses, which are an expected and normal part of being in the rep business, come from pursuing prospects where the rep’s principal ultimately can’t meet the prospects’ price, delivery, or performance standards. Reps don’t expect their principals to be an ideal fit for every prospect. Quite the contrary. They expect that only a modest percentage of prospects will be a good fit for their principals and use the commission from the orders they do receive to offset the cost of making calls on prospects that turn out not to be good candidates for their principals’ products.

“Pursuing five to eight prospects for each order that eventually closes is part of the rep business,” explained one rep. “I came into this business with my eyes open. But when I do make a big win, I have to be sure to remind my principals that the commission I receive on each closed order has to cover my cost pursuing that order, and five to eight that didn’t close.”

“I’m a manufacturer, not a rep agency. Why should my company join MANA?” I hear this all the time. It’s a legitimate question, really. After all, the name of the organization is Manufacturers’ Agents National Association — MANA, for short. Seems like it’s an association just for reps. While that may have been its foundation, MANA is much, much more. It’s a terrific organization for manufacturers, whether you’re just exploring the strategy of utilizing reps as your sales channel or have been working with reps for decades. Our company, Eriez Magnetics, has enjoyed the benefits of selling through independent reps.

In the simplest terms Doris Harkness’ process for vetting a prospective or new line may be defined by three words — let’s call them the 3Rs: Responsive, Resourceful and Respected. If a manufacturer can show it possesses those three attributes, chances are they can find a home with Harkness’ agency. Harkness, who heads the Pace Company, Richmond, Virginia, maintains that any manufacturer that desires to be represented by her agency had “better be clear about the type of company they are. We are the most resourceful, respected and responsive bulk handling rep in Virginia. Any manufacturer that we partner with.