Understanding the Dynamics of Hiring Reps with LOP/LOP and Market Development Fees

The manufacturer who called me was sincerely puzzled. “I am trying to hire reps and all of them are asking for Life of Part/Life of Program (LOP/LOP) or shared market development fees.*” “What happened to just paying the rep based on each month’s commissionable shipments?” “If I gave a rep LOP/LOP and then replaced him or her with a new rep, then the new rep would end up handling price negotiations on repeat orders that are commissionable to the old rep. Why would the new rep try to maximize the selling price if commission goes to the old rep?” “And if the new rep handles negotiations on repeat orders that are commissionable to the old rep, what incentive does the new rep have to work to keep the reorder from going offshore?”

To answer the first question, let’s say you are a casting manufacturer who wants to target Ford Motor Company. Before any commissionable parts orders ship, your rep must: Introduce your company to Ford. Get your company through Ford qualifications. Wait for a new program to come up (say a new rear-view mirror design). Get your part on the print. Wait for tooling to be produced. Wait for prototypes to reviewed, perhaps adjusted, and resubmitted for approval. Wait for the program to be released. Without LOP/LOP and/or shared market development fees the rep risks working 3-5 years for free and then being terminated after the first production order ships. And making the rep’s situation even worse, for every project he or she works on that becomes an order, the rep also probably worked on 5-10 similar opportunities that did not become orders for reasons that were completely outside the rep’s control.

That’s why manufacturers who want their reps to hunt for elephants put LOP/LOP and/or shared market development fees in their contracts. For the answers to the manufacturer’s last two questions, watch for next month’s “MANA Minute.”

* The manufacturer’s comments have been edited for clarity and breity.

How to Prepare for Challenges in Your Manufacturers’ Representative Firm

How do you prepare to consistently execute a good plan now in your manufacturers’ representative firm? By studying past problems and challenges and having a response ready when those problems and challenges recur. In today’s world, we borrow from the jargon of computer programmers and call this list of possible events and appropriate responses an algorithm, defined by Google as “a process or set of rules to be followed” to calculate an answer or solve a problem.

When my mentor hired me to work in his small manufacturers’ representative firm decades ago, no one had heard of algorithms. But my … Read the rest

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I’ve had a lot of people ask me about client retention because it’s something I’ve been very successful at over the years. On that note, here’s how I did it from the initial sale all the way through the entire long-term relationship.

• Step 1: Verbally thank the client for his business when you close the sale.
• Step 2: Review expectations and what will happen next. Whatever your particular steps are, go over these steps with the client and let him know how and when he will be kept up to date.
• Step 3: … Read the rest

Networking and Learning from Industry Peers

Don’t ever underestimate the value of being able to network with non‑competitive peers. That’s what one manufacturer found during his attendance at an industry meeting. While this manufacturer had been working with reps for years, he had recently undergone considerable turnover among his reps. As a result, he was faced with the prospect of hiring new firms. But since it had really been several years since he had to go through that process, he was a little wary of what he was going to do. Coming to the rescue were several of his industry acquaintances, who offered a number of … Read the rest