Manufacturers new to the use of outsourced sales professionals are sometimes puzzled as to why it is difficult to get established sales agencies interested in representing their products.
This usually occurs in situations where the prospective principal is both new to the agency method of going to market and has little or no presence in the territory to be covered. This means that there is no existing business to “turn over” to the rep at full commission. There are several effective ways to overcome this lack of interest in doing pioneering or “missionary” work:
- Some principals offer a rate of commission that is much higher than the normal competitive industry rate for a limited period of time.
- Others offer a one year or longer post-termination commission clause, to encourage the agency to engage in this pioneering effort.
- Increasingly, manufacturers are turning to retainers or market development fees in addition to a competitive rate of commission, for a specific period of time.
- Some offer a combination of two or three of the above.
The first two points are easily dealt with through a simple modification to the existing MANA Sales Agency/Principal Agreement Guidelines. The market development fee approach can be incorporated into the contract through the use of this Fee For Service Addendum.
The concept of a market development fee compensates the agent for their pioneering effort and is usually offered in return for market research, market development and, sometimes, more detailed reporting to the manufacturer than is normally allowed by the independent contractor relationship. In effect, the agent is compensated as an independent contractor by commission for orders produced, and as a consultant via fees for doing research and reporting on the market for the principal’s products in that territory.
This arrangement is very often effective in attracting the best available rep in the territory, and is still considerably less expensive than the $XXX,XXX per year alternative of having a direct employee covering the territory. As an example, for a $X,XXX per month per agency retainer for one year, a manufacturer can field agencies in five separate sales territories for a year for the same cost that would be incurred for one direct sales person. While getting the benefit of having his product introduced in the territories, the principal is also gathering valuable information from the agents that will help in his sales and marketing plans, even if the relationship does not work in the long run.
As a result, we have developed the following Addendum that can be used in conjunction with our standard Sales Agency/Principal Agreement Guidelines.
FEE FOR SERVICE ADDENDUM
SALES AGENCY/PRINCIPAL AGREEMENT GUIDELINE
In consideration of services beyond the solicitation of orders for the Products of Manufacturer rendered by Representative (“service activities”), Manufacturer shall pay Representative a service fee of $____________per month for a _____month period (“service fee period”) beginning on ___________________. This service fee is in addition to the normal commission paid to Representative under this Agreement.
Manufacturer shall pay the service fee to Representative on or before the _______of each month during the service fee period and by a check separate from the payment of commissions.
Manufacturer and Representative shall agree on the service activities to be performed by Representative. Such agreed activities shall be documented in Exhibit___attached to this Agreement and incorporated in it by reference. The goal of the service activities is market development, including but not limited to new account development for the Products of Manufacturer in the Territory. Representative shall communicate the service activities performed by Representative in writing to Manufacturer at least quarterly. Manufacturer may not require Representative to take any action which would impair the independent contractor business relationship between the parties.
SPECIMEN EXHIBIT FOR SERVICE ACTIVITIES:
The parties agree that neither detailed call reports nor any other activity that would impair the independent contractor business relationship between the parties shall be required or is intended. Representative shall perform the following service activities:
1. Identify all accounts contacted by Representative during the quarter and rate each in
descending order (A, B, C, etc.) Of potential business for Manufacturer;
2. Provide best estimate of potential dollar business and Product need for each account
so identified;
3. Provide short description of any “A” account or project that may in the reasonable
future become a business opportunity for Manufacturer together with any suggestions
for Manufacturer to pursue and close the business.
SPECIMEN PROVISIONS ONLY
Do not use without consulting your attorney. Laws and customs vary.
This publication is designed to provide sample information in regard to the subject matter covered. It is furnished with the understanding that the publisher, MANA, is not engaged in rendering legal or other professional service. The services of a competent legal professional should be sought.
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