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Step 9 - Develop Missionary Territories

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Developing New Markets With Professional Manufacturers' Representatives

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The Need to Invest in the Rep’s Efforts

By Jack Foster

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Over the course of four days association members participated in a free-wheeling MANAchat on the subject of developing new markets.

The sessions were entitled “Market Development Fees”:

  • What are they?
  • Why are they necessary?
  • What strategies should you use to convince your prospective principals they need to offer market development fees?
  • How long should such a fee last and how do you determine the amount?
  • Are market development fees mandatory every time you sign a new principal?
  • What do you provide the manufacturer in exchange for the market development fee?

The 53 independent reps who took part in the chats described their experiences negotiating with or persuading their principals as to the benefits of participating in such programs.

At the outset of each daily discussion participants were asked for their definitions of such fees whether they’re called shared territorial development fees, retainers, etc. While there were various definitions, in general, the reps’ experiences showed that such fees were understood in the following ways.

1. “A manufacturer comes to the conclusion that there’s business to be had in a given territory, but the time it would take and the cost of hiring a direct employee to replace a competitor wouldn’t be a profitable venture. Since the rep model recommends itself, the manufacturer approaches a rep to work the line. From past experience, however, the manufacturer has determined that not all reps perform as well as they would like. Here’s the catch: some reps might take on any line — they’re probably the ones that don’t perform that well. It’s the true professionals, however, that will sign an agreement that calls for the manufacturer to pay a monthly fee, for a period of time, while the rep works to establish business.

“Payment of that fee shows that the manufacturer is willing to make an investment in the effort. In making that investment, with a top-performing rep, they feel that they will eventually get their investment back.”

2. “If there are no — or limited — commissions for a prospective principal in a given territory, you ask for money up front in order to develop the territory. Reps, just as anyone else, don’t want to work for free. That’s called charity. The fact is, it’s going to take time and money to develop customers. The time and money I spend on that effort will take away from where I’m already making money. The manufacturer should realize that they should compensate the rep for that work. Really good reps out there will not take on a line without existing business in the absence of a development fee. The manufacturer realizes he has a choice: ‘I can sign you with a development fee; or, I can sign someone else who won’t require such an agreement.’ It’s up to them.”

3. “I look at it this way, a territorial development fee is a way to supplement your efforts while you develop the business when there is none. You’re able to treat that line as a priority and the fee provides you with some revenue and helps you pay for the gas and other travel expenses while you’re working on a line.”

Before leaving this subject, it was emphasized that there is a great deal of information on market development fees that appears on the MANA website (www.MANAonline.org).

Implementing Strategies

Having stated their rationale for the existence of such development fees, the reps in the MANAchat offered a variety of strategies as they communicate with prospective manufacturers.

One of the first rationales was offered by a rep who said, “My message to a prospective principal is very simple; if they want me to go out and work for them, I need to be compensated. If I’m not compensated, then I simply walk away. It’s imperative that principals come up with some ‘giddyap’ in the game.”

A second rep noted, “A manufacturer’s willingness to invest in the effort allows us as reps to separate the wheat from the chaff. It tells us who’s serious, and who isn’t. If they’re not willing to invest to gain access to my customer base in return, then the relationship isn’t going to work.”

If those two previous statements lay out reps’ reasoning, their strategic approach to convince manufacturers as to the viability of such fees follows a clear path of offering something in return to the manufacturer for their investment. The consensus among the chat participants was that “you have to give them something extra in addition to making calls and following up.”

According to one rep, “The approach I’ve followed is to be right up front with a prospective manufacturer. As an example, one manufacturer recently located me through my MANA membership. What they’re selling is foreign to me and I let them know from the start that I wasn’t the person for them. They have been insistent, however, and keep on saying they know I’m the rep for them.

“What’s going to have to happen here is that I’m going to have to learn a whole new selling language in order to work with them. Their response to that was that ‘We’ll help you and give you whatever it is that you need — and we’re going to compensate you during the process.’

“This is an example of the type of conversation I think you need to have in order to make the relationship work.”

Look to the Past

Another rep offered that he relied on his considerable past experience in negotiating such fees. “I’m thinking about what I accomplished with one principal. I had access to his CRM. At the beginning of our relationship I came up with a number of targets that I would reach. What resulted was a major ‘data dump’ of valuable market information that all grew out of my more than 20 years of experience in the territory.”

This subject of strategies that reps might employ to educate and persuade manufacturers as to the value of market development fees led directly to a discussion of the need to provide the manufacturer with “something” in order to prove or indicate that the rep is, in fact, prioritizing his product or line in the marketplace. To that point, one rep indicated he provided principals with detailed quarterly reports in return for a $2,500 monthly market development fee.

Admitting that he hasn’t entered into a market development fee arrangement in a few years, another rep recalled that in his past he’s relied on the “commitment” argument to persuade a manufacturer that such an arrangement is worthwhile. “For instance, your agreement on such a fee shows you’re serious about conducting business in my territory. In return for that commitment, you can count on me for reports on important developments in the field and to accommodate you when you come here for a field visit. You’ve probably had no connection with customers in the territory and they won’t be super interested in meeting with you. I’ll plan on providing your entrée to those customers and I’ll spend however many hours are needed in the car with you traveling from one customer to another.

“If you are serious about our relationship, we’ll lay out all the groundwork necessary to get the job done.”

The Cost of Conducting Business

Yet another rep offered, “If a manufacturer has some business in the territory, we might take a risk on him and work with him to develop new customers in the absence of such a fee. However, in general, we look at the need for such fees as simply the cost of doing business for the manufacturer. I know, they all say ‘You’re calling on these customers anyway, so what’s the expense? It’s minimal, right?’

“My strategy is simply to let him know that we’re already successful with our eight existing lines. I don’t need anything more. If you’re asking me to do some missionary work, that’s going to take time away from my other lines and I’m not willing to do that in the absence of some form of compensation; hence the need for a market development fee.”

Finally, a rep that simply refers to these fees as retainers maintained, “We approach the subject this way: It’s happened that we’ll get a request from a customer for a product that we don’t represent. We follow up by approaching the manufacturer because we want to let him know that there is some business to be had. Next, we’ll let him know we’ll work with him as long as we’re paid a development fee.

“In another instance, we’ll simply let a manufacturer know that we’re aware of business from our past experience; and, we can document it. Sometimes this will convince them.

“Frankly, when it comes to these agreements, I feel that the request for a shared market fee puts the onus on upper management of the principal. If we’re successful with our approach, then we can plan on receiving the full support of the manufacturer when it comes to the type of support we need in the field.”

In the end, all of the MANAchat participants agreed that there should be no fear in walking away from a manufacturer that resists investing in the reps’ efforts. As one rep put it, “There are some manufacturers who will never like the concept. They think we’re just here to take the risk for them when they have zero business. We’re going to provide all the leg work in the absence of leads, advertising, or other forms of support. That’s not the way we conduct business.”

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Market Development Fees

By John Davis

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In this issue of Agency Sales appears a report on a MANAchat devoted to the importance of market development fees. While such fees have been in practice for some time either as retainers, draws or some other form of agreement between rep and manufacturer, as time has gone on they’ve become more important for a couple of reasons.

First, consider for a moment the current environment that reps are called upon to work in. As MANA can attest, behavioral and business restrictions evolving from the COVID-19 pandemic have resulted in a marked increase in the number of manufacturers seeking to conduct their business via the rep model. An obvious reason for this is that travel and visitation restrictions hamper the manufacturer’s ability to get face-to-face with customers. While reps toil in the same environment, they do know the territory and already have the desired relationships with customers. As a result, it’s easier for them to stay in touch with customers.

Second, while sales lead times vary from industry to industry, it would seem that it’s hardly feasible for a rep to be expected to unilaterally invest his time, money and effort in a sales cycle that may not bring results for an extended period of time.

Third, a lack of sales in a given territory would appear to translate into a lack of brand awareness that any rep would have to work long and hard to overcome. How is the rep going to survive if there is no “there” there?

And finally, there’s the axiom that “You only get what you pay for.” Sure, I understand that the traditional rep model is one that calls for the rep only to be compensated if and when he or she completes the sale. As times have changed and more and more demands have been placed on the rep, it hardly seems fair to me that the entire burden of identifying, developing and nurturing the market falls only on the shoulders of the rep.

Frankly, I hold the belief that such market development fees should be accepted as more the norm than they’ve ever been. I say that for two reasons:

Shouldn’t the manufacturer be willing to pay such fees as a sign of their investment in the relationship with their reps? It’s simply a matter of allowing them to have some “skin in the game.”

Next, isn’t reps’ insistence on such fees a sign of their professionalism? I would maintain that the absence of such a fee is the wrong way to begin a relationship. It’s certainly the norm that when you seek the advice of other professionals (e.g., doctors, lawyers), there is a fee attached. Shouldn’t it be the same with reps and their principals?

Now the question remains — who bears the responsibility for dictating the need for such fees? Is it the rep who should educate his prospective principal at the beginning of a relationship, or should the manufacturer — as a result of his due diligence when entertaining the notion of working with reps — who should realize the benefit?

That’s a bit of a chicken and the egg question that I would answer this way. Prior to entering any agreement with a rep, a manufacturer would be well served to learn all there is to learn about how professional reps conduct their business. They can do that by joining an organization such as MANA, or any other industry-specific rep association. But, not to place the burden entirely on the manufacturer, the rep should make sure they are well armed with all the details of how they run their professional organizations. Having said that, I’m not sure that all reps are at their best when it comes to selling themselves to manufacturers. It all comes down to the rep’s self-worth. If the rep truly values what he contributes to the sales and marketing equation, then he should have no reluctance or problem in completing his selling job to a prospective manufacturer. If they can’t do that, perhaps they ought to reevaluate what they do for a living.

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Tips for Developing New Markets With Reps

By Jack Foster

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“How can I find a high-quality independent manufacturers’ rep in a territory and what can he or she and I do to introduce my product to the marketplace?”

That was the question posed and answered by Hank Bergson earlier this year in the course of one of MANA’s popular and well-attended teleforums. This teleforum, entitled Developing New Markets With Manufacturers’ Representatives, tackled the situation faced by manufacturers and reps when manufacturers seek to introduce a new line or new product into a territory.

At the outset of the discussion Bergson, president of Henry Bergson & Associates, LLC, and the former president of NEMRA, sought to draw a distinction between pioneering and missionary work that the independent rep would undertake.

Pioneering work is best defined as the desire of a manufacturer who already has existing business in a territory but is seeking to develop a new line of products for prospects and existing customers.

Missionary work, on the other hand, entails the manufacturer who is new right out of the box and no one has heard of him in the marketplace. Obviously, this manufacturer has no business in the territory.

The very idea of taking on a manufacturer’s line on a pioneering or missionary basis flies in the face of the traditional manufacturer-rep relationship, he continued. “Obviously this type of relationship is in contrast to the traditional relationship where from day one the rep is dealing with existing sales and their job is to increase sales and hopefully increase their commissions. With that traditional relationship, the rep is making money and covering expenses from the very beginning rather than dealing with a situation with a protracted selling time and obviously no commission being paid from the beginning.”

Facing Challenges

Keeping the above definitions in mind, Bergson stressed that either scenario — pioneering or missionary — presents major challenges for both the manufacturer and the rep. “The biggest challenge for the manufacturer is to locate a rep who is willing to develop a new market. That means that the rep is going to have to perform a rather stringent analysis of the risk vs. reward of undertaking the effort.”

If that is what the rep has to undertake, work remains on the manufacturer side also, he maintained. “There’s quite a bit of homework that has to be completed here. A partial checklist might include:

  • “Is the product manufacturable?
  • “Is the product ready to go to market?
  • “Has all the testing been completed and certifications obtained?
  • “Has the pricing been established?
  • “Do you know your potential customer base?
  • “Has the manufacturer completed the needed homework by consulting with MANA and making use of the MANA online directory to target some reps who seem to have a profile that would be appropriate for the product. Key here is determining if they call on the type of customer who would potentially purchase the product.
  • “Has the manufacturer reviewed information MANA has available relative to recommended contracts and practices and policies to follow within the industry?
  • “Hopefully some market research has been completed that allows the manufacturer to at least come up with a list of two to four reps in the territory that they think are worth speaking to about the product line in question.”

Why Take on the Task?

Bergson then offered a couple of questions the manufacturer has to be ready to address if, in fact, he plans on going to market with reps. “Why should a rep invest his time and money on your product to the exclusion of other products that he already represents? In addition, why should the rep even think about working with you unless you as a manufacturer aren’t ready to market and sell your product in the territory?”

He emphasized the importance of the latter question by pointing out that if a manufacturer thinks it can “pre-sell” a product to the marketplace it may be in for a surprise. “It’s very easy to get off on the wrong foot when it comes to pioneering or missionary selling. Remember you can’t expect the rep to be selling out of an empty wagon. Make sure you’re ready to go to market. As much as it might sound interesting to presell in the marketplace — people aren’t going to pay for something they think will come down the line. Manufacturers must make sure they’re ready to market and sell their product and at the same time have a compelling story as to why a rep should take on the line.”

The Compensation Question

Then there’s the question of compensation, and it’s a question on which the teleforum offered a few considerations. The point was made that traditionally “No one gets paid until the rep sells something.” With pioneering and missionary work, however, there are more times than not that there’s an upfront investment in terms of time and money that the rep has to make before a sale is made. During that time, there is no return on the rep’s time/money investment.

According to Bergson, “There are a number of ways to work around that. One successful scenario involves the rep and the manufacturer agreeing upon a market development fee whereby the rep is retained to begin to build the market. There are a lot of opportunities here for monthly payments or other incentives to be agreed upon that would allow the rep to stay interested and focused. There might also be a draw in lieu of commissions for a fixed period of time allowing the rep to reach a particular sales level, at which time the fees stop. There are a number of creative ways to look at this that reps and manufacturers are familiar with.”

It was at this point in the teleforum that one of the attendees offered his unique perspective on the pioneering/missionary question. Admitting that he was in a position different from most, MANA Board member Ed Juline, CSP, CPMR, Mexico Representation, Guadalajara, Mexico, explained that “It’s not unusual for us to receive three to five calls a week from manufacturers that want us to represent them in Mexico. As a result, while we wind up kissing a lot of frogs, when we do identify a manufacturer that we want to work with, we’ve learned how to structure the deal. On the one hand, there can be a risk for us to work the line and not have the principal willing to pay a monthly fee with no assurance that they’re going to get anything out of it. On the other hand, we don’t want to have a commission-only agreement and then have us get nothing out of it.”

Staged-Date Retainer

He continued, “One of the strategies that we employ is agreeing on a staged-date retainer program. For instance, let’s review our performance after three months. At that time we decide whether to move forward. Then, after six months if there’s not a fit, we can determine to terminate the agreement.” He added that such agreements usually called for a nominal figure to be paid by the principal, “depending upon how much effort we believe it’s going to take on our part to develop the business. This allows the principal to have some ‘skin in the game.’ It shows a commitment on their part.”

As a part of such agreements, Juline indicated that it was important for the rep to provide the manufacturer with pertinent information on how the effort is progressing.

Bergson agreed with Juline’s belief in the value of having the rep report back to the principal. “There doesn’t have to be a formalized method of reporting. Something like that can take away from the rep’s valuable selling time. At the same time, however, the rep should be feeding intelligence back and letting the manufacturer know that the rep is aligned with the common goal of developing the marketing and sales effort.”

Bergson concluded his comments on the subject of pioneering/missionary selling by noting, “A critical component of the good manufacturer-rep relationship is an understanding that there should be a shared investment plan model where they’re both assuming risk. They’re both going to share in the development of the marketplace if they want the ‘marriage’ to work. They each must understand the role that the other plays and share the cost equitably. When that happens, everyone wins.”

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Working With Reps to Develop New Business

By Charles Ingram

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So you’re a manufacturer and you want to develop new business, grow your sales, perhaps in a new geographic territory, new industry/market, or maybe you have a new product to launch. What are the factors any good manufacturer should consider to maximize the likelihood of success?

Just like when a manufacturer and rep join forces when they first begin working together, developing new business requires setting realistic expectations. The reasons most often cited by manufacturers and reps alike for representation agreement termination has to do with misunderstood expectations by the two parties involved. When you both get it right up front, the rates of mutual success increase exponentially.

To really increase the chance of success when working with reps to develop new business, use your rep council! Don’t have a rep council? Establish one! A rep’s greatest value to their principals is the relationships they have with the customer base in their territory. This strength enables reps to assist with assembling the strategy to meet (and hopefully exceed) the mutual objectives which are ultimately planned. Regardless, manufacturers will gain terrific insight on how to partner with their reps when developing effective strategies for business growth by consulting their eyes and ears in the field — their rep sales force. We do this regularly, and it works!

Next, get your arms around what it is you really want to accomplish. Structuring reasonable objectives before enlisting all of your reps is essential to aligning what will be your mutual goals in this endeavor. Reps will be looking for products to be complementary to their line card, leveraging the technical and process expertise they have. A well-outlined set of objectives will help a rep understand the scope of this new opportunity you’re providing so they may best determine how to fit their organization’s resources into the overall effort.

After a manufacturer has invested in product development, then budgeted the marketing costs to launch a new product or enter a new market, partnering with your reps is next. There are several alternatives to consider, any one of which may fit your particular objectives. In reality, a rep needs to feel that their time is adequately compensated and their sales success is rewarded.

Some of the compensation methods we’ve used at my company when developing new business with our reps include these:

  • A monthly fee as a baseline.
  • Higher than standard commission rates for sales of specified products or sales into specified markets.
  • Bonus or step-up tiered commission rate when goals are achieved.

Each of the above compensation methods were implemented for a specified period of time and cost far less than trying to do the spade work with factory-direct staff alone.

Finally, who’s the most important player in your new business development plan? The customer, of course! (No bonus points for a correct answer, as the customer is always the most important player for both principals and reps!) Be sure to identify up-front the support your customers may require so obstacles and challenges can be overcome and your momentum isn’t interrupted.

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