MANA Special Report:

Analyzing the
Manufacturers’ Rep-Principal Relationship

By Joe Miller and Jerry Leth

 

As the manufacturer views the marketplace, he’s always got two goals firmly in his sights — achieving increased sales and profits. To reach those goals he relies upon the services of a professional sales force. That’s where the choices begin. He can go either of two ways when it comes to interfacing with prospects and customers:

Regardless of which path is followed, the manufacturer must be mindful of the fact that management of an outsourced sales force is significantly different from managing employees. How the manufacturer interacts with each type of sales force — and how he achieves desired results — can be vastly different. If done properly, however, the results of working with reps can be significantly more rewarding than a direct sales force.

Plain and simple, employees are staff. As a result, they are subject to all the rules and protocols of the employer organization. Predictably, they are motivated by job security, resist change and have no stake in improving profitability. Conversely, independent reps are motivated by a sense of accomplishment in building their and the manufacturers’ businesses, and strive to improve the bottom line. When the manufacturer’s bottom line grows, so does theirs and they don’t usually get paid until they create a favorable outcome for their principal.

The professional manufacturers’ representative is a business person in sales as opposed to being a salesperson in business. He is an entrepreneur who exhibits a willingness to be in business — just as the manufacturer does. The rep depends upon his/her business skills in order to enjoy success and longevity in the territory. He recognizes that long-term success of the principal’s business is critical to the success of their business. At the same time they expect to share in the rewards of a successful relationship with the manufacturer. In order to enhance that relationship, most manufacturers have found that reps care more about getting a good price for the product than does the average direct salesperson employee.

The goal of the manufacturer is to sign up the most professional manufacturers’ agent willing to work with them. On the other side of the relationship, the goal of the manufacturers’ agent is to sign up with the highest quality principals willing to work with them.

Working Together

For the manufacturer-rep relationship to work, however, there must be an appreciation that both are traveling a two-way street. And, as any such relationship, it must work to the benefit of each of them. To achieve that admirable goal, the manufacturer needs to know how to work with the manufacturers’ rep and, conversely, the manufacturers’ rep needs to know how to interface with the principal. The quicker each side learns how to work as members of a team to solve the customer’s problems, the faster they profit. It’s not just about going out and trying to book orders; rather it’s a partnership — a partnership in profits; a three-legged stool, if you will, comprising the manufacturer’s firm, the rep’s agency and their mutual customers.

For relationships like these to succeed, certain elements need to be present. First, consider the obvious elements:

That’s not all.

On the manufacturer’s side, is the entire organization committed and supportive of outsourcing the sales function? A divided organization creates stress and the manufacturers’ reps that represent that company will tend to spend more time and effort with their other principals if they sense disunity.

On the manufacturers’ rep side, is it a professionally run business or just a salesperson that is paying his own expenses? Manufacturers and customers both prefer the former.

How do all the pieces of this puzzle get put together in order to create long-term and mutually profitable relationships?

It all begins with the selection process. Surveys completed by consultants conducting audits of rep/principal partnerships have shown that only 40 percent of the relationships they studied were an ideal match. The other 60 percent were marginal or dysfunctional. Is it any wonder some people believe that outsourcing the sales function doesn’t work?

During the due diligence process, what should each party be looking for? As a source of guidance, we’d recommend MANA’s special report, Selecting the Right Representative or Principal Partner. This publication is a complete guide to the selection process and includes a checklist of what the manufacturer should learn about the manufacturers’ rep. You will also learn the qualities the rep looks for in a manufacturer. Both sides have the responsibility to conduct their due diligence. If the process is not done thoroughly, chances are very high it will need to be done again in six months. Not only is this costly, it leaves a bad taste in the participants’ mouths and sullies the reputation of the outsourced sales business and manufacturers as a group.

Keep in mind that conducting due diligence is important in order to properly lay the foundation for lasting relationships; but relationships change over time. What appears as an ideal match at the outset may not be so long-term. Consider for example that the rep may need to shift markets as a result of outside factors or the principal may develop a new product requiring different selling skills than the rep has. What should be done is that both sides need to keep re-evaluating the relationship and take the appropriate action — to adjust for change — when and as needed.

Win-Win Agreement

Once due diligence is completed and the selection process has successfully run its course, the next step is for both sides to negotiate a fair and balanced agreement. And by “fair and balanced” agreement, we mean it must be a win-win for both rep and principal.

When the terms of an agreement have been put down on paper, what’s the appropriate action that the rep should take? Is it to simply look for the place to sign, sign and date it and mail it back? Hardly — the professional rep very carefully scrutinizes and negotiates an agreement submitted to him by the principal. The principal should look for this as a sign of the competence of the rep firm. The rep who signs without comment is quite often not the rep you want.

The importance of the agreement being a “win-win” can’t be overstated. Short-term, it may seem like good business to write a one-sided agreement, but in the long run, it will probably work against you. Manufacturers are cautioned that their corporate counsel, who may have little or no experience with manufacturers’ reps, may be prone to creating agreements which do a great job of protecting them. Since these agreements are not balanced, however, experience shows that they ultimately fail. We refer you to the MANA Manual for the Creation of a Rep-Principal Agreement which includes the background and rationale for all the clauses found in a typical agreement. The Manual has sample agreements as well.

Once the agreement has been negotiated, the terms need to be put into a formal legal document. MANA strongly recommends using an attorney familiar with rep law and the rep business to finalize the language. A list of law firms that meet this criterion is available from MANA headquarters. Please note that we purposely use the word “agreement” rather than “contract.” Agreement suggests a partnership type of relationship; “contract” implies more of a protective or adversarial relationship.

We’re obviously making progress here, and the relationship is now formally in place. Time to go to work with each other.

The next step that MANA recommends is to create a mutual action plan. Take a good hard look at the current reality in the territory. Who are the customers? Which ones have the potential for the highest sales volume? Who are the competitors? What are their strengths and weaknesses? Set up a mutually-agreed goal and figure out who needs to do what by when to make it happen. Write it all down and commit to a plan — and implement the plan. Revisit it often and make changes where appropriate. This is the way real business partners work as opposed to the principal setting up some kind of arbitrary “quota” which has no relationship to the real world. This plan should be unique to each of your territories.

MANA Seminars

All that has gone before in this article has covered the concrete steps that principals and reps should take to establish and maintain firm business relationships. There’s more that must be considered. The most important thing principals and reps can do to get the relationship headed toward an excellent result is to act in an ethical and trustworthy manner. When we first meet someone, the trust level is neutral. As we get to know each other, the trust level moves in a positive or negative direction. MANA seminars can help you learn how to accentuate the positive. With a high trust level, good things happen because the open and free exchange of information enhances both parties’ ability to help their customers.

There are many other elements which work together to enhance the rep-principal relationship, such as the willingness of both parties to invest in the appropriate means to build a profitable territory over time. This business practice — and many others — can be learned by accessing all the additional resources that are available through the MANA education bundle. In fact, your willingness to invest in a MANA associate membership and in continuing education about the rep/principal relationship could be the deciding factor when the most professional rep firms consider whether or not to represent your company!

 


 

photo of Joe MillerFormer MANA President and CEO, Joe Miller has more than 40 years of manufacturing and sales agency management experience, including general management responsibility with divisions of Fortune 500 companies. Joe also owned a successful representative firm that sold process equipment and piping systems to energy-related markets, and was president of MANA from 1998-2006. Currently he is president of Miller Management Services, LLC, which provides consulting services to manufacturers in the U.S. and in foreign countries. Joe can be reached at (949) 878-0215 or jmiller204@cox.net.

photo of John AndersonJerry Leth, MANA’s vice-president and general manager, started as membership manager in August 2000. Previously, Jerry owned and operated Letco Tech Sales, Inc., a MANA member, multi-line professional outsourced sales agency he founded in 1989. Before starting his own agency, he managed a network of manufacturers’ reps as vice-president of sales and marketing for torque and tension equipment. Jerry graduated from Stanford with a mechanical engineering degree. He started his career at Hills Brothers Coffee in San Francisco in engineering and production before embarking on a sales career. Jerry can be reached at 877-626-2776 or jleth@manaonline.org.