Small Business Questions & Answers


Filed under Marketing

Ask About Manufacturer Reps

by Branching Out | May 26, 2012

Subject :Sales and Marketing

Dear Toolkit,

We're beginning to look at different forms of product distribution for our growing firm. What can you tell us about manufacturers' reps? Would this be a good way to go? And if so, how do we find one?

Branching Out

Dear Branching,

Manufacturers' reps--sometimes called sales reps, sales agents or even brokers--are long-term independent marketing professionals. Like yourself, they are entrepreneurs: small business owners who maintain an ongoing presence in a set territory for specific manufacturers. (A manufacturer is often referred to as the rep's "principal.") The rep-principal relationship is set forth in a written contract specifying such issues as territory to be covered, commission rate, computation and payment terms, termination date and so forth.

Unlike the typical "distributor" who takes title to and physical possession of goods and sells them later on at a profit, a "rep" generally only solicits orders for the manufacturer and does not carry an inventory. Using a rep instead of a distributor lets you (the manufacturer) control the price at all times.

And unlike selling your product with your own sales force, you don't have to carry all those extra employment-related costs for wages, benefits, taxes, insurance and so on. The costs of maintaining your own sales force accumulate regardless of the level of sales achieved for any given period. But you only pay your manufacturer rep his commission based on a percentage of his actual sales. A rep is a self-motivating entrepreneur--no sales, no commissions!

In addition to offering a nice, cost-efficient and predictable way of selling your product, a rep can offer you intimate knowledge of his market. He has invested time and effort building ongoing and credible relationships with potential buyers in his region. The cost of establishing this channel has been done on the rep's nickel, not yours.

And a rep adds even more value by offering you and your potential customer his accumulated knowledge and experience in your field. He knows the products, the competition and the market. You don't have to finance his training. And if he reps multiple lines of complementary non-competing products, he'll likely create even more sales opportunities for you than you initially imagined. The magic of synergy!

Your rep does many other things for you in the process of selling your product. He pre-qualifies the credit-worthiness of the customer, does your promotion and merchandising in his territory, and sometimes even becomes your applications engineer. Most importantly, he gives you a "local presence" always available to support your customers with one-on-one personal service.

But once you've determined that going with a manufacturer rep distribution model is the best choice of the various distribution methods available to you, the hardest part of your task still remains.

You've got to do a super sales job to convince a potential rep to actually take on your product. You are new to this game and likely have only one product to start with, and that product is not well known yet. Not much incentive for a rep to plead for your business, right? So you'll have to sell him on how unique your product is, how under-represented it is in his territory, how it is sure to become his top selling item and how you'll soon be producing a whole line of products for him to rep in the future.

But how do you find a rep to give your sales pitch to? One way would be to talk to potential buyers of the product and ask them for the names of capable reps who already call on them. Another way is to contact a rep trade/professional association. The Manufacturers' Agents National Association offers a wide choice of rep firms. If you're in the burgeoning electronics field, the Electronics Representatives Association, based in Chicago, offers a very useful site. Many other industries have their own rep associations as well.

The trade associations publish journals where you can find classified ads for reps seeking products. And going to trade shows and conventions is yet another excellent way to find a suitable rep. Reps often attend these shows for the specific purpose of finding new lines to carry.

Once you've found your rep, pay careful attention to the written agreement between you (the principal) and the rep (your agent.) Many states have recently passed laws dealing with sales rep agreements. If your attorney is unsure what's applicable in your state, have him refer to the CCH Sales Representative Law Guide by John Baer. (For more information on this loose-leaf legal reference tool, call 1-800-449-6435. Be forewarned that this is a relatively expensive, boring, lawyerly tome--not for the do-it-yourselfer!)

We wish you happy hunting for your new distribution channel.