The advantages of using an Independent Manufacturer’s
Representative over a direct sales force in a competitive
ProAV market.
By Rick Williams
President, Central Marketing, Inc.
As a ProAV
integrator you have heard it many
times when you answer the phone, “Hi, I am John Smith with
ABC Marketing, and I want to make an appointment to see you
and your sales staff.” Did you ever stop to ask, “Gee, this
guy doesn’t work directly for a manufacturer, why do I want
to waste my valuable time with him?”
No, in fact, it is the same
familiar voice you have been hearing for many years for
several product lines you sell.
It is the Independent Manufacturer’s Representative.
You know who these reps
are. They have company names that end with words like
“Associates,” “Marketing” and “Representatives.” Did you
ever stop to think just what they actually do besides call
on you for meetings? The answer is simple: Multi-line
manufacturers representatives help your business grow.
The role of the independent
manufacturer’s representative is an important part of any
successful industry, especially the ever
changing ProAV Market. With margins getting tighter,
more dealers entering the ProAV business and the influx of
new Asian manufacturers, the “Reps” have become the most
cost-effective and comprehensive way to do business.
Let’s
take a look at the two models that a manufacturer has for
field representation; the direct sales force and the
independent representative:
A direct sales force is
usually comprised of four regional managers (or more)
typically handling up to 12
states each. They have an Atlantic, Eastern U.S., Western
U.S. and a Pacific Regional Manager position. These managers
have a base salary, commissions, health benefits, a company
car and travel expenses, 401K, profit sharing, paid
vacations and bonuses. If you add up these costs and include
annual raises, this can conservatively total more than
$250,000 per year in each region, an expensive proposition
for any company. A direct sales person does have some
obvious advantages; excellent training, great product
knowledge and is focused on sales
in their region. But the downside is that a direct
salesperson only averages about 22 months on the job before
either getting promoted, taking a position with a competitor
or getting downsized out. Finding and training a replacement
can also be very costly, and the down time in that region
can give the competition time to take over market share.
The Independent
Representative’s Firm handles about 13 to 15 states, with
each territory manager responsible for 3 to 4 states (some
firms even fewer). The rep firm is paid a fixed cost of
gross sales in the territory that ranges from
4 to 8 percent and the rep firm
pays all of its own expenses. In fact, the rep firm usually
doesn’t get paid until the
manufacturer receives payment first. If this
isn’t enough good news for the
manufacturer here is some more:
1.)
Immediate Market Access:
Independent Reps get the products to a mature market and an
established dealer network literally overnight. Because of
the constant traveling to see dealers, it is easy to get the
product line in front of the dealers, sometimes during
meetings for other product lines.
2.)
Experienced Sales Force:
Most rep firms have been in the business for many years,
are well trained and pay
attention to the dealers needs. They have watched the
dealership grow and understand the way the dealer does
business. The rep will customize his approach to meet each
dealer’s needs.
3.)
Multi-skilled Sales Team:
They can work with consultants, engineers, sales people and
purchasing agents to help the entire process from
specification to after-sales support.
4.)
More Territory Coverage:
With more “feet-on-the-street,” the rep firm can visit
dealers more often. In fact, with several territory managers
on the job, they can cover several local and dealer trade
shows simultaneously. The rep also provides demo gear and
goes on-site with the dealer to help close the sale.
5.)
Longer, Stronger
Relationships: Most rep firms have been around
for many years doing business with the dealers and have a
long trusting, mutual business relationship. The dealers
know that the rep has a vested interest
in the long term relationship and brings good quality lines
that the dealer can make money on, lines that might
otherwise be overlooked.
6.)
Reduced Sales Turnover:
The reps live in the states they do business
in. They tend to stay employed
longer. The dealer likes to know that the same person will
be there to answer the call for support.
7.)
Better Market Intelligence:
Since the reps all live in the
same communities with the dealers, they have a better
understanding of local economics, they know what schools are
buying and what new businesses are moving in and growing.
8.)
Better Competitor
Intelligence: Dealers tend to share information
with reps about competing manufacturers. This comes with
years of working along side the dealer. The reps work
closely with consultants to get the products specified and
refer them to the dealers that sell the products.
9.)
Risk-free Exploration of New
Markets for the Manufacturer: With a fixed cost
to the manufacturer, the rep can easily hit new markets with
no added cost to the vendor.
10.)
Vested in Success of the
Manufacturer: The independent rep wants the
vendor to succeed as it is his
livelihood. The rep firm will do many types of marketing
campaigns to the dealers all at the cost of the rep.
11.)
Synergy With Other Lines:
A multi-line rep usually sells many lines that complement
one another, offering a complete solution to the dealer.
This helps push the door open to new lines, and gives the
dealer a single source of support from a trusted colleague.
12.)
30-Day Rep Agreements:
A rep agreement with a manufacturer gives either party a
30-day escape route. This attractive feature allows the
flexibility for the vendor to seek new representation, or to
hire a direct sales force anytime, all without any severance
pay! There is also a non-compete clause in the agreement
that prohibits the rep from carrying two similar lines.
New manufacturers entering
a market will find that the independent representative is a
quick way to get “instant relationships” for their product
lines. These rep organizations understand that sometimes
they are hired just long enough to “blaze a trail” for them
and sign up dealers. Other manufacturers, however, like the
comprehensive support of the rep firm so much they will keep
them on for 20 years or more as their permanent national
sales force. I have many stories of manufacturers
starting off using reps,
terminating them to hire a direct sales force, only to turn
back to reps because of huge sales and market share declines
with the direct salespeople.
Independent rep firms
usually have inside support people as well. These people
process POs to make sure they are correct before sending
them on. They keep a database of all the dealers and help
the manufacturer recognize potential credit issues and help
collect payments when necessary. They watch all orders from
receipt to delivery and help the dealer and the manufacturer
solve shipping problems. The dealer that buys several lines
from one independent firm can count on instant support from
one person, instead of multiple contacts.
The role of the independent
Representative has changed over time. They wear the logo
shirts of the manufacturers when doing trade shows and make
appointments with the dealers to take them around the trade
show floor to introduce them to new products. They train the
dealer’s sales team on how to better
sell the product line. They offer to help write bid
specs, design a system and get bid pricing for them. They
become an important part of the dealer’s business model.
The use of independent
manufacturer’s representatives is growing. In
fact there are nearly 30
associations in the U.S. alone that provide ongoing
resources for reps and manufacturers to find each other.
But the rep is not relegated to
just the ProAV market. Food companies, pharmaceutical
companies, auto parts manufacturers, clothing companies and
many others too numerous to list here all use Independent
Representatives as the most cost effective way to get to
market.
So
the next time John Smith from ABC Marketing calls you to
make an appointment, know that he really is a part of your
business, for many years to come.
Rick Williams is Principle and President of mid western
based Central Marketing; a
15-state Multi-Line Manufacturers Rep Firm established in
1974.
E-Mail:
rick@audiovisualreps.com
Web Site:
http://www.audiovisualreps.com
and
finally,
The Underappreciated Manufacturers’ Rep
by Phil Zarrow
(From Circuit Assembly
Magazine, posted by permission from author)
Be kind to the reps. They are vital to the chain.
While I usually discuss SMT
processes, equipment and materials in this space, every now
and then it is important to take note of the human aspect.
One of the most overlooked and, in many cases,
underappreciated personnel is the manufacturers’
representative.
If you’ve ever been in a
position where you were responsible for procuring equipment,
tools or materials for a process line, you have no doubt
dealt with one or several manufacturers’ representatives.
A manufacturer may elect
one of several ways to sell their product in a particular
region. Larger companies, for instance, may employ a direct
sales force, in which their employee calls on buyers. More
common in our niche, however, is the manufacturers’ rep.
Within this approach, the principal may have national and
regional (and sometimes, district) sales managers, but the
actual “street feet” are part of a third-party sales
organization, aka a “rep.” The rep is the person with whom
you communicate through most of the sale.
In most arrangements in
North America, the manufacturers’ rep does not take
possession of the equipment being sold and is therefore, not
a legal agent of the manufacturer. Also, in North America,
service typically is provided directly by the factory’s
organization, seldom through the rep. Outside North America,
manufacturers’ reps typically take possession of the
equipment and re-sell it to the end-user and also provide
most of the service in their territories.
As mentioned, some
equipment and materials manufacturers have their own direct
sales forces. Their salesmen are employees of the respective
company, responsible for selling only the products
manufactured by their division. Other companies you may have
worked with, including ACE, AIM, Autosplice, Cookson/Alpha
Metals, DEK, ECD, Europlacer, Fuji, Heller, Indium, Juki,
Kester, KIC, Mydata, Panasonic, RMD, Siemens, Speedline
Technologies, Vitronics-Soltec and many others rely on
third-party rep organizations to handle customers in the
field. These rep firms are independent organizations that
carry a number of lines. For each manufacturer represented,
they report up to a regional sales manager of that supplier.
The firms earn commissions from the sale of equipment and
materials.
Manufacturers’ reps
themselves may once have worked in sales or marketing at a
manufacturer, perhaps in a management position. Others may
have come from manufacturing or process engineering
positions in our industry. Others may be starting their
careers in sales, while some reps I know seem to have spent
a lifetime in their roles.