Why Reps ...
Vs Direct
A Discussion of Sales Force
Philosophies & Economics
What is a Manufacturers’
Representative ???
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A commissioned agent (in our case, sales engineers)
Represent non-competing companies
Assigned an exclusive territory … under contract
Legally independent yet very “interdependent”
Responsible for own expenses / personnel / actions
Reps take no ownership of products / no credit risk
Paid directly proportionate to performance
“A perfect example of entrepeneurship”
“I’ve never heard of one !” “What do they eat ?”
Customary methods of selling in
the electronic component industry
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Direct Sales organization
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Manufacturers’ Representatives
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Employees of company
Total control by company
An independent organization
A technically competent sales organization
Outsourcing the sales function
Representing other non competing, synergistic products
(companies)
A “hybrid” sales organization
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A combination of both
Discussion Points ...
Exploding some myths … about manufacturers’
representatives
 Adding value
 Economics of the rep function
 Advantages of a manufacturers’ representative
firm Vs a direct selling organization
 My crystal ball … some future trends
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Good Reps come in ...
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Many sizes
Differing capabilities
With many different business philosophies
With many different (company) personalities &
styles
It’s impossible to have 2 identical rep firms
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Each has their own unique “DNA”
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Personality and style of management / owners
Different make up of principals
Assortment of staff personalities
Geographical differences
Customer types, sizes, etc...
As do manufacturers, distributors, lawyers, etc...
Two Kinds of Rep Firms
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Salesmen in Business
Individualistic
 Conflicting goals
 Not well organized
 Inflexible
 Short term oriented
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A major differential !!!
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Businessmen in Sales
Organized & managed
 Promote team concepts
 Company goal oriented
 Financial stability
 Long term relationships
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Exploding Some Myths
Myth # 1
Wrong !!!
Reps are a “channel intermediary !” (adds cost)
(This reference to channel intermediary was a
term used in older texts, yet still taught by some
educators. Regrettably, some are still teaching
this out-dated thinking to our future managers )
 Reps
are an alternative (or substitute) to direct
sales and not an intermediary.
Exploding Some Myths
Myth # 1 (cont’d)
Wrong !!!
Reps are a “channel intermediary !” (adds cost)
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Newer texts reflect this understanding.
(Wharton School, Stanford U., Indiana U., ASU
& others have revised their teaching
A rep firm is a form of outsourcing the sales
function
Reps are not an additional channel … nor are
they middle-men which implies added cost
For example, distributors, contract
manufacturers are channel intermediaries.
Exploding Some Myths
Myth # 2
WRONG again…!
“Reps can’t be controlled”!
 Control is a bad word …
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Autocratic management is ancient & indicates poor abilities
Sounds too much like bullying / manipulating
In the 21st Century, no one likes to be “controlled” …
including direct sales people
But, .. directed ? You betcha ! Led ? Absolutely !
Influenced ? Everyday !
Even smaller principals can become an emotional
favorite and exert strong influence over any rep firm.
Exploding Some Myths
Myth # 3
“Reps are (too) independent ... businessmen !”
 A legal term only … for lawyers, IRS, etc.
It eliminates mfr.'s liability
It makes Corp. attorneys feel good about
protecting the company … contract talk only
 Reps who use this terminology should think twice
about what they’re saying and then clean up their
vocabulary
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In reality, reps are totally interdependent with
their principals
Exploding Some Myths
Myth # 4
“Reps have a short term mentality”!
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This implies that reps look for quick financial return
and will not invest in long term efforts.
Most start up manufacturers utilize reps … hardly
sounds like “short term”.
Reps actually finance the long term sale for others
 Many sales programs take months or years to
develop
 Reps hang in there despite 30 day contracts
 No guarantee of future income
Everybody’s talking about
“Adding Value”
Adding Value … ?
A serious thought
“Everything
a company does
should start with the idea of
adding value to the customer,
through better products, lower
costs, greater speed, and
superior service.”
Michael Hammer, Author, “Reengineering the Corporation”
Everyone is Re-engineering
Even if they don’t realize it !
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Need to add value
Need to reduce costs and / or add value
Become more effective / efficient
Get closer to the customer
Offer more services at less cost
More R&D
Increase profits / earnings
Competitive pressures
Stockholder demands
Or they won’t survive !
Do Reps need to “add value” ?
A few questions from some reps pals… and my response
 Are these just spiffy new “buzz words” that
have little meaning for reps?
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Absolutely not ! Any company or any of it’s
employees who do not add value to their function
will be replaced and their successors will add value
or they will be replaced. And if the function they
serve offers no added value, it will be eliminated
Do Reps need to “add value” ?
A few questions from some reps pals… and my response
 We’re in the selling business; it’s up to our
principals to add the value … we just sell it !
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Wrong ! We are doing more than selling products, or at
least we should be. Our function should add to the value
of our principal’s product and enhance our customer’s
relationship with both our principal and our firm
Do Reps need to “add value” ?
A few questions from some reps … and my response
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What do reps do that can be considered
“adding value” ?
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Lots ! That’s the next part of this presentation.
How can Reps add value …?
To Principals and Customers
Adding Value … ?
A serious thought
“Everything
a (Rep) company
does should start with the idea of
adding value to the customer (&
principal), through better
products, lower costs, greater
speed, and superior service.”
Michael Hammer, Author, “Reengineering the Corporation”
Adding Value … ?
A representative’s only
reason for existence is to
contribute to the success
of its principals and its
customers.
A Rep firm is ...
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A service business
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In a performance business !!!
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we only get paid when we perform
we perform for both the principal and the customer.
The principal’s sales force
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service is the rent we pay for the space we occupy
the customer expects us to offer solutions and not sell him anything
we are his eyes and ears in the market place
we are an extension of his image in the market place
The customer’s resource
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we must offer the customer an added value
when he calls, he needs help and expects it
Reps are an Added Value to
“The Customer”
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Reps serve as their advocate
They know that the rep must work toward equitable
solutions to their problems
 Reps are geographically permanent
 Their success is tied to the local market
 They will not be "promoted out of the territory"
 Their entire reputation is locally based
 They must be ethical or they are doomed
 Offer more territorial knowledge & assistance
 Can be used a local resource
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A Few Facts
Some Dollars and Sense
Average Cost of an Outside
Rep Salesperson ...
Looking at real numbers
Expenses
Shipments
1985
$127,680
$2,596,000
1990
$170,860
$3,856,500
1995
$220,514
$5,218,030
No stocking No warehousing
Pure Rep sales functions
Where the Commissions go ...
Salaries
2%
0%
3%
T&E
Auto
1%
Adv
4%
Comm
Salaries
Occup.
66%
5%
Grp. Med.
1%
Other Ins
3%
Taxes
Office
4%
Prof. Fees
Retiremnt
3%
0%
3%
Emp. Rel.
Misc.
5%
The Economics of the Rep Function
… None of which apply to direct sales
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Purest form of free enterprise
Finance own growth
Pay for own set backs / mistakes / experiments
Paid only after they perform
Reps finance the sale for others
 Design-in may take months or years
 Purchases will probably take several months
 Payment … add min. of 30 day after shipment
 Returns, reworks, rejects are deducted
 Non-payment by customer or Disty is deducted
The Economics of the Rep Function
… None of which apply to direct sales
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Reps reduce the mfrs. admin. cost
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Manage their own staff
Buy their own equipment
incl.. computers, autos, cell phones, etc..
Handle all personnel expenses & human resources
responsibilities for staff
incl. selection, training & replacement, legal
issues, etc.
Train their own staff
incl. computer software, selling skills
Reps are a form of "out sourcing"
The Economics of the Rep Function
… None of which apply to direct sales
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Reps eliminate the “soft costs” of people and wipe
out a manufacturer’s legal exposures
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Reps pay the costs to select, train, compensate,
discipline and terminate their own employees
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No age, sex or racial discrimination suits
No sexual harassment suits
No workman comp issues
No benefit issues with which to contend
No state or local laws with which to contend
On a national basis, this can eliminate hundreds
of risky & costly exposures for a manufacturer !
The Economics of the Rep Function
… None of which apply to direct sales
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Reps are a fixed percentage cost of sales
Reps are paid on performance not efforts
 Large customer comm. rates can be reduced
to keep sales cost in line
 Allows manufacturers to use capital in other
areas for investment
 Keeps costs in line with results
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Another added value ...
Geographic Competence !
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Years of customer identification
Other lines take you to more places
 New customers & more opportunities
 Customer status...who's winning / who's losing
 In-depth relationships
More market data...where “stuff” is sold
 Which markets are growing / shrinking
 How people buy
More awareness of all distribution in territory
 Know strengths and weakness
 Know more personnel
Synergy & Leverage
Synergy makes the "fit"
Leverage "makes it happen"
11 3
Good Reps know how to
use both synergy and
leverage. It separates the
pro’s from the amateurs!
Management Skills of a Rep Firm
An added resource and an Added Value
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Should be used as your district manager
Tap the experiences of many other manufacturers
Managing the programs, product offerings,
policies and personalities of multiple
manufacturers requires some skill. Why not
utilize it ?
Managing an organization whose only success
depends exclusively on performance. That’s a
Rep firm by definition !
Reps are Risk Takers … !
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Look at the awful contracts that they sign !
They experiment with their own money.
They live with 30 day contracts that are changed
continuously.
They must survive in a world of continuous change of
sales / regional management …
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Reps are used to train many untrained bosses
They adapt to different performance standards with each
change of management
Good Reps are survivors … they learn ways to survive
despite all forms of turmoil.
Rep Councils
A valuable resource
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Free, informed suggestions
Minimal cost to manufacturers to receive valuable
inputs
 Can save lots of money from failed programs /
policies
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Can relate the successes or failures of other
ventures / policies
Can serve as your advocates to network with
other reps … nationwide.
What Should a Manufacturer Expect
From it's Rep Sales Force ?
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A thoroughly professional, small business enterprise
Entrepreneurial "spirit"... committed to the long term
Long term stability & relationships...
A unique resource for marketplace "G-2"
Loyalty, confidence, integrity and respect
Proven ability to design & sell leading edge products
Make the manufacturer's problems transparent to the
customer
Constant cultivation of new customers
Quality performance in sales as well as the "day to
day" representation of the manufacturer's total
interests
Good Reps are ...
Good communicators
 Good team players
 Ethical & honest in their dealings with
everyone
 Committed to excellence
 Able to accept change and new challenges
 Their own toughest critic
 Students & teachers of their craft
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Some Future Trends
For
The
Survivors
Some Future Trends
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Sophisticated “opportunity tracking” systems
need to be developed and used
Sophisticated electronic communications
required
Increased technical competence
Improved internal training programs &
methods
Even more emphasis on distribution
Some Future Trends
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Professionalism and relationships becoming
more paramount with key customers / Disty
Customer downsizing makes getting to see “key
people” more difficult. Only those sales people
who “add value” get past the lobby.
More split commission issues & some will be
settled by fee arrangements
Reps will have to develop and reveal succession
plans in advance of actual need
Some Future Trends
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Selling & presenting to groups at customer
location
More & more customer service functions
being moved to rep’s offices
Performance evaluation (benchmarking)
methods will be changed … not just sales
$$$
More territories will become design centers
more so than sales centers
Manufacturers becoming more tolerant of
sharing the shelf in distribution
Some Future Trends
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Fewer company presidents are sales oriented.
Distributor mergers & acquisitions have
created chaos for small to mid sized
manufacturers ... reducing the manufacturer’s
identification & influence with the end
customer.
Fewer manufacturers are of real importance to
distributors
I/S to O/S ratio is closing fast
Reps need more advanced skills in
management, finance, communications, info
Some “Points To Ponder” for Manufacturers
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Don’t let thy ego rise up and smite thee … when it
comes to selecting reps. Being #1 on the line card
isn’t what’s important. Making it happen is what’s
important. “Mind share” means little … “market
share” means everything. Zero in on performance …
not buzz words!
Train your people on how to handle the interview
process. Most do a poor job & don’t know what to
look for.
Don’t make the selection process a popularity
contest.
Check other principals … that’s where the track
record lies.
Some “Points To Ponder” for Manufacturers
Ask other reps (whose opinions you
respect) for inputs & recommendations.
 Check out your own regional & district
managers … as you do your reps &
distributors.
 For high level managers … please stay
involved in the sales department. Keep a
passion for the business & let it show!
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The Advantage of Reps Vs Direct
To Sum it Up ...
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Economics … strongly favor the rep system
Augments the manufacturers management pool
without adding cost.
Enhances the manufacturer’s geographic competence
& exposes them to more customers & distributors
Personnel permanence … married to the territory
Stronger identification with local customers & Disty
Leverage of the multiple line selling process
Rep councils ... serve as advocates & counselors
People
Salespeople
are the
spark that
ignite the
engines of
industry !
Manufacturers’ Representatives
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