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Increase Your Sales By Using Independent Sales Reps or Manufacturer's Reps
Why would I be interested in using Independent Sales Representatives?
Simply put, to achieve more sales, faster, and at lower cost than other methods.
While Independent Sales Representatives or Manufacturer's Reps are not right for all circumstances, their outstanding advantages could be right for you. Especially, if you need to take your company into new markets or grow existing markets with a lower up-front cost.
What is an Independent Sales Representative?
An Independent Sales Rep, also known as a Manufacturer's Rep, is an independent business composed of sales, marketing and customer service professionals, representing at least two related but non-competing products in a well-defined territory, and primarily compensated through commissions. The Principal can be a manufacturer, distributor, importer, or service provider.
An Independent Sales Rep is not the same as "inside" sales, showroom sales, or telephone sales. An Independent Sales Rep may use showrooms, trade shows or the telephone to interact with customers. But their primary focus is to work face-to-face with customers, often traveling to meet with them to show products and services, close sales, provide training and solve issues. Commonly, Independent Sales Reps carry complementary product lines and cover a territory suited to effective coverage of the account base.
What is a Sales Agency?
A Sales Agency, also known as a Rep Agency, offers a management structure and a team of two or more Independent Sales Representatives. Sales Agencies generally operate regionally. Just as in the case of an Independent Sales Rep acting in a solo fashion, sales agencies sell multiple product lines that do not compete with each other. Sales Agencies sometime have a provide showroom space as part of their services.
What is a National Sales Force?
A National Sales Force is the combination of any inside sales capability plus outside Sales Agencies plus Independent Sales Reps, along with administrative and support personnel who jointly cover a country. It is common to build up to a National Sales Force incrementally, with only one or more regions in the beginning. Expanding coverage to more regions, and eventually to a full National Sales Force depends upon success in the regional markets.
To what extent do manufacturers use Independent Sales Representatives?
According to the Research Institute of America, from 50 to 80 percent of U.S. manufacturers use Independent Sales Representatives, depending upon the industry.
How do I know if there are Independent Sales Reps or Manufacturer's Reps in my industry?
Virtually every industry has Independent Sales Reps. For example: Agriculture, Mining, Utilities, Construction, Manufacturing, OEM, Wholesale, Distributors, Retail, Transportation, Information, Finance, Insurance, Real Estate, Rental, Professional Management, Administrative & Support, Waste Management, Educational, Health Care & Hospitals, Medical, Pharmaceuticals, Entertainment, Recreation, Hotel & Motel, Food & Restaurant, and Public Administration.
How does using Independent Sales Reps or Manufacturer's Reps increase sales?
The major reason that Independent Sales Reps can increase sales is because they carry multiple lines. When more than one line is brought to the customer, sales can be made more effectively and at lower cost. The sale of one product can "trigger" sales of other products. With multiple lines, reps see more customers in their territory than inside salespeople. Thus a broader, better-defined customer base is created. The result is more sales and better market penetration.
What are the other advantages of using Independent Sales Reps or Manufacturer's Reps?
* Principals can enter a new market quickly and cost-effectively. The Rep brings his existing customer base. The Rep knows his territory and has his own established network of both buyers and other Reps. For new companies who are still seeking to create their place in the market this feature is vital.
* One product sale can "trigger" other product sales.
* Reps are paid for results, leading to a highly motivated sales force.
* Sales costs are known.
* Provide better focus in their territory due to familiarity with local preferences. Reps quickly identify new product opportunities, whereas an inside sales force may take months or longer to make that identification.
* Reps have local acceptance. They are familiar to their customers and trusted by them. They often live in their community. So they have a vested interest in their products and customers, whereas inside salespeople may not.
* Provide more objective ideas for product improvement and more objective customer feedback on new products because they do not work for the Principal. Customers feel confident in sharing information with them about changes and opportunities in the market. Customers who would hesitate to bring valuable input directly to inside sales staff will openly share with Independent Reps, including both suggestions and criticism. This openness further motivates the Rep.
* Provide quick response to customer issues because of close physical proximity. Customers may also feel that it is easier reach the local Reps.
* Provide consultative selling, customer service, product demonstrations, product and sales training, sales analysis, credit reporting, market research, market development information, product quoting, and current product improvements, new product development, and participation in sales meetings, trade shows and conventions. Some may also offer showroom displays.
* Alert Principals to new developments in their territory that could affect their lines.
How does an Independent Sales Rep get paid?
The Independent Sales Rep typically is credited for all sales in his territory, and is paid the commission stated in a written contractual agreement, sometimes called a "Sales Representation Agreement." Payment is due only after the sale is closed.
The Independent Sales Rep or Manufacturer's Rep operates a independent business, with its own sales and administrative staff. This business is responsible for all related operating expenses, including staff compensation, employee benefits, advertising, auto, insurance, office equipment, taxes, technology, travel, and so forth. These costs must be paid out of the gross commission received by the Rep.
Doesn't the Independent Sales Rep or Manufacturer's Rep add cost?
No. Using Reps can actually save money for the customer. A Principal must have a sales force. Using an Independent Sales Rep is a form of outsourcing the sales function. Just as with the well-known practice by many companies to outsource such functions as manufacturing, information technology, and accounting, using Reps is outsourcing.
To compare the cost of the inside sales force with the outsourced sales force, the overhead "burden" of the inside sales force must be included. For example, what may appear as a yearly cost of $75,000 for a salaried inside Sales Professional has a true cost of 2.0 to 2.5 times that amount, or $150,000 to $188,000 when the overhead "burden" is included. Examples of such costs are administrative support, auto, commission, office space and related costs, employee benefits, holidays, technology, and travel. Another intangible cost that is minimized is the Principal's legal exposure, because Reps handle the cost and liabilities associated with their own employee selection, training, compensation, discipline and termination.
The bottom line is that using Independent Sales Reps reduces fixed costs and spreads those costs over multiple lines. A single sales call for many products saves everyone time. If all Principals had to sell all their products and services via an inside sales force to all territories, the additional cost to the economy would be mind boggling.
Using a channel other than an Independent Sales Reps may however add costs. For example, a dealer or distributor can add costs in exchange for adding some value. These intermediaries take delivery and ownership of the product, mark up the price, and resell it. The market may determine that the added value of such a channel is worth the added cost. But such channels with their added costs should not be confused with the use of an Independent Sales Rep.
Can Independent Sales Reps or Manufacturer's Reps serve as distributors?
Generally the Independent Sales Rep is not a distributor. However in some cases the Principal may require that the Rep takes ownership of the product and resell to the customer. In this case that Rep would be functioning as a Distributor rather than an Independent Sales Rep.
Why don't all Principals use Independent Sales Reps or Manufacturer's Reps?
Many Principals who could benefit from using Independent Sales Reps who do not yet sell that way have misconceptions about the method, or about inside sales forces, or both. Another reason could be that they prefer to have complete control over the sales force.
How many lines should an Independent Sales Rep or Manufacturer's Rep carry?
Reps handle as many lines as necessary to present a sufficient portfolio of products and services for their customer base and to provide sufficient profits for themselves. By carrying multiple lines the Principal shares in the costs of a unified sales organization, as described in detail above. When the Rep is selling the line of another Principal, a positive relationship for the lines of all represented Principals is being established.
Will my Rep help build my business -- or just be an order taker?
If sales could be successfully made via promotion and advertising by themselves, neither an inside nor independent sales force would be needed. However, because Reps are only paid by commissions, they cannot depend only on the sales support efforts of the Principals. They have to go beyond the Principal's efforts to develop and implement their own incentive programs which are tailored to their own territories and customer base.
How much commission is the Independent Sales Rep or Manufacturer's Rep customarily paid?
Commission rates vary by industry over a wide range, with the majority between 5 - 20% of gross sales.
How much commission dollar does the Sales Agency actually keep?
The Sales Agency keeps approximately 40% of commissions received. The remaining 60% is paid as compensation.
Do Independent Sales Reps make too much money?
The earnings of Independent Sales Reps vary widely. Since commissions are based on sales, it happens that a successful Rep can make more than the Sales Manager who hired them. As entrepreneurs, they take risks in order to attain rewards. They have professional pride. But their success makes their Principals successful too.
I am new to the market. How can I get an Independent Sales Rep to take my line?
Your Hot Concept
You are excited about your new hot product or service. Everyone you talk to is excited. You know how to create or procure the item, whether domestically or via import. Up until now you have focused on these production or procurement aspects. But now you need to find somebody to sell it. So, you try to find Independent Sales Reps or a Rep Agency.
But wait! -- the Independent Reps I have contacted will not take my line!
The primary question that an Independent Rep has is whether they can sell the product or service at the intended price. When a product or service is unproven, has no track record, requires market research, and perhaps is not even fully developed, either the Rep is hesitant to take the line at all, or would do so under the condition that they are compensated for their product introduction efforts. In effect, they would be "building your business". In such cases, the Rep may require an up-front fee in some form. The best way to think of this cost is as a market development cost, and not as a commission.
Steps to take to gain the interest of an Independent Sales Rep
Here are steps to improve the ability of the Rep to sell your product and help you to capture the Rep's attention:
1. Have the correct wholesale price. It is common for an inexperienced Principal to put the wrong price on a product. Surprisingly, the price is often too low. When pricing a product, in addition to direct production costs, there are costs of production overhead, marketing, selling, packaging and shipping, damaged and lost goods, obsolescence, and not to be forgotten, the "all-important" profit!
Often pricing is accomplished by using a rule of thumb such as taking the costs of raw material and labor and multiplying by a factor of 2x or 2.5x to create the wholesale price. When importing, this factor can even as high as 3x to cover the additional damaged and lost goods plus importing mistakes.
2. Have the correct retail price. Typically a product will retail at the "keystone," or double of the wholesale price. Under this model, if you want to sell your product for $5.00, then it has to retail for $10.00. Be sure that you product is properly priced at the retail level.
3. Test market your product. To capture the interest of a Rep, it is much easier if you can show success in a test market. Without any proof that the product can be sold, the Rep or Rep Agency will rarely just take the product and start selling it.
For example, here are two type of tests applicable to the retail market:
1) Get a half dozen retailers in your area to agree to take your product on consignment. That is, they only have to pay you when your product sells. They must agree to pay your established wholesale price, and sell for your expected retail price for the test to be valid.
2) Attend a local flea market, fair, bazaar, craft show, or harvest festival. Sell at your retail price.
You will obtain critical market feedback from each of these exercises. The questions you want to answer are:
1) Does your product interest people?
2) What suggestions do they make?
3) Does it sell? Why, or why not?
4) Do you have the correct price? Was there price resistance?
5) And most important for the consignment test: will the buyers re-order the product?
With the knowledge gained from these tests, you are much further towards the goal of using an Independent Sales Rep or Rep Agency. Your success in the marketplace will pave the way for acceptance by the Rep. On the other hand, if the product does not sell or the retailer will not reorder, you have the market feedback needed re-price, redesign, or repackage your product. Or you may find that you have to discontinue the product entirely. You are ahead of the game as compared to where you would be if you tried a full roll out without a market test.
How Can I Find Independent Sales Reps, or Manufacturer's Reps, or Sales Agencies?
1. There are several online services that provide cost-effective access to Independent Sales Reps. One of the most prominent is RepHunter (http://www.RepHunter.net). They have a large and growing database of Independent Sales Representatives and Agencies that you can search for free.
2. Visit regional and national regional trade shows to meet Independent Sales Reps and Sales Agencies.
3. Set up a booth at a trade show and post in your booth a "Sales Representatives Wanted" ad.
4. Employ or engage a consultant to act as a Sales Manager whose job it is to select, engage and train your National Sales Force.
5. Advertise in Craigslist, on-line job boards, and classified sections of newspapers. While these routes may appear simple and inexpensive, be prepared for their hidden costs and time delays. To use them effectively, you will need an appropriate level of Human Resources staffing to screen a potential deluge of resumes, reduce their number by a factor of as much as a hundred or more, finally leading to phone and possibly in-person interviews. That is, some advance staffing may be necessary, and you will need to budget sufficient time and resources over and above the up-front advertising expense. Plus newspaper advertising can be quite expensive.
GETTING STARTED: Tips for Working With Reps
Placing productive, independent sales reps is a numbers game. Period. This fact cannot be emphasized too much.
Using a service such as RepHunter will improve those numbers. But you will still most likely need to communicate with several reps to place that one that will ultimately be productive.
For example: to have 10 productive reps you may need to place 30. To place 30 reps you may need to have discussions with 100.
Therefore, it is important that you proceed with the proper understanding. RepHunter provides specific guidance to its members which can prevent months of frustration in getting started with Independent Sales Reps. This guidance includes detailed tips and instructions to cover the following fundamental points.
1. The Best Way to Place Reps
2. Creating a Professional Impression
3. Why Patience and Persistence are Vital
4. The Proper Use of a Letter-of-Intent
- including a sample Letter of Intent that RepHunter members can begin using right away
5. How to Set Commission Amounts
6. How to Prevent Problems with Samples Provided to Reps
7. Proper User of Contracts and Exclusives
- including a Sample Representation Agreement
8. How to Overcome and Even Benefit from Situations Where the Rep Truly Is Not a Good Match for Your Business
RepHunter makes all of the above-listed guidance available to its members. To find out more about getting started with Independent Sales Reps, go to RepHunter at http://www.rephunter.net.
----
This article is inspired by the work of United Sales Association, 6740 East Hampden Avenue, Suite 306, Denver, CO 80224, www.unitedsalesagents.org.
Copyright 2004-2010 RepHunter, Inc.
About the Author
Jeffrey Simon (jas@rephunter.net) has over twenty years of management in operations, financial, project management, and software development. In 2001 he joined Matthew Tronnier to found RepHunter, Inc., (http://www.rephunter.net), which matches companies and independent sales representatives.
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