Managing the Contracted
Sales Force

For soon to be published: The Oxford Sales Management Handbook

Dr. Thomas DeCarlo, Ph.D., Ben S. Weil Endowed Chair of Industrial Distribution and Professor of Marketing and Industrial Distribution at the University of Alabama at Birmingham, interviews Joseph Rini of Joseph Rini Consulting about the use of Independent Manufacturers Reps vs. a direct sales force.

Increasingly, manufacturers have been using independent reps to create their distribution channels. What are your thoughts about the advantages of this approach and how should it be managed?

I think this is a critical issue: How do successful manufacturers make the best use of an independent sales force? There are several ways to leverage this resource effectively. The most important one should be to capitalize on reps' extensive contacts and knowledge of the territory because they can have a fundamental effect on sales and profitability. By extension, good reps have linkages with nearly all the people in the national marketplace, even if they only work regionally. Their interactions can do a great deal to build the name and reputation of a company they represent. The final key advantage of using independent reps is return on investment: there are huge financial benefits from using independents vs. today's sky-high cost of maintaining a dedicated sales force.

Unfortunately, these very substantial benefits have eluded some manufactures because they haven't dealt with their independent rep networks properly. Problematic results tend to have fairly consistent causes. Many times short-sighted or inexperienced sales managers or owners try to second-guess and over-control their reps' every move. They poison the relationship by sending the wrong messages to the reps who could have made them wealthy-given the right attitudes and actions. These same manufacturers have also usually done a poor job of providing useful support to the rep network.

Under the right circumstances, independent reps can create a powerful and widespread synergy between the company and its distributors. This occurs because almost all the distributors are now inter-related. They are either a branch location of one of the mega-nationals or they belong to a co-operative buying group. Either way, they all talk together, all the time. So, when independent reps clearly like and respect the company and products they represent they can create a positive impression nationally, and that can result in huge sales and an excellent reputation for the company.

That sounds like the result any company would want. What can undermine it?

This kind of success only occurs when a company creates a positive rep culture from the top down. As soon as a manufacturer decides that the reps they hired represent too many other lines of products and begin to feel under-served, the relationship often goes downhill. This is a frustrating and counterproductive situation for everyone.

To my mind, this is a huge error in judgment on the part of the manufacturer. If your reps don't have great lines, and several of them, why would you want to hire them? These are the people who have deep, hard-earned relationships that they have built with distributors over many years, or even decades. Unless your rep, who functions as the gatekeeper to the distribution marketplace, lets you in, you may never enjoy the benefits from his or her key linkages-the "breakthrough relationships" manufacturers need the most. When manufacturers decide that they can hire a dedicated rep to compete with and develop the quality and quantity of the relationships that a good independent enjoys, I think that they have made a fatal mistake. I strongly believe that most manufacturers who follow this course will go broke long before the really productive, lucrative relationships ever develop.

Established reps are not going to give a manufacturer an all-out effort if they sense that the company really wishes it could hire its own sales force instead. In many cases, hiring direct reps in one or two territories sends a clear message to the independents that the love affair is over. The reps immediately put you low on their list of priorities until the relationship finally fizzles out. Who can blame them? Reps make their living by pursuing the best opportunities available.

Many manufacturers want a seasoned, well-connected rep who has nothing to do but worry about their line. In my experience, it's simply not going to happen. Alternatively, my advice is: be patient and make the rep your rep. Treat reps very well and they will, in time, make you famous, not only in their territory but all around the county. When word gets out that a manufacturer is a great company to represent, the news will spread fast. It works in reverse as well. If a manufacturer has an anti-rep mentality, that knowledge will also spread-like cancer.

Reps who come to feel misused will begin to slam doors that were once open, or will nail doors shut that would have been opened at some future date. The damaging effect of a scorned rep should not be underestimated. I've often seen manufacturers get thrown out of distribution systems for mistreating independent reps. Usually this happens when a manufacturer lets an independent rep blaze the trail and then decides they can now afford to go with a dedicated rep. This is toxic stuff that rips apart companies sooner or later.

You're clearly an adherent of using independents. What are some factors that drive the decision to use this distribution channel?

Cost, cost, and cost. Consider "Plan B." You can hire a direct sales force of 40 or so to cover the U.S. If it makes sense for you financially and you can justify paying the outrageous healthcare benefits, travel expenses, company car, gas and insurance, payroll taxes, worker's comp, salary and commissions etc… to the tune of approx. $135K- $150K per sales rep, go for it. Your annual sales should be over $100 million before you take this approach, less than that and you are asking for trouble!

Of course, there is also no guarantee that after you spend a substantial amount on your employees' hiring and training, they won't leave you for the next better opportunity. This happens often. It's especially common when turmoil of any kind arises in the manufacturer's organization. Dedicated reps inevitably wonder; "Will I be replaced by an independent?" They understand that the manufacturer's bottom line would look much better almost immediately were that to happen. In the current economy, if I were a dedicated manufacturer's rep I would be very concerned. This uncertainty inevitably increases the conversations between direct reps and head hunters. And even in good times, people just don't stick around like they used to. One or two things upset them and they disappear like the morning dew.

If you do everything right, maintaining a dedicated rep staff is expensive, but making a bad hire will cost even more. When that person leaves after a few months or a year or two, the entire investment is lost. The customers in that territory might also see the company as less stable than they thought and start to second-guess the manufacturer's value proposition. The manufacturer will then have to start the expensive recruitment process all over again. Hiring cheap never works either-it's expensive wheel-spinning!

What should manufacturers do to build effective partnerships with rep firms?

Making sure you hire the right rep for your particular product category is a great start. Even though a manufacturer's value proposition may look very inviting, today's successful reps have to be honest and decide if they really feel they can affect the market in which a manufacturer's category of products needs exposure. It's critical to have plenty of open discussion before agreements are signed. The first sale reps make must be to themselves.

With the agreement settled, the manufacturers I know who are most successful at using reps create a positive rep culture from the top down. They recognize the company-rep link as a win-win relationship. Mutual respect, shared goals, and plenty of flexibility and trust produce spectacular results. On the other hand, CEOs, CFOs, owners, and managers who see reps as a necessary evil, useful only until they can hire a dedicated force, always seem to die a slow and painful death.

What are some essential behaviors of a "good" manufacturer-rep partnership?

Good communication-the more the better-is essential. When reps are truly sold on the manufacturer's products/service, they become the face-the embodiment-of that manufacturer. It's nearly impossible to get very excited about a company if you are left in the dark. Mutual trust, respect and fair play are also indispensable to a solid relationship.

What are some considerations in choosing, motivating and compensating reps?

Manufacturers must make sure that the reps they select are people who can represent the company in its best light. Generally, the rep is the only face of the company many of the customers will ever see, so choose wisely.

It's also important to find people who you genuinely like and admire because the rep may be someone you will be working with every day for a very long time-perhaps the rest of your business life.

As for motivation, be informative, considerate and generous. Your reps will appreciate your commitment and will reciprocate by telling clients what a great company you are.

Are there emotional, as well as economic factors that drive a rep to perform?

Rapport with the company and a sense of security, trust and support are very important to good reps. If they don't sense real commitment and honesty they will respond half-heartedly. The impact a good independent can have in the right conditions can be astounding, so it makes good business sense to assure that the relationship is healthy and rewarding.

What are the different types of manufacturer-rep relationships?

There are many, but only one works. I've only seen success when there is total commitment on both sides.

Can these relationships be organized into some specific model, for example strategic partnerships versus contracted reps (i.e., arm's length relationship)?

I don't think so. This sounds more to me like partnership agreements which are entirely different than a rep agreement. There is every crazy deal you can think of out there. I sometimes wonder how many of them get anywhere. For me it's basics; always get back to basics.

Thomas E. DeCarlo
Professor and
Ben S. Weil Endowed Chair of Industrial Distribution
UAB School of Business
Industrial Distribution
219 Business-Engineering Complex
1150 10th Avenue South
BIRMINGHAM AL 35294-4460