Independent Sales Rep Contract - PowerPoint

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					        Why Reps ...
                  Vs Direct
A Discussion of Sales Force
Philosophies & Economics
        What is a Manufacturers’
        Representative ???
       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
   Direct Sales organization
       Employees of company
       Total control by company
   Manufacturers’ Representatives
       An independent organization
       A technically competent sales organization
       Outsourcing the sales function
       Representing other non competing, synergistic products
   A “hybrid” sales organization
       A combination of both
    Discussion Points ...

 Exploding some myths … about manufacturers’
 Adding value
 Economics of the rep function
 Advantages of a manufacturers’ representative
  firm Vs a direct selling organization
 My crystal ball … some future trends
        Good Reps come in ...
       Many sizes
       Differing capabilities
       With many different business philosophies
       With many different (company) personalities &
       It’s impossible to have 2 identical rep firms
           Each has their own unique “DNA”
                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

     Salesmen in Business       Businessmen in Sales
       Individualistic            Organized & managed
       Conflicting goals          Promote team concepts
       Not well organized         Company goal oriented
       Inflexible                 Financial stability
       Short term oriented        Long term relationships

A major differential !!!
    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)
    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
    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 …
       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
   In reality, reps are totally interdependent with
    their principals
      Exploding Some Myths

Myth # 4
      “Reps have a short term mentality”!
   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
      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 !
       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?
       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 !
      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

    What do reps do that can be considered
     “adding value” ?
        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
     A Rep firm is ...

   A service business
        service is the rent we pay for the space we occupy
        the customer expects us to offer solutions and not sell him anything
   In a performance business !!!
        we only get paid when we perform
        we perform for both the principal and the customer.
   The principal’s sales force
        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
        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”

   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
    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 ...
       0%                           T&E
                   Salaries         Comm
5%                            66%
                                    Grp. Med.
1%                                  Other Ins
3%                                  Taxes
 4%                                 Prof. Fees
      0%                            Emp. Rel.
        3%                          Misc.
    The Economics of the Rep Function
    … None of which apply to direct sales
   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
   Reps reduce the mfrs. admin. cost
       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
      Reps eliminate the “soft costs” of people and wipe
       out a manufacturer’s legal exposures
          Reps pay the costs to select, train, compensate,
           discipline and terminate their own employees
               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
   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
    Another added value ...
    Geographic Competence !
   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

     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 … !

   Look at the awful contracts that they sign !
   They experiment with their own money.
   They live with 30 day contracts that are changed
   They must survive in a world of continuous change of
    sales / regional management …
       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
    Free, informed suggestions
        Minimal cost to manufacturers to receive valuable
        Can save lots of money from failed programs /
    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 ?

   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
   Constant cultivation of new customers
   Quality performance in sales as well as the "day to
    day" representation of the manufacturer's total
    Good Reps are ...
 Good communicators
 Good team players
 Ethical & honest in their dealings with
 Committed to excellence
 Able to accept change and new challenges
 Their own toughest critic
 Students & teachers of their craft
 Some Future Trends

    Some Future Trends
   Sophisticated “opportunity tracking” systems
    need to be developed and used
   Sophisticated electronic communications
   Increased technical competence
   Improved internal training programs &
   Even more emphasis on distribution
    Some Future Trends
   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
   Selling & presenting to groups at customer
   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
   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
   Fewer manufacturers are of real importance to
   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

   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
   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 &
 For high level managers … please stay
  involved in the sales department. Keep a
  passion for the business & let it show!
      The Advantage of Reps Vs Direct

To Sum it Up ...
    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
are the
spark that
ignite the
engines of
industry !
Manufacturers’ Representatives

            1 st

Description: Independent Sales Rep Contract document sample