Reps See Steady Pressure on Commissions

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If it’s possible to gather a group of independent manufacturers’ reps and charge them with the task of discussing the state of commissions today, chances are any discussion will closely resemble talks that may have occurred, 10, 15, 20 years or more in the past. Typically they’ll say:

What might be a bit different from 20 years ago, however, is that today’s rep — owing to a number of factors — is probably more sophisticated and professional than ever before. At the same time, he’s a bit more feisty, educated in his profession and more than willing to fight back, even if it means walking away from a potential line. At least that would seem to be the case based on a number of comments collected from reps and from in-depth interviews conducted with reps currently facing many of the pressures previously mentioned.

“Manufacturers are always putting pressure on our commissions.”

For instance, ask Carl Mathis, CPMR, CSP, Power Sales Co., Raleigh, North Carolina, about his experience with manufacturers putting pressure on his agency’s commissions, and read as he explains: “Manufacturers are always putting pressure on our commissions. It’s always been that way and it will never change in my lifetime or probably the lifetimes of those reading this.”

If that’s the case — and most reps agree that it is — what’s a rep to do? In two words, according to Mathis, “Fight back.” He explains, “Reps probably know that’s all they can do, but it’s also probably something that’s easier said than done.” Mathis, president of MRERF, recounts a recent incident when one of his principals — for whom Power Sales provides about 35–40 percent of their overall sales — came up with a new plan that he said was devised to serve as an incentive for the agency’s reps. “Sure it had all this incentive stuff, but it was virtually impossible to keep track of.”

No Need for Incentives

After taking about a week to cool off and let his emotions calm, Mathis countered by writing a lengthy e-mail to the manufacturer stating among many other points, “My agency has upwards of 150 years of sales experience and your new plan is going to incent us? I don’t think so.

“For the first time in my experience, the manufacturer responded, ‘Okay, we’ll stay with the existing commission plan.’”

Based on his years of experience, Mathis adds that when a rep pushes back on a commission cut or even asks for an increase in commission, manufacturers are generally surprised. “They don’t seem to know how to respond because they really don’t have a plan. What you’ve done is to catch them flat-footed. Here’s what probably really occurs: someone comes up with a plan to affect commissions. They put it in and then sit back and wait to see what happens.”

Before leaving the subject of commission cuts, Mathis revisits one process that most reps have experienced. “Then there’s the time when the manufacturer will ask the rep to take a one percent cut on a 4 percent line. They haven’t even thought through the process that that’s a 25 percent cut for the rep — or if they have thought it through, they don’t give us credit for knowing it’s that much of a cut.”

As far as whether his commissions are being paid on time and with accuracy, Mathis exhibits a bit of surprise in the fact that “Since we’ve been in the midst of these hard economic times, the accuracy and timeliness of commission checks have never been better. I don’t know quite how to explain that — perhaps it’s a bit of an outgrowth of the survival of the fittest. Manufacturers realize that if they don’t pay us accurately and on time, then they’re not going to get the business they need to survive. On the other hand, it might also be a result of the fact that before we even take on a line, we’re quick to ask manufacturers: How do you pay? How often do you pay? Do you mind if we ask other reps about your payment history? What that results in is us taking on lines that have a good history when it comes to paying.”

When all is said and done, Mathis notes, “Ultimately, when it comes to commissions, it’s the rep’s responsibility to educate and work with the manufacturer so the manufacturer knows exactly what we do for him and how important it is that the rep be paid for his work.”

Looking at the Past

When it comes to commissions and the pressure that principals put on them, Matt Walling, Integrated Design Elements, Inc., Grand Rapids, Michigan, says he wishes he had been a rep 20 years ago vs. the 5 years he’s got under his belt. According to Walling, business was better then and “There probably wasn’t as much pressure on our commissions as there is today.” Realizing that there is no safe, not to mention effective, means of time travel, Walling deals with what faces him in the present just as any other rep. “When faced with undue pressure from a manufacturer, all you can really do is engage in your own kicking and squirming with your principals, just as I do.”

He explains that the kind of pressure he generally runs into occurs when there are large-volume orders. “In general, my commissions stay within a certain range. Where they get affected is with super-volume deals. I know the old argument that when a manufacturer asks me to take a one percent decrease on a 5 percent commission, that’s really a 20 percent drop in my commission. But the fact is that with these large orders, my philosophy is that I’d rather make a smaller commission on something than a whole lot of commission on nothing.”

He does admit, however, that one card he’s been able to play with a level of success has been his MANA membership and the assistance that the Association provides him when it comes to commission issues. “When I’ve faced a commission cut or other problem, I get on the phone to MANA headquarters and speak with Jerry Leth (the Association’s vice president and general manager) who has been a great help. What that does is to allow me to get my cannon loaded before I speak to the manufacturer. The Association has been a great help in letting me know what questions to ask and what arguments to make with my principals in an effort to protect my commission.”

When he approaches his principals on commission matters, Walling notes that they usually listen to what he has to say and appear to understand where he’s coming from. “That is partly because I’ve got great principals, and one reason I’ve got great principals is that MANA has been such a help in finding them.”

He continues that he’ll keep on going back to principals when there are any commission questions/problems because “The last thing I want is to have any sort of passive/aggressive relationship with them. I want to be straight with them and expect the same from them in return. That’s the way I deal with people.” He adds that in general his commissions are paid on time and are accurate.

Doing More with Less

When Bob Garrett, CPMR, R.C. Bremer Agency, Prospect Heights, Illinois, is asked if he can relate any instances of principals exerting pressure on his agency’s commissions, he doesn’t hesitate to say: “Here’s an example of what we’ve encountered. Our agency covers 13 states with eight salespeople. When we take on a manufacturer they find it convenient to us send us just one or two sets of samples. Since that’s the case, it’s then up to us to ship the samples around to everyone in our territory. There’s obviously an added cost for me to do that — and my commission isn’t increased to cover that cost. That’s something I didn’t experience when we were sent eight sets of samples. In answer to the obvious question, does the manufacturer understand what he’s doing, the answer is ‘Yes.’ They’re well aware of the fact I’m shipping stuff all over the territory. It’s not fair. We said okay to the first manufacturer who started doing that, and then others followed suit. We had to ask ourselves the obvious question, ‘Who’s talking to whom here?’”

“The Association has been a great help in letting me know what questions to ask and what arguments to make with my principals in an effort to protect my commission.”

He adds that this type of activity is occurring more and more. “In the past manufacturers used to send out printed price sheets. Now, they send them to us electronically and for any extra copies we need, we have to take care of the printing ourselves. All these activities are just more ways for them to cut their costs, but it results in an increase to our costs.”

As any rep would, Garrett brings these concerns to the attention of his principals. “We’ve tried very hard to make our case to manufacturers, asking them if they realize that this is expensive. Their reaction is that’s the way it is. What this has resulted in is that we have one person on staff who is completely dedicated to desktop publishing. We produce all the cut sheets, create flyers for our wholesaler/distributor customers and put multiple manufacturers on one flyer. My immediate reaction to these types of activities by manufacturers is that if they want my full attention to their product line, they shouldn’t be putting these types of roadblocks in my way. And, that’s exactly what they’re doing.”

“If they want my full attention to their product line, they shouldn’t be putting these types of roadblocks in my way.”

Garrett admits that there’s hardly an easy solution to this problem. “It’s really up to the rep to keep these concerns right in the face of the principal so they can understand our position. But I’ll admit that while most of the time they say, ‘I guess you’re right,’ they really don’t change. I think what happens is that the manufacturer looks at the commission check and says, ‘Boy, that’s a lot of money. There’s no problem with the rep doing this extra work.’ Part of the message we have to keep in their face is the fact that we have considerable costs, none of which are decreasing.”

Several hundred miles to the east in Connecticut, John Aiello, founder and president of PSE Associates, LLC, Guilford, Connecticut, echoes some — but not all — of what the other reps in this article have experienced.

Provide Value-Add

According to Aiello, “While none of my principals are putting any pressure on me to reduce commissions, I’m considering asking them for an increase to cover the costs of fuel, hotels, etc. But I will probably not be able to get an agreement. I’m also not anxious to open the contract can of worms.” Aiello adds that while he hasn’t asked for a commission increase previously, “I have hinted. My guess is they would not be too open to that unless I can show them added value. We are considering warehousing for one of our new principals as a way to add to our cash flow with a value-added service.”

He continues that it is hardly unusual for manufacturers to ask their reps to continue to do more for them without increasing commissions. “Sure that happens, but isn’t that why they hire us in the first place? As a result, I wind up doing engineering, quality control, subcontractor searches, etc., on top of my sales tasks.” He adds, however, without a single note of complaint that “We have been very fortunate during this recession. Our business has grown every year since 2008. In fact, this will be our best year in the 21 years the agency has been in business.”

Offering a final comment on two subjects closely related to commissions — draws and shared territorial development fees — Aiello says that manufacturers are becoming more agreeable when the rep asks either of the two. “But, to get them to be agreeable I have changed our strategy. When the agency was young, I needed principals before I could get customers. I basically took any line that looked like it had potential. I got burned a few times and realized that without skin in the game, the principal had no vested interest in our success. If we ran into a wall or got a big order, we often got dropped. Now I will not take a line that either doesn’t have existing business or won’t pay a monthly guaranteed draw for the first year. I recently turned down what I thought was going to be a very good line because we could not come to an agreement on the monthly draw. I’ve learned over time that it is the correct course of action and prevents surprises in the future. If a principal has no business in the territory, we offer monthly sales progress reports as a marketing tool for them. If at the end of the year we cannot develop sufficient business to make us both happy, then they have paid for a marketing study resulting from our sales efforts. Compared to what they would pay a consultant, it is cheap. It usually closes the deal for us.”

“If a principal has no business in the territory, we offer monthly sales progress reports as a marketing tool for them. If at the end of the year we cannot develop sufficient business to make us both happy, then they have paid for a marketing study….”

In addition to these interviews with manufacturers’ reps, some interesting comments on the subject of commissions were also obtained from LinkedIn discussion groups devoted to reps. One of the more active groups is available through MANA, and Association members are urged to take advantage of it. Among those comments were:

• “Commission depends on several factors. I think the main two factors would be the product and the territory. For example, in my territory, there are many injection molders, so 5 percent is normal. If I bring in a very high-volume contract, I may have to go down to 3.5 percent. There are many arguments to mitigate a reduction in commission. MANA has several articles on this, so study them if a principal approaches you about this. It’s better to have some fire power before going into talks (with a principal) about this. I have commissions from 5–10 percent depending upon the commodity and the principal. If you are not sure where to start, I would start negotiations at 10 percent and see where you end up. I always weigh how I will feel about the contract and the commission in six months before signing. It’s better to be happy long-term than be aggravated after six months because you don’t like a clause in the contract or the commission.”

• “Commission definitely depends on the product line, territory and the industry. We have lines that are as high as 25 percent and as low as 5 percent. Another huge factor is how much time you will have to spend supporting the customer. In our industry we have to spend a lot of time providing technical support to the customer as well as doing most of the quotes, so our commissions tend to be higher.”

• “Many principals like to have an umbrella (commission) percentage across the country. Unfortunately that does not always work. Several factors need to be considered before you sign your contract. Is the product entirely new and is the territory virgin? With these two elements in the mix, a higher commission is certainly warranted. With the cost of travel increasing by leaps and bounds it is not unreasonable to demand a higher commission. Both you and the principal are here to make a profit. I think another factor that comes into play is whether you are selling to distribution or directly to the end user. My firm only sells to distribution. Two of my lines require technical support between the distributor and end user. These two lines render higher commissions, 8–10 percent. My other lines produce 5 percent but do create a decent check as a result of the volume of products sold.”

 

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