Establishing a Rep Firm — Start-up Costs (Part 3)
by Robert Blanding, N.E. “Mac” MacGregor and Brad Starr, CPMR
Cost Factor: Geography
Geographical variances to be considered include facilities and services, travel costs and time.
The costs of many items vary from state to to state and city to city. Even within a given territory, costs can vary by as much as 25 percent. Do your homework and compare facilities and services costs for: office and storage space, travel, secretarial help, utilities, legal and accounting services, graphic arts and printing services.
The cost of travel is a function of the size, population and available market density of a specific area. For example, to cover the Rocky Mountain states adequately, a representative must either have multiple offices, have access to good transportation, plan his time extremely well, be very proficient in the use of the telephone, or perhaps have access to or own a plane.
The low-cost alternatives are to start out with a smaller territory or be inefficient and drive to remote locations. In a highly concentrated territory, such as New England, one or two offices can serve the region well. In other highly concentrated areas, such as southern or northern California, it can be impractical to operate from a single office because of the long travel times. In seeking economies to attain adequate geographic coverage, beware of locating an office in a home (yours or a salesperson’s) unless the conditions are just right. For instance, there must be a dedicated business telephone and Internet lines, but there must not be any crying children or barking dogs.
Cost Factor: Industry Differences
Start-up costs will vary from industry to industry and product to product. For example, commissions on components are generally lower as a percentage, but the selling effort may be less and the sell cycle shorter. At the other extreme is selling to the government. The sell cycle may be years, but once selected, the vendor has a very solid order. Another important consideration here is the use of distributors. In some industries, it is taken for granted, but in others it is dependent upon the strategy of individual principals.
Cost Factor: Connectivity (or Lack of It)
Simply put, if you are “connected” in your industry and your territory — through prior business relationships, local networking and trade associations — your start-up experience will be easier and your income will grow faster than if you are starting out as an unknown. Many reps enter this business from manufacturing, distribution or another related field, and they bring with them valuable prior experience with the customers they want to serve as reps. Another source of insight and information may be your competitors. It is common for reps who are “connected” through local and national trade associations to freely and gladly share tips, information and advice about everything from the best cell phone program in your area to what’s happening with one of the territory’s biggest customers. Do not discount the importance of your connectivity! The absence of it can be a barrier to your initial and long-term success.
This article, the third of a four-part series, is reprinted from the MANA/MRERF (Manufacturers’ Representatives Educational Research Foundation) Operations Manual for Manufacturers’ Representative Firms, which will be made available for purchase on CD-ROM in spring 2003.