Carefully Count The Costs
Editor’s Note: What follows is some sound advice from a highly successful manufacturers’ agent in the southern United States. Frequent Agency Sales Magazine contributor B. Dean Baum wrote this letter to the editor, which appeared in the June 2001 issue of Agency Sales. Baum’s agency carries lines including industrial equipment and controls; electrical/electric heaters and ovens; plastic molding and induction heating equipment and temperature sensors.
I would like to address an editorial comment you made concerning the Manufacturers’ Corner column section entitled “Why and How Reps Work,” Agency Sales, March 2001. You indicated that someone took virgin lines and grew them to some $100,000 annual (we assume gross) profit and more. It is possible to take new lines and grow them from practically zero. We did when we first started. However, we also had reserve funds to start our agency in 1983. It took two years to get it on its feet.
I hope that manufacturers would realize the investment reps must make and contribute where it seems prudent; many do so. When that happens, it makes a difference to the rep and usually helps the principal to achieve faster success.
It is vital for a new rep to understand the financial investment that starting a new agency today takes. Would $100,000 per year mean a rep was successful? In the early nineties we took over a line in the deep South and the direct man was costing the manufacturer over $100,000 per year at that time. A rep faces the identical overhead; he just spreads this among a number of manufacturers.
Today it can easily take six figures per year before a rep sees any profit at all, more if he has additional staff. I would advise any person looking at starting an agency in today’s world to count the costs very carefully and to make sure he can afford or wants to chance taking the step.
We applaud the thousands of successful reps today that have taken that first step and become successful by talent and hard work, and we encourage the pioneer spirit that makes one do this. However, we would not want them to mistake the investment it takes before you realize an ongoing profit. I hope these comments help anyone to avoid underestimating what constitutes “profit” in today’s rep world.
One additional point, please, is that we do feel synergy is essential. If you are an electronics rep, it might not be the best move to try and sell plumbing products. Mark that one true, not false.
B. DEAN BAUM
Next month, we’ll begin a series on using home loans to finance your agency startup.