by John Sandifer, SanCo Sales, Inc.
There are primarily several types of situations where split commissions might pop up in today’s manufacturing world, including rep-to-rep split commissions and manufacturer-to-rep split commissions. No manufacturers’ rep particularly likes the discussion in either situation, but it is a topic that needs to be open for discussion.
Rep-to-Rep Split Commissions
We have all been approached by a fellow rep that has an opportunity that fits nicely in with one of our exclusive manufacturers. Keep in mind that I am not talking about an agency-sub-rep relationship. The conversation typically starts with, “I have a lead I’d like to throw your way,” but inevitably, the representative will get around to asking how your agency deals with other reps. Do you really blame them? We are in business to make money after all.
While there isn’t necessarily a right or wrong way to handle these types of arrangements, our agency has had good success dealing with respected reps that operate independently of our agency.
Assuming the person contacting you has a good reputation in the industry, we almost always insist that any commission checks be directed towards a business, not an individual. This helps alleviate any tax implications that may pop up down the road and also allows you to 1099 the rep as a sub-contractor. We also ask for full control of the communication between our manufacturer and details of the project — of course eventually channeled down to the person who is handling the account. The last thing we want to create is any confusion in the chain of command; after all, we are the ones who have been navigating the manufacturer’s waters and know the proper channels to get tasks accomplished. We do not require someone from our agency to communicate with the customer direct. If you reverse the logic above, you’ll come to the conclusion that you will be best served letting the independent rep handle the account and “earn” the commission. The industry standard on our side of the fence is typically a 70/30 split where the agency takes 30 percent and the initiating rep takes 70 percent. At the end of the day it is better to have 30 percent of something than 100 percent of nothing.
Probably the biggest reason for split commissions is where two or more reps share in the responsibility of servicing the account. The customer is sold to in one territory but the product is shipped to another. And it gets more confusing when engineering is done in another territory. This was a bigger issue when many manufacturing companies moved some of their plants to Mexico. It was always a fight as to who had more responsibility and should get a bigger commission percent.
Rep-to-Manufacturer Split Commissions
While this is rarer, we have had recent requests to split/reduce commissions with our principals. In certain circumstances, we believe it is a necessary move in order to meet certain targets and to acquire new business. The issue we often run into revolved around fair practices.
We have found that many principals do not fully understand the implications of reducing percentages and it is often our job to educate them on the impact this has on a manufacturers’ rep agency. Let’s assume that we normally make a five percent commission and the sale we are working on is $100,000. When a principal asks for a split/reduced commission, do they really understand what they are asking from us? A one percent drop in commission will equal a 20 percent drop in revenue. Are your manufacturers cutting their margins too? If so, we can normally work out some sort of arrangement and put some “skin in the game.”
In the end, we have a philosophy of treating other reps the way we would want them to treat us — the golden rule per se. While we may have competitors out there, it is no secret that the rep force is getting smaller and smaller. The more we are all able to network together and help each other out, where it makes sense, the more we will be of true value to our customers and each other.
John Sandifer has been a member of MANA since starting SanCo Sales, Inc., in 2001, the same year that he received the CPMR designation. He is also a Charter Member of the local Dallas MANA Chapter. With 35 years of experience as a manufacturers’ representative, Sandifer has worked sales territories in Texas, Oklahoma, Arkansas, Louisiana and Western Tennessee. Prior to starting his own agency, he worked with one of the larger OEM rep firms in the Southwest. SanCo Sales specializes in selling made to print components in metal, plastic, rubber and assemblies to the OEM market.