Market Development Fees

by John Davis, Paul Davis Automation

In this issue of Agency Sales appears a report on a MANAchat devoted to the importance of market development fees. While such fees have been in practice for some time either as retainers, draws or some other form of agreement between rep and manufacturer, as time has gone on they’ve become more important for a couple of reasons.

First, consider for a moment the current environment that reps are called upon to work in. As MANA can attest, behavioral and business restrictions evolving from the COVID-19 pandemic have resulted in a marked increase in the number of manufacturers seeking to conduct their business via the rep model. An obvious reason for this is that travel and visitation restrictions hamper the manufacturer’s ability to get face-to-face with customers. While reps toil in the same environment, they do know the territory and already have the desired relationships with customers. As a result, it’s easier for them to stay in touch with customers.

Second, while sales lead times vary from industry to industry, it would seem that it’s hardly feasible for a rep to be expected to unilaterally invest his time, money and effort in a sales cycle that may not bring results for an extended period of time.

Third, a lack of sales in a given territory would appear to translate into a lack of brand awareness that any rep would have to work long and hard to overcome. How is the rep going to survive if there is no “there” there?

And finally, there’s the axiom that “You only get what you pay for.” Sure, I understand that the traditional rep model is one that calls for the rep only to be compensated if and when he or she completes the sale. As times have changed and more and more demands have been placed on the rep, it hardly seems fair to me that the entire burden of identifying, developing and nurturing the market falls only on the shoulders of the rep.

Frankly, I hold the belief that such market development fees should be accepted as more the norm than they’ve ever been. I say that for two reasons:

Shouldn’t the manufacturer be willing to pay such fees as a sign of their investment in the relationship with their reps? It’s simply a matter of allowing them to have some “skin in the game.”

Next, isn’t reps’ insistence on such fees a sign of their professionalism? I would maintain that the absence of such a fee is the wrong way to begin a relationship. It’s certainly the norm that when you seek the advice of other professionals (e.g., doctors, lawyers), there is a fee attached. Shouldn’t it be the same with reps and their principals?

Now the question remains — who bears the responsibility for dictating the need for such fees? Is it the rep who should educate his prospective principal at the beginning of a relationship, or should the manufacturer — as a result of his due diligence when entertaining the notion of working with reps — who should realize the benefit?

That’s a bit of a chicken and the egg question that I would answer this way. Prior to entering any agreement with a rep, a manufacturer would be well served to learn all there is to learn about how professional reps conduct their business. They can do that by joining an organization such as MANA, or any other industry-specific rep association. But, not to place the burden entirely on the manufacturer, the rep should make sure they are well armed with all the details of how they run their professional organizations. Having said that, I’m not sure that all reps are at their best when it comes to selling themselves to manufacturers. It all comes down to the rep’s self-worth. If the rep truly values what he contributes to the sales and marketing equation, then he should have no reluctance or problem in completing his selling job to a prospective manufacturer. If they can’t do that, perhaps they ought to reevaluate what they do for a living.

John Davis has two professional passions — engineering new software and hardware products and having the privilege of being the second-generation owner of his family’s rep business, Paul Davis Automation. Both keep him busy during the cold Cleveland winters. When not at work or spending time with his family, he can be found at the local airport.