Do manufacturers and reps need a manufacturers’ representative contracts to formalize their relationships?
Consider the experience of Baby Boomer representative David Reese* who remembers the days when a handshake deal with a manufacturer could last for a whole career. “The person whose hand you shook had been with the company for a decade so he’d earned the authority to make a deal and stand by it. And he’d likely be at the company for decades more, so you could count on him to remember his promises,” says David.
“But now many sales managers and VP of sales who call to recruit me seem to stay with their companies four to five years before they move on, so the details of verbal agreements are quickly lost. And sometimes companies I’ve represented are sold to new owners who bring in a whole new management team that has no memory of the manufacturer representative compensation promises made by past employees.”
It’s experiences like David’s that have moved manufacturer sales rep agreements from handshakes to carefully-crafted, even-handed agreements. They are carefully crafted to be sure that both of the parties know exactly what is expected of them and even-handed because professional representatives who are in high demand will only sign a win-win agreement.
A key element in establishing long-term relationships between reps and manufacturers is a balanced, win-win agreement. MANA’s rep agreement guidelines were written to help manufacturers and representatives create that kind of agreement.
Says David, “I really like the fact that my MANA membership includes a 40-page free manufacturer rep agreement guidelines document. So I can send a prospective principal a well-crafted manufacturer rep agreement sample to get our conversation rolling.”
MANA’s experience in this area suggests that because each relationship is unique, arriving at a final agreement is a two-step process:
- Negotiating the terms of the agreement
- Putting those terms into correct legal language.
We strongly recommend retaining an attorney for the second step. MANA members have access to a list of rep-savvy attorneys, and many MANA attorneys offer up to a one-hour initial consultation with MANA members without charge.
We also recommend frank dialog about the terms of the agreement before it is signed. If either party simply signs the other party’s agreement without reviewing it, the chances of achieving a balanced, win-win agreement are slim.
MANA’s specimen agreement includes the rationales behind each clause, which help each of the parties put themselves into the other’s shoes.
In cases where the principal has no existing business to share with the representative who is taking over the territory it may be appropriate for the principal to offer the representative a “Shared Territory Development Fee.” To view MANA’s YouTube video on that topic visit http://youtu.be/s2cBXKubsbc . Holding back existing business as house accounts will often doom the new relationship before it even begins.
MANA recommends that you include the following clauses in your discussion with a rep-savvy attorney, all of which appear in the MANA specimen agreement
- Appointment and Acceptance
- Territory
- Products and Services
- Commission
- Computation and Payment of Commission
- Split Commissions
- Acceptance of Orders
- Terms of Sale
- Representative Relationship and Conduct of Business
- Term of Agreement and Termination
- Rights Upon Expiration or Termination
- Entire Agreement; Modification
- Survivability of Agreement
- Survivability of Indemnification
- Waiver
- Assumability of Agreement
- Disputes
- Notices
A fair and balanced agreement sets the stage for long-term and mutually profitable principal/representative relationships. Let MANA help you to get your relationships off on the right foot with win-win representative agreements.
Manufacturer Camille Perrin* used MANA’s manufacturer rep agreement sample as the basis to create a win-win agreement with the representatives she recruits to sell her company’s security systems like closed circuit television, video surveillance, access control, and intercom systems, so she started with the MANA Manual for the Creation of a Rep Principal Agreement that was included with her MANA membership. After downloading that Word document from the member area of manaonline.org she worked with her lawyer to adapt it to her company’s needs
The representatives she recruited were impressed that her company’s agreement was not one-sided. Some wanted to make minor tweaks, and Camille recognized that because each representative company was unique and that minor customization of the agreement was a reasonable accommodation to complete a deal with the very professional reps she hoped to sign.
“In the end, the fact that my company’s rep agreement was a win-win document was a great recruiting tool,” said Camille. “The reps I was trying to recruit took it as a signal that ours was a rep-friendly company, and we were able to recruit some very powerful representatives that might otherwise have been unavailable to us.”
*Names have been changed to protect the privacy of those who share their stories with us. Details may have been added, removed, or altered to better illustrate the concepts discussed in this issue.