The Particular Challenges of the Small Agency

By Ken McGregor, CEO of McGregor & Associates Inc.

What are small rep firms? One-person, five-person, 25-person…. The government classifies a small business as one that employs 50 or less. Regardless of the size of your rep firm, we all share the same challenges day to day. Hiring and firing of employees and the HR activities associated with it, payroll, taxes, insurance, auto expenses, retirement, etc., these are all issues that are dealt with whether you employ one person or 500.

I feel that the largest challenge to the small rep firm is that of revenue. Without sufficient revenue to cover the overhead of any number of people, the company will cease to exist. This is difficult for us in dealing with manufacturers that continually demand more production for the same or less commissions. The average rep over the last few years has taken over many of the operations provided by the manufacturer in the past. In addition to the everyday sales of their products they have shifted the customer service, order entry, warranty, printing and literature of brochures and catalogs, and marketing of their products. We as reps have accepted and dealt with these changes over the years.

In my 40 years in this business I have seen the role of the salesman change from the “good old boy” full of colorful jokes and a sales catalog, hand writing orders, hard drinking and playing, to the “professional outsourced salespeople” we are today. Gone are the sales catalog or catalog case full of line books, changed to an Ipad and laptop; telling jokes to secure an order to developing market programs for your accounts to move product and make money as well as taking care of everyday issues they have.

This is all good and I have enjoyed the changes and challenges, but one thing has not changed over the years — rep commissions. When I started in this business the average rep commission was 5 percent on a gross sale. Forty years later the average commission is still 5 percent, but on net sales. Granted it might be said that your selling price has increased over the years, but that is relative to all costs for all. This 5 percent commission on net is paid to cover all the services we are now required to provide the manufacturer, and they still want more of our sales time and more people on the street selling their products. Some manufacturers pay more than this for our services, and some pay less but still want all the services we provide.

This is where the challenges are for the smaller rep firm. If a smaller rep firm doesn’t have a couple of major lines paying large dollars it is difficult for them to provide the services these manufacturers demand. Conversely a lot of large manufacturers are not looking for smaller rep firms because we don’t have the internal staff and salespeople to handle the line. Very large sales organizations sometimes don’t attract certain manufacturers because they feel their line might get lost in the size of the sales organization.

The challenge here is to balance both issues to try to make the best of what we offer to a manufacturer, and always petition and negotiate a better deal for our services if at all possible.

Ken McGregor is the CEO of McGregor & Associates Inc., a rep firm headquartered in West Jordan, Utah, with an office in Boise Idaho. He has been in the agency business for over 40 years selling plumbing, heating and industrial products to wholesale distributors. He is the past president, and Chairman of the Board of Directors of AIM/R and is currently on the Board of Directors of MANA.