When manufacturers’ representatives and manufacturers work with each other as trusted “Partners in Profits”, the relationships are mutually beneficial and last a long time.
Analyzing the Manufacturers’ Rep-Principal Relationship
By Joe Miller and Jerry Leth
As the manufacturer views the marketplace, he’s always got two goals firmly in his sights — achieving increased sales and profits. To reach those goals he relies upon the services of a professional sales force. That’s where the choices begin. He can go either of two ways when it comes to interfacing with prospects and customers:
Hire direct employees.
Outsource the sales function by contracting with independent manufacturers’ rep businesses.
Regardless of which path is followed, the manufacturer must be mindful of the fact that management of an outsourced sales force is significantly different from managing employees. How the manufacturer interacts with each type of sales force — and how he achieves desired results — can be vastly different. If done properly, however, the results of working with reps can be significantly more rewarding than a direct sales force.
Plain and simple, employees are staff. As a result, they are subject to all the rules and protocols of the employer organization. Predictably, they are motivated by job security, resist change and have no stake in improving profitability. Conversely, independent reps are motivated by a sense of accomplishment in building their and the manufacturers’ businesses, and strive to improve the bottom line. When the manufacturer’s bottom line grows, so does theirs and they don’t usually get paid until they create a favorable outcome for their principal.
The professional manufacturers’ representative is a businessperson in sales as opposed to being a salesperson in business. He is an entrepreneur who exhibits a willingness to be in business — just as the manufacturer does. The rep depends upon his or her business skills in order to enjoy success and longevity in the territory. He recognizes that long-term success of the principal’s business is critical to the success of their business. At the same time they expect to share in the rewards of a successful relationship with the manufacturer. In order to enhance that relationship, most manufacturers have found that reps care more about getting a good price for the product than does the average direct salesperson employee.
The goal of the manufacturer is to sign up the most professional manufacturers’ agent willing to work with them. On the other side of the relationship, the goal of the manufacturers’ agent is to sign up with the highest quality principals willing to work with them.
Working Together
For the manufacturer-rep relationship to work, however, there must be an appreciation that both are traveling a two-way street. And, as any such relationship, it must work to the benefit of each of them. To achieve that admirable goal, the manufacturer needs to know how to work with the manufacturers’ rep and, conversely, the manufacturers’ rep needs to know how to interface with the principal. The quicker each side learns how to work as members of a team to solve the customer’s problems, the faster they profit. It’s not just about going out and trying to book orders; rather it’s a partnership — a partnership in profits; a three-legged stool, if you will, comprising the manufacturer’s firm, the rep’s agency and their mutual customers.
For relationships like these to succeed, certain elements need to be present. First, consider the obvious elements:
Does the manufacturers’ rep have solid relationships with the customers for the manufacturers’ products or services?
Are both parties competent?
Is the manufacturer going to enhance the manufacturers’ rep’s reputation as a problem solver or create problems for him? Is the manufacturer going to enhance the manufacturers’ reps’ reputation as problem solvers or turn them into problem creators?
Is the manufacturers’ rep business good at closing sales?
And, most important, does the manufacturer or service provider understand the importance of investing in new products and services?
That’s not all.
What about trust? Is there a high level of trust between the two parties? This one is absolutely essential. Without trust, communication is limited and is not open and transparent. It’s expensive to do business with those we don’t trust. If you don’t believe this, just read The Speed of Trust by Stephen Covey. Without trust, the relationship is not profitable for either.
Are both parties ethical? Without adhering to a code of ethics, it’s difficult to develop trust. MANA’s Code of Ethics is a good guideline for both parties!
Do the partners share a common purpose? Is that purpose to help customers solve problems? Anyone who has ever taken a consultative selling course knows that the money will take care of itself if you can help make a customer’s business better.
On the manufacturer’s side, is the entire organization committed and supportive of outsourcing the sales function? A divided organization creates stress and the manufacturers’ reps that represent that company will tend to spend more time and effort with their other principals if they sense disunity.
On the manufacturers’ rep side, is it a professionally run business or just a salesperson that is paying his own expenses? Manufacturers and customers both prefer the former.
How do all the pieces of this puzzle get put together in order to create long-term and mutually profitable relationships?
It all begins with the selection process. Surveys completed by consultants conducting audits of rep-principal partnerships have shown that only 40 percent of the relationships they studied were an ideal match. The other 60 percent were marginal or dysfunctional. Is it any wonder some people believe that outsourcing the sales function doesn’t work?
During the due diligence process, what should each party be looking for? As a source of guidance, we’d recommend MANA’s special report, Selecting the Right Representative or Principal Partner. This publication is a complete guide to the selection process and includes a checklist of what the manufacturer should learn about the manufacturers’ rep. You will also learn the qualities the rep looks for in a manufacturer. Both sides have the responsibility to conduct their due diligence. If the process is not done thoroughly, chances are very high it will need to be done again in six months. Not only is this costly, it leaves a bad taste in the participants’ mouths and sullies the reputation of the outsourced sales business and manufacturers as a group.
Keep in mind that conducting due diligence is important in order to properly lay the foundation for lasting relationships; but relationships change over time. What appears as an ideal match at the outset may not be so long-term. Consider for example that the rep may need to shift markets as a result of outside factors or the principal may develop a new product requiring different selling skills than the rep has. What should be done is that both sides need to keep re-evaluating the relationship and take the appropriate action — to adjust for change — when and as needed.
Win-Win Agreement
Once due diligence is completed and the selection process has successfully run its course, the next step is for both sides to negotiate a fair and balanced agreement. And by “fair and balanced” agreement, we mean it must be a win-win for both rep and principal.
When the terms of an agreement have been put down on paper, what’s the appropriate action that the rep should take? Is it to simply look for the place to sign, sign and date it and mail it back? Hardly — the professional rep very carefully scrutinizes and negotiates an agreement submitted to him by the principal. The principal should look for this as a sign of the competence of the rep firm. The rep who signs without comment is quite often not the rep you want.
The importance of the agreement being a “win-win” can’t be overstated. Short-term, it may seem like good business to write a one-sided agreement, but in the long run, it will probably work against you. Manufacturers are cautioned that their corporate counsel, who may have little or no experience with manufacturers’ reps, may be prone to creating agreements which do a great job of protecting them. Since these agreements are not balanced, however, experience shows that they ultimately fail. We refer you to the MANA Manual for the Creation of a Rep-Principal Agreement which includes the background and rationale for all the clauses found in a typical agreement. The Manual has sample agreements as well.
Once the agreement has been negotiated, the terms need to be put into a formal legal document. MANA strongly recommends using an attorney familiar with rep law and the rep business to finalize the language. A list of law firms that meet this criterion is available from MANA headquarters. Please note that we purposely use the word “agreement” rather than “contract.” Agreement suggests a partnership type of relationship; “contract” implies more of a protective or adversarial relationship.
We’re obviously making progress here, and the relationship is now formally in place. Time to go to work with each other.
The next step that MANA recommends is to create a mutual action plan. Take a good hard look at the current reality in the territory. Who are the customers? Which ones have the potential for the highest sales volume? Who are the competitors? What are their strengths and weaknesses? Set up a mutually-agreed goal and figure out who needs to do what by when to make it happen. Write it all down and commit to a plan — and implement the plan. Revisit it often and make changes where appropriate. This is the way real business partners work as opposed to the principal setting up a “quota” which has no relationship to the real world. This plan should be unique to each of your territories.
MANA Educational Resources
All that has gone before in this article has covered the concrete steps that principals and reps should take to establish and maintain firm business relationships. There’s more that must be considered. The most important thing principals and reps can do to get the relationship headed toward an excellent result is to act in an ethical and trustworthy manner. When we first meet someone, the trust level is neutral. As we get to know each other, the trust level moves in a positive or negative direction. MANA’s Steps to Becoming a Quality Principlal program and seminars can help you learn how to accentuate the positive. With a high trust level, good things happen because the open and free exchange of information enhances both parties’ ability to help their customers.
There are many other elements which work together to enhance the rep-principal relationship, such as the willingness of both parties to invest in the appropriate means to build a profitable territory over time. This business practice — and many others — can be learned by accessing all the resources that are available through the MANA education bundle. In fact, your willingness to invest in a MANA manufacturer membership and in continuing education about the rep-principal relationship could be the deciding factor when the most professional rep firms consider whether or not to represent your company!
The first thing a manufacturer should ask when considering the creation of a rep council is: What do I expect my rep council to accomplish?
Remember that the whole idea of having a rep council is to achieve positive interaction — the working together to achieve common goals. Until this question is asked and answered, all the procedural planning in the world will simply serve as window dressing.
When considering answers to the aforementioned question, those answers should be general as well as specific. Since every manufacturer-agent situation is different from all others, one answer isn’t going to fit all. However, appropriate answers might be the desire to:
Plan pricing strategies, marketing initiatives and sales planning.
Develop plans to more effectively handle local trade shows.
Address how the council will work together on long-range plans for market expansion.
Generate ways to improve service and support of mutual customers.
Unless goals and priorities are established, it will be difficult to get an effective council moving.
One of the most frustrating aspects of rep council participation is for the agent to arrive at the appropriate time and place for the first meeting and have the manufacturer open the proceedings by asking “What should we do to have a good rep council?” That’s a question that should have been asked and answered long before the first session. Well before that first meeting, the manufacturer should be engaged in detailed conversations with his agents, determining where the council is going and what is to be accomplished.
Manufacturers who start a rep council with little or no input from their agents predictably will be disappointed with the results. Manufacturers who involve their agents during the preliminary planning stage, however, maintain that their councils are more effective than those run by manufacturers who dictate council terms to their agents. After all, the idea behind a rep council is cooperative effort. Why not start that effort from the very beginning?
For the purposes of our discussion, let’s assume that the manufacturer has involved his rep council members in the preliminary planning stage, either by lengthy phone conversations or even a detailed survey. What then is the next step?
The logical place to begin is with the selection and appointment of all those who will serve on that first rep council. If a working number of reps have been involved in your planning stages, it’s logical that those who have shared in that involvement would serve on the first council.
It’s not unusual that manufacturers who do plan their councils with several agents, do it with fewer than they know will be a part of the advisory team once the council is established. When all the plans have been made and it’s time for that first meeting, those manufacturers generally appoint the remaining council members.
For your first council members it’s best to seek out agents who have had experience serving on other such councils. Having an experienced group means that you will flounder very little. However, you should be prepared for some pointed comments from those agents. Their suggestions, based on past experiences, may surprise you, but pay attention and listen to their contributions.
The makeup of the manufacturer’s rep council should be determined by the way the manufacturer and his rep “consultants” envision the council working. If the plan is to appoint members based upon geographical considerations, special care should be taken to ensure that the country is covered equitably. On the other hand, if the council is to be representative of skills, specialties or markets, then the same care should be taken to ensure there is equitable representation. The single most important path to follow is that nothing is done arbitrarily and that there is no reason to cause someone to complain.
Keep in mind that membership and participation in a rep council is not some form of award. Rather it is an important and integral part of the job. One criterion to follow when selecting council members is that they should be agents who will do the job well.
Also keep in mind that reps aren’t the only individuals who make up the council — also represented are personnel from the manufacturer’s side. People from that side should include top management and those with important functional specialties.
When it comes to size, there is really no formula to apply that will guarantee success. It comes back to what you hope to accomplish. The size of the rep council is important only in that it reflects representation of both the agents and the manufacturer and that it is appropriate for the task to be accomplished.
Length of Service
How long should an agent stay on the rep council? Among considerations is the continuity of your council. It is desirable to have some part of the council stay in service for more than one year. At the same time you don’t want to have the same people in place year after year. An ideal solution is to have staggered membership. Have terms running from one to three years. That way you ensure there will be some turnover each year, but you won’t be starting from scratch. There is a tremendous loss in productivity when you have to start from scratch each year. When establishing the council, from day one ensure that you will have such staggered turnover by establishing one-, two- and three-year terms. After you’ve begun, you can settle into regular two- or three-year terms for all your members and you’ll be ensured of a regular infusion of new blood and new ideas every year.
Frequency of Meetings
Once established, how often should a rep council meet?
Most manufacturers convene on an annual basis and that seems to be a common practice. Some others also call special council sessions when they or their agents feel they are needed.
Timing of meetings also should be important. Those manufacturers who have seasonal sales situations should consider the time spent out in the field by the council members. It goes without saying that no council meetings should be scheduled during peak selling seasons. Make sure you obtain feedback from all the council members before scheduling a meeting date. Also keep in mind that agents represent other manufacturers, so time is needed to accommodate the needs of those manufacturers.
Meeting Locations
Then, there’s the decision of where to hold the council meeting. If holding the meeting at the plant is integral to the meeting’s success, then by all means, schedule it accordingly. Meeting at the plant also provides council members with an opportunity to meet and interact with other people at the plant whom they should get to know well.
Alternatively, the meeting could be held elsewhere. One of the choices is a resort and there are some factors to keep in mind when scheduling a meeting at a resort. Those meetings typically run for more than one day, often two or three. In addition, the meeting isn’t scheduled there for everyone to stay indoors. Think about the time needed and the expense related to a resort rep council meeting. Some manufacturers alternate between one year at the plant and the next at a resort location. Non-resort venues in central locations are also used.
Scheduling your rep council meeting to coincide with an industry trade show is another possibility that may only work if the agenda is very short, like resolving a single issue. The thinking goes that working a trade show is difficult enough as it is. When faced with the prospect of working both the show and the council meeting, neither provides an ideal opportunity to perform at the highest level.
Expenses
Who pays for participation in rep council activities? Most manufacturers pick up all council members’ expenses for the meeting, including transportation, lodging and food. It is not appropriate, however, for a council member to expect a manufacturer to pick up the expenses for others an agent brings to a meeting. If an agent is accompanied by a spouse, for instance, the agent should pay those additional expenses, unless otherwise notified by the manufacturer.
Responsibilities
Agent and manufacturer members should have specific rep council assignments and each should be accountable for successfully completing those assignments. At the outset, it is the manufacturer’s responsibility to actually run the meeting, but all members should consider it their responsibility to actively participate in the proceedings. Good practice dictates you create an “Operating Charter” for your Rep Council and we attached a sample one at the end of this report.
Agendas
What should and what should not be covered during a rep council meeting can spell the difference between success and failure. When councils fail, often the reason is because one side or the other sees the council as a place to resolve personal disputes or because members don’t take their responsibilities seriously.
Rep councils are not bargaining units. Any discussions that reflect a we/they situation are inappropriate. Also, it’s totally inappropriate for agent or manufacturer council members to discuss individual problems.
Thus it is important to decide in advance the appropriate subject matter to be covered during a rep council meeting. What is appropriate is anything that is important to tasks set by the council, anything that will help sell more product, and anything that will strengthen the bonds between manufacturers and agents. This doesn’t mean that members should function as a rubber stamp. Rather, it means that the council should stick to topics that directly relate to their common interests.
Follow-up
A natural outgrowth of any successful rep council is the establishment of action items; that is, whatever steps the council has mutually agreed upon that should be completed before the next meeting. The responsibility for seeing that action is taken falls squarely on the shoulders of the manufacturer’s employees as well as the agent members. Quite apart from each member carrying out assigned tasks, one agent member and one manufacturer’s employee should be assigned the responsibility for communicating with everyone who should be included in the loop.
Remember that it is very important for everyone to be aware of council activity. It’s also important that individual members be able to communicate when they have things that they feel should be presented to the council.
Is a Council Right for You?
Whether a rep council is or is not desirable for your operation is a personal decision based on personal needs. However, judging from historical input from the field, the existence of some type of council, formal or informal, makes sense for most. Such councils make everyone more productive. At the same time, participation in these councils is hard work. There will be conflicts and doing the job right takes a lot of time — but in the long run, the benefits in terms of better communication and improved relationships between principal and agent far outweigh any negatives.
Rep Councils and Why You Need Them
We address this section primarily to sales managers and rep-managers who are responsible for a rep network. Reps, like your teenage kid, will tell you what you want to hear when you ask a question. Unlike your teenage kids, there is a good reason or perhaps a better reason for reps to tell you what you want to hear. They don’t want to antagonize a good principal and get on your wrong side. Being on the wrong side of a principal can lead to the loss of income or the line. This is one of the main reasons to have a rep council.
A rep council is an advisory board appointed by you, the manufacturer, to advise you and your management. The council should consist of rep firm principals who are good business people, not just your friends. They are there to be your eyes and ears in the field and a reality check for sales and marketing programs. You need honest and accurate feedback on customer trends, pricing strategies, marketing initiatives and sales planning. Rep councils usually meet face-to-face once or twice per year. A good time is when you are in your planning cycle for the following year.
A rep council is a good way for you to introduce your rep sales network to the management of your company. Get the management involved in your rep council meeting. Have the finance person who authorizes the commission checks interact with your reps. Have the CEO talk about strategic direction of the company. This is good for a couple of reasons. If the management of your company knows and understands what reps do and how they do it, it will be easier for you as the rep manager to sell your programs internally. The second reason is that your reps will be more connected to your company and its product line. As rep sales managers, we always look for our unfair share of time from our reps.
Use the rep council to represent the other reps in your network. Assign members of the rep council to get honest and frank input from the reps in your network. At your rep council meeting, go over the results of that feedback and listen. If you can answer questions, then answer them; if not, get back to the rep network with answers. Remember, this is a business meeting and should be run as one. Minutes should be taken and distributed. The rep council is a great conduit back to the rest of the rep network. They have some credibility that you don’t.
Rep councils are a good forum to plan your next sales meeting. Find out what the reps think they need for training. Ask for advice on topics that you believe should be covered. This information can help make your next sales meeting a real winner.
Do not use the rep council to hide from tough decisions you need to make. The rep council is an advisory board, not a policy or strategy making body. You and the management are responsible for the decisions that affect your company. The rep council only offers input for decision making.
So what value does a rep council bring the rep? The rep should have a principal that is supportive of and knowledgeable about reps. This translates to trust, better understanding and larger commission income.
If you don’t have a rep council now, start the ball rolling and get one in place. If you are a rep and have a principal that could use a rep council, make the suggestion. Rep councils are well worth the time and effort.
If the independent manufacturers’ representative serves as the “eyes and ears” in the territory, then one of the most effective means to truly see and hear what’s going on is the rep council. That’s the view of two manufacturers well experienced in the operation of rep councils. Both Vanguard Piping Systems and Eriez Magnetics have operated rep councils for years, and both have learned to depend upon the input they receive from their reps in order to better serve the market.
While both companies took slightly different routes to their implementation of rep councils, each has arrived at the same conclusions:
Regular council meetings can head off problems and concerns before they become major headaches.
Reps appreciate the opportunity to exercise a loud and clear voice with their principals.
Councils are valuable tools for manufacturers to communicate with their reps and reps to communicate with their principals.
Charlie Ingram, vice president sales and marketing for Eriez Magnetics, explains that his company’s rep council began operations, shortly after he joined the company. “I previously had considerable experience working with distributor councils and working with a direct sales force. I felt strongly that having a rep council would help us. At the time, we felt we had excellent communication with our reps, but our goal was to formalize that communication into business meetings that ultimately would help us better serve our mutual customers.”
He adds that an underlying reason for the council was the desire to completely eliminate any form of an “us vs. them” attitude and to firmly establish an agenda focused on the rep-manufacturer relationship. “We worked very hard to set up a platform that would allow us to discuss how we could collectively serve our customers better by finding what each of us could do better to improve our methods of communication and service. In other words, we were looking to get to the point where one plus one would equal three.”
The Erie, Pennsylvania-based Eriez Magnetics designs, develops, manufactures and markets magnetic separation, metal detection and materials feeding, screening, conveying and controlling equipment for the processing and metalworking industries.
Getting a “Feel” for the Rep
Vanguard Piping Systems, McPherson, Kansas, espoused similar reasons for starting its rep council. According to Dalyn Cantrell, national residential sales manager, “We simply wanted to get a better ‘feel’ for what our reps face every day in the field. They are the ones who are face-to-face with the people that make our company successful. In order to continue to grow and improve as a manufacturer, we have to listen to our customers. The rep council fills that need.”
Vanguard Piping Systems manufactures cross-linked polyethylene (PEX) tubing and accessories for a variety of plumbing applications. The company has been recognized three times as one of the 500 fastest-growing U.S. companies by Inc. magazine.
Looking back at the beginnings of his company’s rep council, Ingram recalls that there was some concern among management that the council might evolve into sessions where only rep complaints would be aired, and “all we’d be talking about would be what everyone is doing wrong.” Such whining sessions were avoided, however, as the effort was made to “seed” the council with reps that had served in similar capacities elsewhere. “I made a concerted effort to survey reps that had served on other rep councils and to determine what were and were not meaningful experiences,” he explained. “I made sure that our charter members reflected a balance among our reps. It was made up of those who had been with us for a while, together with some who were fairly new.”
Ingram emphasized that much of what he did with his rep council was culled from information gained at a MANA seminar that was dedicated to the subject of running successful councils. “I remember one of the examples from that seminar cited a manufacturer that formed a council made up only of his five or six top-performing agencies. This didn’t work, because all they chose from were reps that made up a virtual ‘love fest.’ Everyone was happy, and they didn’t get any input from others who might have suggestions on how to make things better in the territory.”
On the subject of the tendency of having rep councils turn into “whining” sessions, Vanguard’s Cantrell offers that “Yes, sure there’s a possibility that can happen, but that’s not entirely a negative. We want our reps to bring every issue they can think of to the table. If it turns out to be a personal issue, however, our approach is to say ‘Look, that’s not something we necessarily face on a national level. We’ll deal with that later. Right now, we want to work on things that impact all of us.”
She continued that “one of the biggest challenges that we faced in the beginning was conveying to all of our reps that the rep council meetings were for them! We wanted them to vent — in either a positive or negative manner — and those of us from the factory were there to listen — not talk. Our rep council members are given a list of contacts (other Vanguard reps) months prior to the meeting, and they make and bring the ‘agenda items’ to us at the meeting. We are prepared to discuss anything, and we want to. Once we got our reps to understand that if they didn’t come to the meeting armed with agenda items we were wasting our time, everything went very smoothly.”
Both manufacturers emphasize the positive aspect of having a rep council in that a rep should be complimented that he’s asked to participate. “We’re especially picky,” notes Cantrell. “As a result, we’ve got great reps making up our council, and it works well for us.
Ingram adds that for any rep asked to participate in his company’s rep council, “It should be viewed as a reward. It’s not just another business meeting. Rather there’s an amount of prestige that goes along with us asking them to serve.”
Length of Council Service
Both companies explain that having a plan in place for rotating rep council members on and off is important in terms of ensuring that fresh ideas are contributed. According to Ingram, Eriez Magnetics’ “goal is to have a council composed of seven members, each of whom serves a three-year term. Two members at a time are rotated off.”
Cantrell explains that “With our very first council, three members served a year and three others served a two-year term. This started our rotation of two-year terms that included annual meetings, with half of the group rotating off after four meetings.”
Importance of Regular Meetings
One of the keys to the success of an ongoing rep council rests with the continuity of the effort. Both companies have regularly scheduled meetings and they follow up the meetings with action.
According to Cantrell, “We conduct our meetings annually at an ‘off-site’ location. We find that going somewhere ‘neutral’ makes our meetings much more productive as we all are able to focus on the agenda — and nothing else. For instance, our last meeting was in Denver, and our next meeting will be somewhere in the eastern region, perhaps Washington D.C. or Nashville. We also try to rotate regions for our locations. After we go east, we will probably shoot for San Antonio or Chicago in the central region.”
Likewise, Ingram notes, “Our meetings take place every nine to 12 months. Almost all of them are off-site from the factory. We look to find some sort of neutral ground that allows us to get outside our normal environment. We’ve tried both business and resort locations someplace in the middle third of the country. That makes it easy for just about everyone to attend.” He adds that Eriez also has conducted its rep council meetings in conjunction with various association and trade events/conferences.
No meeting can be successful unless plans are laid ahead of time, and that’s what Eriez does, according to Ingram. “Each of the six reps that comprise our council have their own team of five or six reps that they communicate with. Prior to the regularly scheduled rep council meeting, we’ll send out a form from headquarters to all of our reps. That form includes all the issues we’d like to have addressed and discussed. At the same time, we ask that our six council members solicit subjects/ideas for the agenda. After we receive those suggestions, we’ll put together the formal agenda we’ll cover during the meeting.
“The meeting itself generally covers an entire day with dinner the evening before. After the meeting we follow a formal and an informal process. We’ll formally put together a report that covers every agenda item. This is circulated among all members of internal management and our field sales offices. The rep council members typically provide their own report back to the five or six reps that they work with.”
For its rep council Vanguard has divided the country into three separate sales regions: East, West and Central. Cantrell explains, “Each region has a regional manager and for the first rep council, each regional manager chose two reps from each of their regions. That gave us a total of six reps. If the meeting is scheduled for a location outside the rep council members’ territories, the local rep is invited as well. As a result, we either have six or seven reps in attendance at each meeting. Only the six council members are assigned other reps to contact prior to the meeting.
Cantrell continues, “Since we began our rep council, we’ve found that two meetings a year were too much and we didn’t have enough time between meetings to address issues that needed to be addressed. It was also very expensive to conduct those two meetings a year and take our key reps off the street when they could have been selling our products. At the request of our rep council members, we now have an annual meeting and members serve three-year terms. Departing members are replaced by someone else in the region, chosen by the regional manager. Of course, chosen reps must be willing to serve on the council. If they choose not to, another rep is chosen.”
Placing a Value on the Council
Looking back over several years of success with their rep councils, both manufacturers offer that the effort has been well worth it. Ingram notes, however, that the rep council is a body that must be relied upon as a contribution to the marketing and sales effort. “The rep council isn’t something you can necessarily pull out of a box every once in a while,” he says. “On the contrary, we use the council throughout the year. Our council members are tapped regularly for their opinions on multiple issues throughout the year. Examples of subjects we’ve consulted them on have been payment terms, literature formats, and new policies.”
He concludes that while there is a certain expense affixed to conducting the rep council meetings, “Overall, I don’t think the expenses have been extravagant. On the other hand, there’s no question that the council has resulted in any number of money-saving, money-making suggestions.”
In the same vein, Cantrell adds, “While our council hasn’t necessarily changed the way we work with our reps, it has solidified and enhanced our relationship with our reps. By having the meetings and coming away with a ‘to-do’ list, and then actually acting on most of the issues, we show that the council, and all of our reps for that matter, really do make a difference. It also shows that Vanguard cares about what they have to say. Our reps play a huge role in our day-to-day business and our continued growth and success. The council gives us the opportunity to listen to the market through the voices of our reps. It works!”
Better Late Than Never With A Rep Council
The only complaint Michel Podevyn, chairman, Spiroflow Ltd., voices concerning his company’s rep council is that he didn’t start it sooner. Those words should be read as a ringing endorsement for the concept of creating and listening to the members of the council since its inception a little over a year ago.
The Consensus Advantage
As Podevyn explains, Spiroflow started their rep council with the primary purpose of taking advantage of a consensus from a small group of people “whose views we respected.” He emphasizes that those who comprise the council may not be the highest performers in terms of turnover or sales. “Rather, they are individuals we hold in high regard in terms of the industries that we are involved in.” Geographically, members of the council come from the following areas: California, North Carolina, Massachusetts, Louisiana and from the Philadelphia and Seattle areas.
The council is set up to meet twice annually. “Initially, we felt it was important to hold our first meeting here in Charlotte,” explains Podevyn. “From the outset, we wanted to maximize our time with the members and take advantage of the proximity to our plant so members from farther away (e.g., the West Coast) could become familiar with our manufacturing process and the plant personnel. Following our first meeting, our goal is to either pick a central geographical location or have subsequent meetings near one of our member’s locations and have them host the meeting with us covering all costs.” He adds that a resort location would only be considered for the meeting after checking with the council’s members for their preference. “If everyone agreed a resort was a good idea, we’d try to make it over a weekend.”
Only the Vocal Need Apply
When it came to picking council members, Podevyn emphasizes the importance of choosing people who have an opinion and are willing to voice it. “I made sure I knew the agents we were going to ask to participate and I was sure they’d accept. Furthermore, we didn’t want anyone who was going to hold anything back.” After he chose those he wanted on the council, he called to ask for their participation. “They were all very enthusiastic and honored that they had been chosen. Once I had their acceptance, I sent them an agenda for the first meeting and asked if they would like to add, delete or suggest any changes. After just a few changes, we had our agenda.”
Looking back over the first council meeting, Podevyn critiqued it by saying, “I conducted the meeting and we religiously stuck to the agenda. We got what we wanted. No one held anything back. We took detailed minutes of the day and a half meeting and in a little over a week we had an action column that evolved from the meeting. Several of the action items will require work from people within the company and a few of the reps volunteered to provide input. Some of the action items will take more than a year to implement, but all the ideas were excellent.”
Listen, Appreciate and Provide Feedback
For anyone else considering the implementation of a rep council, Podevyn was adamant that “they be prepared to listen to what their reps tell them. Remember, listening doesn’t necessarily mean you’re going to implement something to the tee, but listening is critical to the communications process. And by listening, I mean you let the participants, who have taken as many as four days away from their businesses, realize that you truly appreciate what they are doing for you. Unless you are prepared to do that, they won’t participate again.”
He adds that even if “you don’t agree with suggestions the council offers, you must tell them why. Then come back with a compromise plan. Feedback is critical. If you have a meeting and everyone goes away feeling nice and warm and then nothing happens, you won’t succeed. Remember you’re working with sales organizations here. If you give them a checkbook, they will empty the account accomplishing things that will help them sell better. A lot of the ideas the council will offer can be cost prohibitive, but that doesn’t mean they’re not good ideas and can’t be implemented long-term.”
New Blood Keeps a Council Alive
Podevyn remains enthusiastic for the use of the council in the future but he realizes the need for new blood and new ideas. “For the future, we’ll probably ask our council members to sit on the council for only a year. However, any of them who volunteer to serve longer would be graciously accepted. However, I hope if that happens that they would send a different person to participate in the next session. That way we’d get new people but achieve some continuity at the same time.” He added that eventually there would be an effort to stagger the membership so there was a regular turnover of agencies — while at the same time maintaining the continuity needed for the successful operation of the council.
In hindsight, Podevyn admits “I wish we had a rep council from day one, particularly because the original company was a joint venture with a company from the United Kingdom. Initially, all we really heard was what our two partners thought were good ideas. I can see that we’ve already greatly benefited as a company from the council instead of talking among ourselves.”'
“A properly established and run rep council is a critically important piece of the relationship between a manufacturers’ representative and a principal.”
With those words of introduction, you know in a hurry where Bob Gerrard comes from in a discussion of rep councils.
Gerrard, of Gerrard & Associates, Inc., Mooresville, North Carolina, knows from whence he speaks, since he’s been an instigator, advocate and participant in the operation of three rep councils in his career. Gerrard & Associates, a manufacturers’ rep, sells dry bulk material handling equipment. The agency has five employees and represents the lines of 13 manufacturers. Its territory covers North and South Carolina.
“I was involved in starting up all of them,” explains Gerrard, “and basically they were initiated for one of two reasons. The first manufacturer was simply in serious trouble. They weren’t shipping, performing or delivering products on time. The other two companies I’m experienced with realized that it was just a good idea to have a rep council.”
Considering first things first, Gerrard related his experience with the manufacturer who wasn’t performing. “The first rep council was one that was started by the reps, not the manufacturer. We had reached a point where something had to be done — it was a case of self-survival. The manufacturer in question was one that was very important to all of us, but so many problems had developed that I felt the reps had to get together to discuss mutual problems. All of the reps I contacted for the council shared my concerns and realized something had to be done. Once we got the reps in line, I called the manufacturer and let him know what we were doing. He was invited to participate in the council meeting. Actually what I told him was that there were the beginnings of a revolt going on among his reps, he could meet with us or not, but we were going to meet anyway.”
Gerrard continued that the manufacturer (the vice president of sales) agreed to meet with the reps, “but he was more politically correct than anything else. His message was to go ahead, have the meeting as if I’m not there. That’s a typical reaction from someone who views the rep council as a threat. As the meeting moved on, however, it wasn’t long before he realized we were not a threat. We just wanted to make a bad situation good.”
Gerrard continued that the manufacturing executive was impressed with the interaction among the reps and the fact that the issues tackled were not petty, rather they were substantive. “Actually it was an education for him. He saw that we were true professionals and could contribute. There were also no real surprises for him and his company, he knew the company was in trouble.”
The end result in this case was that the manufacturer kept the rep council running successfully for a little over a year and made efforts to communicate with their network of reps. Eventually, however, they fired all their reps and went with a direct sales force.
In the two other instances where Gerrard was involved in the establishment of rep councils, he explains that both evolved from each manufacturer’s genuine desire to foster better communications with their network of reps.
From his experience with manufacturers and their rep councils, Gerrard maintains you can tell a lot about how a manufacturer perceives his reps. “Many will just give lip service to better relations with reps, but a company that is serious about creating partnerships with their reps will embrace the concept of a rep council.”
On some of the logistical issues that surround the operation of a rep council, Gerrard has some firm ideas on what should be done:
“When it comes to payment of expenses, I believe the manufacturer should pay all related expenses for a rep council. Remember the rep council is not a sales meeting, rather it’s an opportunity for both sides (manufacturer and rep) to gain through communication. It’s important for the manufacturer to pay expenses because the rep is making a significant investment of his time, since he is being pulled out of the field and away from his customers. What this gets back to is, What is the manufacturer’s perception of how valuable the rep’s time is, or is he simply taking the rep off the golf course?”
In Gerrard’s opinion, the rep council meetings must be conducted at or near the company site. “While they shouldn’t be held at the factory, factory personnel should be available to the meeting participants.”
How often rep council meetings are conducted is dependent upon how big the agenda is and how active the council has been between regularly scheduled meetings. Gerrard emphasizes that councils should be active between meetings, gathering comments and suggestions from participants. He also maintains that an annual rep council meeting was generally sufficient and it works especially well if it can be scheduled around an industry trade show that participants would normally be attending.
When it comes to the agenda, he maintains that it should be set by both the manufacturer and the rep members, but “at the same time, it’s important to remember that it’s normally the manufacturer who starts the council, so he should have major input into the agenda.” When it comes to the agenda, Gerrard cautions that not having a serious and well-thought-out agenda can be a serious error. “I’ve developed that opinion by way of observation. I am stunned by the number of manufacturers who don’t understand their own marketplace — and that’s reflected in their lack of knowledge when it comes to putting an agenda together.” He adds that an agenda should develop naturally as the manufacturer and his reps realize that they have something important to talk about.
Once a council meeting is conducted, it’s up to the manufacturer to take care of notes, the dissemination of the minutes and any follow-up required from the meeting.
What should a busy rep’s reaction be if he is asked to serve on a rep council? According to Gerrard, “As long as a serious and significant agenda is presented, he should be complimented and make every effort to participate. If his first reaction is ‘I’m too busy in the field for this,’ then he’s in the wrong business.”
The Good, the Bad, And the Ugly about Rep Councils
The title of an old Clint Eastwood movie, The Good, the Bad, and the Ugly, comes to mind as a number of manufacturers’ representatives were asked for their thoughts regarding rep councils. There was just about a universal feeling that reps were positively disposed toward such councils, given a few important caveats. Among those caveats were:
Manufacturers should set the agenda for such councils.
Manufacturers should allow for the free communication of ideas during such councils.
Following council meetings, action must be taken and communication undertaken, thereby giving weight to the reps’ efforts in participating.
Principals must approach such councils with an open mind and be willing to accept and often act on the input of their reps.
To let you know where this thinking comes from, what follows is a sampling of the views of several of the manufacturers’ representatives contacted for this article.
Taking the Good with the Bad
The original reference to “the good and the bad” comes from Ed Reese, Motion Components, Brea, California. Motion Components sells a variety of industrial products, including ball screws, acme screws, slip rings and ball bearings to OEM customers.
According to Reese, “I had a situation where I wasn’t on the rep council but one of my people was. After attending a two- or three-day council meeting, he came back to us with his version of the feedback. Two weeks later the principal suddenly announces sweeping changes in their sales and marketing program. These were all changes that were never alluded to in the council meeting. And when they announced their changes they told us, ‘We need your feedback.’ I said ‘No, we need yours.’ Then I asked them if they were thinking about this drastic change, why didn’t they bring it up at the council meeting instead of springing it on us two weeks later? Their response was they didn’t think that was the place to do it.”
If that was the bad side, Reese also knows what the good side is like. “We have another principal and while there is no formal council, we do get invited from time to time to get together. They bring in their top reps and we just chat about things that are important to all of us. This type of communication has led to many important changes with their inside sales group and also led to additional changes in manufacturing where they as a company didn’t realize they needed more production to meet market demand.”
Only the Well-Run Rep Council Need Apply
“Rep councils can be very productive for the manufacturer and his reps, but they have to be operated properly.” That’s the view of Gene Fields, South-West Independent Marketing, Inc., Santa Ana, California. Fields explains that for several years he sat on the manufacturer’s side of the desk before becoming a rep, and over the years he’s seen the best and the worst among rep councils.
“If I could offer an overview,” he says, “it’s that if the manufacturer doesn’t maintain control of the council meeting, it won’t go well. If he lets reps run helter-skelter with the thing, it will turn into an ugly experience. That can be avoided by creating and sticking to an agenda. Inherent in the agenda is the fact that it is the manufacturer’s rep council and he’s in control. If he exercises that control, then the results will be beneficial.”
Fields recalls one instance where the manufacturer did not exercise the necessary control and suffered the worst kind of results. “It wasn’t long into the meeting when all the reps became so angry that they just got up and stormed out of the meeting — it was over almost before it began.
“A major benefit to the principal in the operation of a well-run rep council is that he receives excellent feedback from the field. Concurrently, the rep benefits by being able to give his input regarding any number of matters including the kinds of products the manufacturer needs to introduce, or changes in his sales policy or adjustments in pricing policies.”
Fields concludes by offering this advice: “My recommendation is for manufacturers to have rep councils and to control them. And for reps, if they are asked to participate, do so. It’s a compliment and your active participation will only make them more effective.”
Councils Not the Norm in Some Industries
Frustration was voiced by Jim Robinson, JAYROB Assocs., Leucadia, California, when the subject of rep councils was raised. “If something like a rep council developed in my industry, it would be enlightening and shocking.” Robinson sells plastic injection molding/extrusion machinery, auxiliary equipment and plastic raw materials to end users, the government and OEMs.
He maintains that in his industry, where the $40 to $50 billion a year companies are the norm, such councils would truly benefit those involved, but it’s very difficult to get things started. “I’ve tried to put together councils with two different principals, but each time the principal fought it off.” He adds that it is generally the principal who is number-one in the market that resists councils the most. “These companies are generally very dogmatic in their relations with reps.”
Robinson believes that such councils serve a positive function “given my philosophy that the more a rep can be made to feel a part of the manufacturer’s organization, the more he can make it transparent to his customers he is not an independent representative. Participation in a council lets the rep appear as a fully informed, knowledgeable and dedicated arm of the manufacturer. In order to do that you need a good understanding and sense of partnership on both sides — and that’s what such councils create.”
He advises that principals can greatly improve the performance of their reps “by making them more of a team. They’ve got to communicate a feeling of partnership rather than dictatorship.”
Strength in Numbers
The collective strength of the reps’ voice is a major reason Tom Hippensteel, Sr., Mr. Hip Marketing Corp., Tustin, California, believes in the operation of rep councils. “I’ve served on a couple and they’re especially good because they provide a venue whereby the principal can be exposed to a problem that an individual rep would never mention. For instance, a single rep may not want to tell his principal that they have the worst quotes of anyone in the field. He’d be afraid of the repercussions. But if the entire group discusses the issue, that’s another matter. Certain problems can be exposed and discussed for the good of all.”
Hippensteel, who represents castings, forgings, stampings, rubber, plastic, fasteners and machining, did offer the following suggestion for a council meeting: “Have someone other than the principal’s sales manager record everything said at the meeting. Be sure to record all comments and suggestions, unless all in attendance agree something should be kept off the record.”
Be Prepared to Handle Sensitive Issues
Paul Kruschke, Industry to Industry, Inc., New Berlin, Wisconsin, made the mistake of being so proactive in favor of creating a rep council that his principal named him chairman for the group. “To be honest, I put at least 40 hours into preparing for the meeting that the principal really had very little to do with. I based my preparation on a combination of information from MANA and some creativity. What turned out was an interesting experience, especially because at some point we ventured into confidential areas of our principal’s operation. We learned that you must be prepared to take care of sensitive issues. At the same time, if something derogatory about the principal is brought up during the meeting, we required that participants had to be prepared to provide a solution or suggestion that would assist the principal.”
At its best, Kruschke maintains rep councils provide an “extremely good opportunity for principals to learn firsthand from us what’s going on in the field. Second, there’s the opportunity to learn what the competition is doing when they hear it firsthand from us. And finally, the council serves as a vehicle where concerns or problems reps may have can be addressed in an organized manner.”
Kruschke continued, however, that what was tragic about the whole experience was that while he believed “the principal really wanted to hear certain things, he didn’t have a determined agenda to share with us. As a result, only some of the important areas were covered.”
In the future, Kruschke maintains he would be glad to serve on another rep council. “The only thing I need is that the principal demonstrate to me that he is open minded enough to not only discuss confidential matters with his reps, but also to commit to take action based on the input of his council. That action should take the form of some sort of communication to the rest of his rep organization.”
Communication Benefits All
While admitting that he had no direct experience in participating on a rep council, William J. Dunkley, Jr., Midwest Air Equipment Company, London, Ohio, describes himself as an advocate. “Just recently one of my principals asked me to participate and I think the experience will be very worthwhile. From the rep’s perspective it’s beneficial because it allows us to provide the manufacturer with input directly from the field. For instance, we can let him know what we think about the quality of his product based on our experience with customers. “Basically, we can communicate directly to him what the needs of the marketplace are. Such councils are of benefit to the manufacturer because they know we have our fingers on the pulse of the marketplace and they know they’ll have a forum from which they can draw upon our experience.”
Worth the Effort
Ken Roinos, RLJ Associates, Inc., Scotia, New York, admits the idea of serving on a rep council sounds mighty appealing. “I’ve never been on a council but whenever I’ve met other reps at training programs sponsored by principals, the networking has been very beneficial. In addition to what one rep can learn from another, the feedback the principals would receive from such a group would be well worth the effort.”
Roinos sells welding equipment, composite parts and waterjet cutting systems to contractors, OEMs, and end users.
He also maintains that rep councils could serve as the ideal medium to carry criticism to the manufacturer concerning how they may be perceived in the field. “Remember, there’s safety in the numbers of a rep council. Most of these principals are successful businesspeople, so when more than one person delivers a criticism to them, chances are they’re going to listen.”
The Need for More Rep Councils
If all manufacturers were to operate as those contacted for this article, then they would depend on rep councils as a major tool in the communication process with their field sales force. Unfortunately, that’s not the case, because there is a great need and plenty of room for more rep councils. While we’re waiting for that growth to occur, however, read what the following manufacturers had to say about their experiences.
The need for the rep council to focus more on ways to increase business was the wish of Don Reynolds, Jordan Controls, Inc., Milwaukee, Wisconsin. Jordan manufactures products for process control industries.
As Reynolds explains his company’s experience, “We conduct rep council meetings about every six months, generally following guidelines provided by MANA. We begin with a pretty hefty agenda and many of the subjects covered are the ‘touchy feely’ type. They include things such as the need to change commission structure, not the rate, just how we split commissions. Council members wanted to have a notification on field service when they go out in the field rather than the normal notification after they return. They voiced their desire to have a new product catalog with their name on it. We go right down the list and accomplish all items. Long-term our desire is to cover subjects that will help us increase business. What we’ve done so far is to make changes so that it’s easier for reps to do business with us. During our next meeting it’s my hope we can come up with items that will help us both increase business.”
While Reynolds is very high on the operation of rep councils, he voices some disappointment in how results of the council meeting are communicated to all reps — those not on the council. “I believe a lot of reps in the field don’t pay attention to the results of the rep council meeting. Following a council meeting and after we’ve disseminated minutes of the meeting, I’ll have our regional sales managers go out in the field and ask reps what they thought of the various action items. Most of them never read the minutes. Their answer is that if we realized all the paperwork they had to complete, we wouldn’t read them either.” He adds, however, that he believes the operation of the rep council is maturing, and since the pent-up demand for many of the earlier action items has been met, “I believe we’ll begin to focus more and more on ways to increase business and provide our customers with greater satisfaction.”
In terms of actually naming members to a formal rep council, H.B. Turner, Heatron, Inc., Leavenworth, Kansas, explains “While we never called what we do a rep council, for the past two years we’ve employed a process whereby we have a group of reps that helped us design a sales expectation performance program for our agencies. Then they designed some forecast software that they work with. During the second year, the group revamped our contract, putting in commissions structured on a graduated scale. This was done so they would be compensated for new business and receive an additional 2% when they reach goals. Our plan for the third year is to have them monitor the work they did during the first two years.
“The group we’ve worked with has been given specific goals. We’ve never had a council that has dealt with day-to-day operations. With the task assigned to them, the reps have a great deal of input, although we have the final say.”
Turner adds that in his view “a council or network of reps is a very good idea. In many ways it assists the manufacturer in showing his dedication to the rep sales force and his belief in marketing through agents.”
Heatron is a manufacturer and designer of custom heating elements, including cartridge heaters, band, strip and aluminum heaters.
And finally, a third manufacturer compares a well-run rep council to a company newsletter. “I advocate the use of a rep council, but I think they’re a little like a newsletter in that everything goes fine for a couple of years and then they die a natural death. Likewise, councils run well for a while and then they die their natural death.”
He adds that “we’ve had them in the past and they’ve worked well. Right now we don’t see any need for the input they can provide. But I’m sure we’ll have them again in the future.”
When his company has had councils in operation, this manufacturer noticed a couple of dangers. “We’ve used councils and have a lot of experience with them. Their effectiveness is obviously a direct result of how well managed they are. Somebody had to take charge and that has to be the manufacturer who appoints one person as the lead person. If you don’t get strong and competent leadership from that person, then the whole process breaks down. And when it breaks down, everybody loses interest and it dies. If done correctly the rep council offers tremendous value in generating ideas from the reps. In addition, typically the rep members of the council are the ones who are more committed to the line and their opinions are valued by the manufacturer.”
While vouching for their effectiveness, he also warns “If not managed properly, the council can disintegrate into simply a means for beating up everyone on matters such as price, delivery and product quality. And, if held at the factory, it can reach a point where people there will dread the rep council.”
Then there’s the problem of the manufacturer making promises to the rep council and not following through. “If the manufacturer says he is going to make this or that change and doesn’t do it, the confidence your reps have in you is shaken. In that case the rep asks what was the sense in us providing all this feedback if you’re not going to do anything with it?”
Appearing in the pages of Agency Sales over the past several months have been related articles on the subject of rep councils. The subject has been viewed from a number of perspectives including:
Manufacturers who have and have not worked with councils.
Reps who have worked on councils and those who wished they had.
How to start and maintain the council.
How to plan and cover an agenda.
How to populate and rotate membership on the council.
While it would be ideal to go back and read every article that has appeared in this series, what follows will serve as a review or checklist to consider when approaching the rep council from either the manufacturer or rep point of view.
Communicate Your Council Goals
Obviously the best place to start is the beginning — so let’s go there. At the outset, to ensure that your plans for operating a rep council don’t proceed in a void, it’s critical to communicate. Communicate with every person who will be involved with the operation of the council. As to what you’re going to communicate, start with the goals you hope to accomplish. At the same time, let all who will be touched by the council know what your role in the process will be. Once that’s done, there won’t be any surprises as the process evolves.
Member Selection
Next, address the process of selecting your council’s members. Many manufacturers have found that they’ve had better experiences by choosing manufacturers’ representatives to serve who have been with the manufacturer the longest. They know the manufacturer, his product, his personnel and the marketplace better than anyone else. In addition to the knowledge that length of service provides, their tenure will also provide them with a willingness to participate in the process with a high level of candor and objectivity.
The newer or less experienced reps should not be excluded from the process, but at the beginning it’s often helpful to have the more seasoned veterans available who can help you hit the ground running.
On the manufacturer’s side, the personnel who sit on the council and participate in its workings should be senior personnel who carry the appropriate titles. At the same time, they should be empowered to make decisions on behalf of their company without having to check with some higher ups.
Length of Service
Then there’s the question of how long should members serve on the council. The quick answer is that they should stay in place for as long as it takes them to get something accomplished. Given that a manufacturer’s council will probably meet once or twice annually, it would appear that a one-year term is hardly desirable. Several of the manufacturers contacted during the preparation of this series of articles leaned more toward a two- or three-year term. And one manufacturer who uses the latter time period ensured the production of his council by planning a major goal for them to achieve each year. That way both the principal and his reps realized a feeling of accomplishment.
Length of time on the council for rep members should be staggered so that while there is a continued infusion of new blood, there are also a number of experienced reps who stay on, thereby guaranteeing stability in the council’s operation.
Market the Council
Since the success of any manufacturing venture can only be achieved via a comprehensive marketing effort, so too should the operation of the rep council. In other words, once it’s up and running, to give it a chance to succeed, see to it that it is constantly marketed to the entire representative sales force. As can be read in this series of articles, this can be accomplished through newsletters, having the manufacturer’s regional managers communicate the word in person, or having the rep members of the council communicate to their peers. In any event, the efforts of the council will be wasted if there is not a concerted effort to get the word out.
Council Size
Function and representation should be the key words when considering how large (or small) to make the council. Keep in mind that if it is too large, it becomes cumbersome and very difficult to accomplish tasks. When thinking of size, consider what it is you want to accomplish and then decide what number would be needed to get the job done.
Keep it Going
If the council meets only once or twice a year, that doesn’t mean that’s all there is to the job. Before and after the formal meeting, the council should still be operating, whether it’s planning, communicating or implementing new plans.
Expenses and Location
Finally, there are expenses and location to be considered. Most of the manufacturers we contacted maintained that since they knew they were taking their reps out of the field and causing them to lose time in their territories, they felt it more than appropriate to take care of expenses. At the same time, that’s the same kind of reasoning that caused some manufacturers to occasionally conduct their council meetings at resorts — away from the plant — as a form of partial reward for the efforts their reps were making by their participation. However, many did emphasize the importance of holding the meetings at plants to allow reps to become more familiar with the manufacturing process and the personnel they are so dependent upon.
Other Considerations
If those are some considerations to keep in mind when planning a rep council, once it’s up and running, there are some other elements to keep in mind. For instance:
When a small group of people gets together, there’s always the danger that someone has a personal agenda. Avoid that at all costs.
Goals should be realistic and reachable. There’s nothing worse than a volunteer serving his time and realizing that nothing he did made any difference — that whatever was set as a goal could never be reached.
Responsibility and accountability should move to the fore. Be sure that each member of the council knows what their responsibilities are and emphasize the point that they are expected to follow up on all their assignments.
In communicating the agenda, emphasize that each member of the council has the opportunity to submit topics that they feel are important.
One member of the council should carry the responsibility to take minutes of all meetings and then follow up by communicating those minutes in a timely fashion.
Feedback is critical to the successful operation of the council. As a result, manufacturers should let members know what they thought of the council meeting and they should require council members to provide similar input from their vantage point.
Council members should be encouraged to work closely together and the manufacturer should make his personnel available to council members.
Sample Operating Charter for Rep Council (modify as needed)
Challenge: To continuously seek to improve principal’s way of doing business
1. Objective:
The Rep Council exists as an advisory group to provide ideas, information, insight and assistance to principal in developing policies, procedures and strategies in order to maximize sales and customer satisfaction.
2. Membership Structure:
Principal invites one representative from each of seven manufacturers’ reps agencies from the United States and Canada. Agency size, geographic location, markets served and Principal tenure will be factors for membership selection.
From the Principal, the President and CEO, Vice-President of Sales and Marketing, Director of North American Sales and Director of Corporate Communications serve on the Rep Council. Additional personnel participate as appropriate.
3. Terms:
Three-year staggered, for representatives. The standard term period runs from January 1–December 31. Principals select new members to fill vacancies when reps retire.
4. Meetings:
The Rep Council meets approximately every nine (9) to twelve (12) months, or three times during representative’s term.
5. Expenses:
Principal pays Rep Council Members for all Council meeting transportation, hotel and meal expenses.
6. Discussion Topics:
The Rep Council review subjects that benefit all agencies collectively. Principal will review concerns of individual agencies separately, outside of this forum.
Discussion topics include sales policies, new products, communications, promotions, competition, delivery and service, and sales aids. The Rep Council may discuss other topics if necessary.
The Council assigns rep members liaison responsibility for non-council agencies to provide input and two-way communication relating to Council activities. This includes discussion topic input for an agenda that Principal sends to each Council member 2–4 weeks prior to a meeting.
7. Meeting Follow-Up:
Principal will distribute a summary of each meeting to all rep agencies. Principal encourage Rep Council members to provide their team member agencies with their own feedback and summaries.
When MANA members considered whether they had a responsibility to educate principals new to working with an outsourced sales force, caution was advised. In response to the question, “Is it a red flag that a potential principal has no experience working with the rep business model?” participants in a MANAchat responded with a resounding “Yes!”
In the chat, conducted over a week with 26 association members participating, some cautionary words were heard, however:
“If a manufacturer has performed his due diligence (and, why wouldn’t he do that?) before approaching an agency, you’d think that they’ve educated themselves about the ins and outs of working with reps; but that’s not always the case. So, sure, the manufacturer bears some responsibility for educating himself, but if he hasn’t, we’ll take the necessary steps to educate him and point him in the right direction — if we feel the line is worth the effort.”
“We’ve been faced with this situation a number of times and each time we’ve had to make a decision whether to proceed. Should I take the time from my other lines to educate this potential principal? What’s my return on investment (i.e., my time, money and effort) going to be? I’m well aware that my responsibility as a MANA member is to educate manufacturers who aren’t accustomed to working with reps. I do recall one time when we made the extra effort to work with the manufacturer. As a result of our approach, they wound up having a much better understanding of how to manage the care and feeding of reps. They actually went on to hire additional reps after we had educated them.“Sometimes our approach works, other times it doesn’t. It’s all about weighing that extra effort to get them to where they need to be.”
“We get that a lot. It’s all about a manufacturer thinking they’re going to get a free sales arm for their organization. Years ago, when we first opened our agency, we were more willing to educate manufacturers, but now — not so much. When we did educate them, we really didn’t have a written plan. It was more of a process that would familiarize them with critical matters. We’re at the point today, however, that we don’t even look at a manufacturer that doesn’t have experience working with other reps. We’ve found that it’s too time-consuming to educate them on the nuances they’re going to have face.”
“If anything, it’s definitely a red flag. When that flag is raised, we are faced with the decision of whether the line in question is going to be worth our effort in educating the principal.”
Categorizing Manufacturers
With those comments as a start, the chat discussion went on to categorize manufacturers that work with reps into three categories: those that have a full understanding of working with reps; those that were new to reps, but open to learning how best to form and maintain a partnership; and finally, those new to reps, but not willing to learn how to do so effectively.
Chat participants agreed that the first and third groups were relatively easy to deal with — with the former, partnerships are easy to establish; and with the latter, as one rep explained, “We simply walk away from them.” It’s with that second group — those not familiar with reps, but willing to learn — that a plan or process has to be employed.
A number of approaches were described to address this situation including one rep who explained, “I’m a member of a task force that created a one-page rep-principal expectation sheet. It simply spells out expectations for both sides and covers what things to speak to so you don’t run into problems down the road. Examples of what we include are commissions and other payments, traveling on behalf of the principal, joint calls, marketing expectations, joint sales calls, etc. It’s all about getting principals and reps together in order to create better synergy.”
A second rep explained, “This is something I run into every time I bring on a new principal. I’d maintain that it’s ultra-critical to establish the ground rules of your relationship before you get to the contract. Once that’s done, I have an onboarding process that I employ. I feel there are a number of things I have to re-emphasize for the first year of our relationship. I do that until we get into some sort of rhythm to the relationship.”
Getting Close to the Principal
Educating your principals can have an added positive result, according to another rep. “If you have a well-worked-out program, you might find that a side benefit is that you can get much closer to your principal. Ideally, they would assign one or two of their people to manage the rep program. In working with them and letting them know what reps do for them, you can then encourage them to spread the word among other members of their organization. You might find yourself in a preferential position with the manufacturer. He’ll see you as an advocate for his company. I’ve had this happen to me.”
The need for educating manufacturers isn’t a problem with their frontline personnel, according to one rep. “What we find is that the people we have to deal with on a daily basis are generally fine. The problem occurs either upline or with new inside support personnel, or the new regional sales manager, all of whom simply don’t understand the rep business model. They really don’t know what a rep is; they think we’re either their customers or re-sellers.”
Taking the Initiative
To counter that one rep is more than willing to take on the job: “We’ve got to take the initiative when it comes to education because we’re the experts — not them. One step I’ve found that’s especially effective is to take a new principal out the field with me and have them meet with my distributors. The distributors are hardly bashful when it comes to letting manufacturers know what we as reps and they as customers need.”
Among the tools several chat participants have used to familiarize principals with working with reps is MANA. “If you tell them to take a look at MANA and they do it, that generally solves the problem,” was one rep’s advice. Also, it was mentioned how valuable the “Steps to Becoming a Quality Principal” program, which can be found on the association’s website, is and the circulation of articles from Agency Sales magazine have also been in reps’ steps to educate their principals.
Another effective approach that reps have successfully employed is the use of strategic planning sessions with their principals. “These annual sessions have always gone very well, and they cover issues and open discussions that head off serious problems.”
One of the major topics chat participants mentioned was the need to inform manufacturers that in order to work effectively with reps, they have to have some “skin in the game.” “Here’s how that subject comes up,” noted one rep. “We’ll start talking with a manufacturer and they let us know how anxious they are to gain a foothold in our territory. What it comes down to is that they want our expertise, but they don’t want to give up any revenue.
“It’s obvious that this is an early indicator that there might be some difficulties in the relationship. What we look for is a shared territorial development that shows the manufacturer is willing to invest in the joint effort. It doesn’t have to be a big number but the manufacturer’s willingness to participate is an indicator of his maturity when it comes to dealing with reps. If he says ‘No, I won’t pay,’ that’s an indication that he isn’t really interested in working with reps and doesn’t want any of his skin in the game. His agreement to accept such a fee, for a defined period of time, for a defined amount, is a recognition that this is part of his responsibility. I’d add that locking him into such a fee provides him with a guarantee that he’s getting some value from the rep in return for his investment.”
Call Reports, Manufacturers’ Reps, and Independent Contractor Status
When a manufacturer requires call reports from a manufacturers’ representative, does he or she jeopardize the independent contractor status of the manufacturers’ representative and risk becoming responsible for the employer’s share of social security tax and the federal unemployment tax (FUTA) on commission payments?
This is a frequent and sometimes contentious topic between manufacturers’ representatives and their principals, so MANA is very pleased to have permission to present this very articulate treatment of the topic from the Manufacturers’ Agents Association for the Foodservice Industry (MAFSI) as a MANA guest blog.
Special thanks to Alison Cody, MAFSI’s Executive Director, for her permission to present this material. More about MAFSI at www.mafsi.org.
MAFSI Statement on Call Reports
Call reports have the potential to jeopardize the reps’ status as an independent contractor. In most instances, the question of whether a salesperson is an employee or an independent contractor arises as a result of an IRS audit.
According to recent news reports, the Internal Revenue Service will look at the issue of independent contractors in audits of 6,000 randomly chosen companies during the next three years.
Meanwhile, proposals on Capitol Hill would give the Department of Labor more resources to ensure that companies classify their workers correctly. They would also change a safe harbor in the tax code that has enabled some companies to continue their practice of misclassifying workers. The link below is the form which the IRS uses when determining worker status.
While MAFSI realizes the reporting of significant opportunities or problems with key accounts must exist between rep and manufacturer, the IRS states the following concerning independent contractors, “The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.”
MAFSI contacted Atlanta tax attorney, Calvin Bomar of Bomar & Phipps, LLC who responded, “Call reports are a factor that will weigh against the Taxpayer when the IRS is evaluating the behavioral control, financial control and relationship of the parties.
In the event that the manufacturers’ representative is reclassified as an employee, instead of an independent contractor, it can have several negative consequences for both the manufacturer and the representative.
The manufacturer can become liable for the income and social security taxes that are required to be withheld from employees, the employer’s share of social security tax and the federal unemployment tax (FUTA).
This can lead to an IRS challenge of business expenses claimed by the representative. It can also harm the future relationship between the manufacturer and representative, since reclassification will generally result in the IRS requiring the manufacturer to use employees to perform the duties that were previously completed by the independent contractor (representative).”
An agreement setting forth that the worker is an independent contractor is recommended; however, any agreement, no matter how well drafted and explained to each party and signed, will not change the results if a person is held to be an employee under the facts and circumstances.
The laws surrounding the employee versus independent contractor issues are extremely complex and many states may have additional rules or laws regarding independent contractor status. MAFSI recommends that all members consult with their tax professional for further clarification on these issues.
In addition, we encourage reps and manufacturers to have meaningful dialogue on all partnership issues including reports. Both parties should review these types of requests jointly to determine if they are a productive use of the reps’ and manufacturers’ selling time.
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