A manufacturer representative is a sales rep that offers manufacturers an efficient and cost-effective way to sell their products. Reps are independent sales personnel who work on commission with manufacturers paying them a percentage of the products they sell. While working with a rep can be beneficial for both the manufacturer and the rep, it’s important to know the details of executing a manufacturer representative agreement.
Sales reps service just about every market in the universe. They usually service a specific market in a specific region. For instance, a rep may service auto parts stores in Louisiana, tire stores throughout the South and also sell electronics to stores in Florida. These are very different products, but the sales rep has strong sales capabilities knows the market.
The value-add of a sales rep is his/her knowledge of the regional market, usually because they worked it for a long time as a regular sales employee before going on their own. They know the buyers in the regional market, call on them regularly, and have built up credibility and working relationships over time.
Business with manufacturer reps is conducted through an agreement that specifies the rep is an independent contractor, and not an agent or employee of the company. Reps don’t take title in the goods, which is the difference between a rep and a distributor.
The other parts of the agreement address the commission rate, territory and termination provisions. These terms vary widely by market and less by region. For a given market, they tend to follow prevailing practices.
Agreements typically specify that the rep is to receive commission on all sales in the territory, whether the order came through them or not, like if a customer sees the manufacturer’s ad and calls direct with an order. There are also provisions for splitting commissions when it’s placed in one territory and goods are shipped from another with payment coming from a third.
The most important section of the agreement is the termination provision. No one wants to be locked into an agreement that isn’t working; therefore, a thirty-day termination provision is normal in most rep agreements. That means either party can terminate the agreement (without cause) with 30 days notice.
Reps usually represent multiple manufacturers of related product lines, thus execute multiple agreements. If they’re selling to auto repair shops, they’ll carry a range of products those shops need to buy. Their cost effectiveness is lies in selling multiple products with each sales call.
In light of the above, entrepreneurs with a new product can hire a manufacturer’s rep to sell their products as the cost is limited to a percentage of what they sell and, they can build that percentage into the selling price. However, it might be a tough sell to convince reps to carry your product. It’s only practical for reps to carry a limited number of lines – and their first choice is going to be top-selling lines.
Due to competition, some reps might take on a new line because the regional market is under-represented. That means they could potentially make more money by representing that line. Also, there are always new reps trying to get a start, and they are good candidates for new products.
Lastly, top-sellers have a tendency to go into direct sales once they’re successful. When a manufacturer is paying a rep enough in commissions to afford to replace him with a direct salesperson, they often hire a salesperson to handle the line. As a result, reps can’t count on keeping their top-sellers and are always on the lookout for lines that could become tomorrow’s top-sellers. For all the above reasons, it’s important to know prevailing practices in executing a manufacturer rep agreement. More information is available from the Manufacturers’ Agents National Association.