Manufacturers’ agents or representatives are independent contractors who work on commission to sell products for more than one manufacturer. They are not under the immediate supervision of the manufacturers—typically called principals—that they sell for, so their relationship generally falls into client-customer patterns.
Manufacturers’ agent firms range from businesses operated by a sole entrepreneur to considerably more extensive organizations armed with numerous salespeople covering specific territories. Based on data from the U.S.
Department of Labor, approximately 1.9 million individuals work as manufacturers’ and wholesalers’ representatives, but those working in independent organizations are a smaller number, around 150,000 based on estimates provided by the Manufacturers’ Agents National Association (MANA). Kellysearch, a long-established supplier and service organization cataloger, listed 950 companies engaged in that business; total so-called “rep organizations” are much more numerous. These firms, tend to be concentrated in major metropolitan areas but are found in every state selling every conceivable product line, including goods produced in the automotive, plastics, electronics, food and beverage processing, apparel, lumber and wood, paper, chemical, and metals industries. Virtually any product that is made and sold can be handled by a manufacturers’ agent.
Manufacturers’ agents generally represent several different companies that offer compatible—but not competing—products to the same industry. This approach reduces the cost of sales by spreading the agent’s costs over the different products that he or she represents.
Consequently, manufacturers’ agents view themselves as a cost-effective alternative to full-time salaried sales forces; reps’ self-evaluation that is shared by thousands of small- and medium-sized manufacturers in the United States. Indeed, manufacturers’ agents are particularly popular among companies that do not have the financial resources to launch their own sales team. In addition, since manufacturers’ agents are generally paid by commission, the small manufacturer incurs no cost until a sale is made.
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Small Businesses And Manufacturers’ Agents
Advantages In addition to the above-mentioned financial benefits that manufacturers’ agents offer to small business owners, they also provide relocating or start-up firms with immediate front-line information on marketplace trends and demographics. By contracting with a manufacturers’ agent, a company gains instant access to industry expertise or knowledge of a particular country or region.
There are other distinct advantages as well. For manufacturers with a narrow product line, agencies offer one of the best ways to access the market. Because they normally sell compatible products to a single market, the manufacturers’ agent firms are usually well-connected with the manufacturers’ principal market targets. This offers manufacturers immediate entry to markets that may be hard to reach with a direct sales force. In addition, rep firms can provide new businesses with ideas about where to advertise, comment on what the competition is doing, and give estimates of a given territory’s potential.
Disadvantages Consultants and business owners note, however, that while using manufacturers’ agents may make a lot of sense to the small company that needs to allocate its financial resources carefully and learn about the marketplace quickly, there are drawbacks associated with the practice as well. Lack of control over the agent is easily the most frequently mentioned complaint that business owners cite when discussing rep firms. Since the manufacturers’ agent is not an employee of the company, the company’s ownership cannot dictate how he or she goes about business. Certainly, the small business owner can negotiate for certain things in his or her business dealings with the agent, just as any client can do with any vendor. But in the final analysis, the agent has far greater freedom to operate as he or she feels fit than do salespeople that are actual employees of the company.
Some critics also claim that since manufacturers’ agents conduct business on behalf of more than one manufacturer, they are not always able to devote the necessary time to one single product line. Finally, some agents also may be reluctant or unable to provide service beyond the point of sale. Fundamental elements of customer service, such as start-up assistance and follow-up service, often must be supplied by the manufacturer even if the goods were sold through a manufacturers’ agent.
Another concern frequently raised about manufacturers’ agents is that they add to the cost of sales by acting as another layer in the distribution process. But the sales function must be carried out, and costs incurred in engaging a rep will show up as in-house costs if that alternative is avoided. Rep firms in effect represent an instance of outsourcing of the sales function.
Selecting An Agent
Manufacturers have many factors to consider when going through the process of selecting a manufacturers’ representative. Small business owners should look for someone who shows an ability and a willingness to become knowledgeable about their products and applications, as well as someone who will respond quickly to calls and present the product in terms of how it will meet customer needs.
A good agent will also represent the various product lines he or she markets in a just fashion, giving each line the attention it deserves, regardless of how much income it accounts for (this latter concern is especially acute for small and start-up businesses).
The best rule of thumb for manufacturers is to be patient and do plenty of preliminary research. After all, the choice is going to be the primary link between the company and its target audience. A poor selection can ruin a company; conversely, a good choice can help launch a new manufacturer to long-term financial stability. Given the stakes involved in this choice, then, MANA suggested in the print version of Directory of Manufacturers’ Sales Agencies (it has since been automated) that business owners consider doing the following when weighing their choices.
- Create a profile of the ideal agency—Make the profile clear, but also be flexible and realistic. Perfect agencies are nonexistent, but there are many that will do a good job if given the opportunity.
- Create a profile of the manufacturing firm— Manufacturers are encouraged to compile a profile of their target customers, a rundown of the business’s needs, and a summary of the governing philosophy of the business. Many agencies can be selective in terms of who they will add to their client list, so it makes sense to inform them about the business and its goals and prospects. The profile should be honest and touch on growth plans, real advantages of the product(s) it manufacturers, and previous history.
- Secure referrals from other agencies— Manufacturers’ representatives are a close-knit fraternity in the United States, and many can provide the names of several agencies that would be a good fit for the line.
- Get referrals from other manufacturers—Companies in the same area that sell similar but noncompetitive products can be a good source of information in locating potential representatives. Some may even recommend their own agencies, although others may be reluctant to have their agents take on additional product lines and responsibilities.
- Be patient—While manufacturers do not have the luxury of waiting forever when filling rep openings, doing preliminary research usually is a good idea.
Many manufacturers who have been burned in this regard later admit that they did not devote sufficient time to exploring their options and learning about the agent they did select. It is better to take the needed time to select the right prospect than to rush into a bad situation and have to rectify it later.
- Be flexible in setting up territories—Agents must have exclusive rights within a territory, but rather than assign arbitrary territories based on geography, it is often preferable to select the agents that best fit your line and let their coverage determine the territories.
Finding the right agent to represent a business is not unlike hiring a trusted employee. A good match, not least good chemistry and shared values, is essential because the rep is an independent agent and the inherent distance created by that relationship can introduce problems unless both sides feel that they are part of one team. To be sure, nothing succeeds like success—so that a good product line will move if in the right hands; and the rep will sell it enthusiastically if it fits his or her usual clientele.
Dealing With Agents
Manufacturers must remember that their rep firms are independent sales agencies that are not employees of any of its principals, but business partners with each of them.
As such, the manufacturers cannot have the same type of direct control as they do over their own personnel. From a legal standpoint, it is important to remember that the manufacturers pay nothing to a rep until a sale is made.
They also pay no withholding taxes or Social Security.
Using manufacturers’ agents also means that some of the manufacturer’s bookkeeping needs will be taken care of by non-employees. This is an important distinction for the Internal Revenue Service, which frowns mightily upon arrangements in which companies disguise employees under the veil of independent agencies or contractors.
When judging this, the IRS typically uses as one of its tests the amount of direct control exercised over sales reps. If regular reports are demanded of independent agents, the IRS can declare the rep an employee and require the various withholding taxes that apply.
Communication remains an integral part of the relationship between agents and their clients. Both parties need to keep the other appraised about their operations.
Agents should let their principals know what they are doing for them in the field, regardless of the level of sales at that particular moment, while agents need updated information on matters such as product specifications and pricing. Ultimately, both parties simply need to recognize that a cohesive working relationship is in their shared best interests. In their dealings with representatives, manufacturers expect: loyalty; knowledge of the territory and/or industry; knowledge of product lines after a reasonable amount of exposure; quick response to suggestions; regular follow-up; and a fair share of the agent’s time. Agents, meanwhile, have every right to expect: a fair contract that recognizes performance and rewards success and longevity; access to customer service, training, and technical back-up; a quality product; timely delivery; and a true commitment to build business in their territory.