RepHunter

If you are an independent sales rep, the most important thing to your ability to make money is having lines. No kidding, right? But you can’t just go and get lines, you have to be ready. And possibly more importantly, you have to look like you’re ready. Now, whether or not you already have existing lines, the most important thing to your ability to do business is having relationships with buyers. The main benefit of an independent sales rep to a principal is that you can immediately access a client base to sell their lines. If you can’t do that for them, you aren’t worth any more to them than their existing sales ability. This core functionality of a sales rep is the main selling point of your profession, and so if you want to start picking up great lines, you need principals to see that you have an existing relationship with potential buyers for their lines.

You want to make sure you have yourself out there for principals to find, as well as being able to find principals yourself. Try searching for “independent sales reps” on Google and see what you can find. There are lots of great tools out there to help you find lines, and to help principals find YOU. You want to make sure that you have a great profile. You want to attract lots of principals to want to talk to you, so you need to make sure you don’t skimp on the important information. It is important to note that finding lines is a NUMBERS GAME! The majority of the principals you talk to probably will not be a match, so it is extremely important to get out there and talk to as many as you can to make sure you find the best lines for you!

The key thing is for you to make yourself look professional. Just as a company that sells a product needs to appear high quality and polished, so do you. When looking for new lines, YOU are a product and you’re selling yourself. One of the most important things to being professional as a sales rep is that you are able to communicate. This is really simple. You need to be able to be contacted! Issues arise all the time in business, and often a principal will need to contact you. The biggest factor leading to the failure of an independent rep is lack of communication. Again, to be professional, you must be able to communicate.

Now, the most important question: can you produce? No, really. Can you? This is crucial! You need to make sure the answer is a definite “yes.” As a commission-only sales rep, your livelihood depends on your ability to make sales and move lines. If you can’t do this, you need to become able to, or you won’t make money, and principals won’t be satisfied with your performance. This is not meant to discourage, it is simply THAT important. It is an unfortunate fact that a good rep is hard to find, and you need to put forth the effort to BE that good rep.

In this current period of difficult economic times, more than ever people are looking for new ways to make their living. A hot question that many, particularly those already in the sales industry have been asking themselves is, should I become an independent sales rep? Obviously there isn’t a simple and straight-forward answer. There are clear benefits to becoming a sales rep, but it isn’t a career path for everyone.

On the positive side, becoming an independent, commission-only sales rep is basically the pinnacle of any sales career. This is true for a few simple reasons: the first, and most important to many people, is the high level of independence. You basically become your own boss. Because you don’t work for any given company, and carry many lines at once, you don’t have any boss other than yourself. You have people to answer to, but ultimately you decide the route that your professional life will take. Because of this diversification, you are protected in a way from economic downturn. Being an independent rep with multiple lines is the sales equivalent of diversifying stocks. If one line that you sell doesn’t succeed fully, you don’t go down with the ship. You have other options available to you, and you should be able to proceed with business without the obviously damaging effects of having one’s employer fail.

The other side of this coin is that you are also selling more than one product, meaning that you’re selling more, meaning that you’re making MORE MONEY. For example, as an independent rep not tied to one particular line, it becomes a no brainer when you’re selling a computer to a customer, to also sell them printers and keyboards. It allows you to close multiple sales all at once, while providing principals with an incredibly valuable service; you have immediate penetration to vertical markets that would otherwise be inaccessible.

The most important benefit of being an independent rep is basically, if you are able to perform, the sky is the limit! Working on commission, a highly motivated and successful sales rep has enormous potential to make an incredible living. This is not a guarantee, there is always a risk. But again, if you are able to perform well, there is no effective limit to your income.

This all sounds wonderful! Why wouldn’t you want to become a sales rep? Well, it isn’t for everyone. For one thing, you need to be 100 percent committed to being an independent sales rep. This cannot be a holdover job while looking for something better. It needs to be a goal; a destination.

As a start-up sales rep, you might go six months or more without being paid. This isn’t a hard and fast rule by any means, but you need to find lines first, and then it could take months to make your first sale. It takes time to get paid after making a sale, and you also need to build up your existing customer base to handle taking your new lines, and to ensure they know who you are working with and what lines you have to offer.

The biggest reason that becoming a sales rep will not work for you is not having a relationship with buyers. This is the most important thing that you have to offer to principals — it’s your entire appeal.  Again, you can penetrate markets that the principaly otherwise have no exposure to by being able to take their lines to customers that you already have a selling relationship with and immediately begin to make sales. If you can’t do this, you aren’t of real value to a principal. You need to know people, and before you start taking lines, you have to have that established customer base. That isn’t to say that you can’t work on improving it once you begin working, in fact you definitely should! But you need to have something to build off of before you start.

If all of this is something that appeals to you, maybe it’s time to make that decision!

Dealing with independent sales reps has very large benefits. Independent reps can increase sales of your lines by giving them exposure to markets they might not see otherwise, and they can easily and quickly sell lines to customers  with whom they have existing relationships These are just a few of the benefits you, as a principal, can see from using a sales rep to sell your line. However, you need to be sure your sales rep has everything they need to succeed to actually see any of these benefits. Sales reps do fail sometimes, and there are a lot of common reasons why they do.

The biggest mistake you can make when first dealing with new independent sales reps is to not clearly define your goals and objectives. You need to make sure any sales reps you decide to work with have a clear understanding of what results you expect them to produce, and any deadlines they need to meet. The best way for you to handle making these expectations known is with a Letter of Intent. Essentially, you need to detail a contract that will define at the very least the quantifiable results they need to produce and the date they need to happen by. You want your sales reps to have a clear understanding of these goals.

Another huge mistake that you need to avoid is failure to communicate! It is incredibly important that you be in contact with your sales reps so they can keep you abreast of any issues that arise and can obtain any necessary information when they need it. If your rep cannot communicate with you, they cannot service your line optimally, which will usually have the result of causing the rep to focus on their other lines over yours. To avoid this, you need to make sure that not only do your sales reps have the means to contact you when they need to, but that you define definite times that you will communicate. Once again, this could be handled by means of a Letter of Intent. You should clearly indicate in the letter the dates your sales rep is expected to contact you so you can make sure everything is in order. These mandated communication sessions are necessary, as sometimes your sales rep will not actively contact you without it being required of them.

The biggest factor that can, and if present WILL, lead to failure of a rep is the failure to provide what every sales rep expects: the ability to make money on their lines, and to be paid accordingly. In order to do this, you need to ensure first and foremost that your line is marketable. It may sound blunt to put it out there, but if a sales rep does not believe your line will sell, THEY WON’T TAKE IT. You need to ensure your line is a finished product that is actually ready for sale, and is being targeted at the right markets. Sales reps can help you with this, but they need to be interested in the line to actually want to. Once this is covered, you need to make sure that you are handling commission rates appropriately. Basically, you need to make sure that you are paying an appropriate percentage of sales, be it on the gross profit or sales price. If your sales rep isn’t being paid enough commission on your lines, they won’t have motivation to sell them. Likewise if you pay too much, your company can lose money and often be severely hurt. For more information on commissions, see my other article titled “Determining Commissions for Independent Sales Reps.”

Well, this may not be exactly 10 ways, but you get the point

One of the most common questions involved with the hiring of independent sales reps relates to compensation. “How do we pay our manufacturer’s reps?” Fortunately, while there is no standard flat rate or easy answer, there is a very important guideline to keep in mind:
Nothing motivates sales better than an attractive commission schedule.

A commission-only position is the best way to pay sales reps, with the best method being a straight percentage of the sales price. While there are a few different ways to handle this, most sales reps tend to prefer a straight percentage based on the sales price.

If there are no fixed prices involved, a company might decide to go with a percentage of gross margin. It is worth pointing out, obvious as it is, that independent sales reps are in fact independent. They don’t work for your company, and don’t have much stake in what price a product sells for. If they have the flexibility to negotiate the final sales price, it makes sense to base commission on the gross margin, both to encourage your reps to try and sell higher, and also to prevent them from selling to low simply to close a sale. This is a way of providing your independent sales reps with a further level of investment in the well-being of your company and your products while maintaining them as independent.

With any sales rep you should enter into a marketing agreement which, among other things, should clearly define the commissions to be paid to the sales rep to eliminate disputes and hard feelings.

Depending on the industry, commission ranges can vary wildly. Other things that can influence commission include:

• How much customer service do your sales reps need to provide to customers? If you expect your sales rep to provide functions beyond simply training, assisting with installation, testing, and so on, you should raise your commission rates.
• Do your sales reps only provide leads, or do they close sales? Plenty of companies only require sales reps to bring in leads, and prefer to close the sale themselves, and act as account managers. This preference should probably reduce the commission rate to reflect the independent rep’s level of involvement in the actual sale.
• Does your product generate repeat business? When a principal’s line is disposable or consumable, meaning that repeat business exists, commission can often be lower unless it takes time to service the account, generally because the customer does not need to be sold on the product every time. You also have the option of offsetting the lower commission  by paying a higher percentage or a bonus for the first sale to a new customer.
• What types of expenses tend to occur for new businesses? In many cases, the front end costs of acquiring new customers can be fairly high, and commissions should reflect this to ensure that sales reps receive an appropriate return on their investment.

In general, most manufactured products prompt a commission rate of anywhere from 7 to 15 percent. For percentage of gross margin, (sales price minus direct expenses) a standard range is anywhere from 20 to 40 percent. In the interest of increasing the incentive, often a principal will include a sliding scale based on the volume of business that is generated by any given sales rep. You will want to be careful to factor in support services. If additional business necessitates additional support services or inventory, that can play a role in the sales rep’s return on investment.

Most service based products that do not require manufacturing expense tend to have commissions that can run upwards of 50 percent. You’ll want to be very careful in these instances, as this can have a significant impact on your business! For service based products, reps can sometimes be under the impression that as there are no manufacturing costs, there is very low overhead. You need to make sure that you factor time expenditures into your commission schedule such that your business has a good return on its investment.

Commission splits are another important consideration. Sometimes territories are divided by geographical location, or by industry type. You need to define any provisions on commissions that come into effect if the independent rep sells to a customer outside of their territory. You should also define what sort of commission split your independent reps should expect if someone else sells within their territory. You can’t always anticipate these issues in advance, and it is very important that all independent sales reps always have adequate incentives to continue performing up to the expectations of their employers.

• Training – Principals must train the independent sales rep on products and/or services. Principals may pay or split expenses with the sales rep for training tools, courses (if they are necessary), and travel (if the independent rep is expected to visit the principal’s office or manufacturing facilities).

The BIGGEST factor in an independent sales rep’s failure is their lack of product knowledge. If a sales rep is not comfortable selling a product, they WON’T.

• Initial Travel Period – For the first few months, it is suggested that the principal make a person available to travel with the sales rep to make initial sales presentations. This gives the rep time to understand and get a feel for the sort of questions that customers ask, problems, what sorts of things to look for, what the sales cycle looks like, and so on.

• Sales and Order Tracking – Sales reps do not work under the same roof as the principal, and they are paid commission only. Because revenue is not guaranteed, it is vital for the independent rep’s business to receive information such as:
  • Copy of quotations and price lists
  • Pending orders
  • Order status
  • Shipping notifications
  • Copies of invoices
  • Commission schedules
  • Copies of literature sent with Products
  • IMPORTANT: The most common way to lose a rep is poor communication.

• Timely Follow Up – When independent reps bring in quotation requests, the principal needs to turn them around as soon as possible! Likewise, if there are problems in the field, principals should offer support to the sales rep, as well as their customers.

• Customer List –The principal must supply the sales rep with an installation or a user list of their lines or services within the independent rep’s territory. This is a great way to help the rep build a customer base, as well as to understand the principal’s products. This can greatly assist the principal, as it can open up previously unseen sales opportunities.

• Supply Marketing Material – Principals need to supply independent reps with adequate promotional material such as brochures, samples, catalogs, and so on.

What to expect:

Given that your independent sales reps are working for you, there are some things you can reasonably expect of them.

• Call Reports – Each of your reps should be sending call reports to all of their principals regarding sales visits related to the principal’s lines. If you are not receiving information or activity reports, you can assume generally that the manufacturer’s rep is not actively selling your product.

• Market Reporting – Independent reps should also be notifying all of their principals of market trends and competition within their territories regarding any of that principal’s lines. Sales climates can vary significantly in different parts of the country, or around the world, and you need feedback to adjust your marketing strategies for those different regions accordingly.

• Sales Forecasts and Budgeting – You should require your independent rep to submit sales forecasts for their territory, and to submit their expected budget. It is important to have these expectations set up in advance to prevent the sales rep from going over budget, and to ensure that they are not wasting time and money.

• Customer Service – Without a doubt it is harder to acquire new customers than it is to keep existing ones. However, to ensure that you are able to keep your customers, it is important for your sales reps to play the part of customer service for your products. This can include equipment start ups, inventory control, assistance in setting up displays, problem solving, and helping to resolve conflicts and manufacturing defects and errors. Because of it, it is crucial that all new sales reps be fully trained in dealing with your lines so they can perform this service to the best of their abilities.

• Full Burden of Expenses – Sales reps are responsible for any direct expenses within their territory, such as travel, automotive costs, hotel visits, meals, and so on. If there are national sales meetings, or if the principal requires their services outside of the sales rep’s defined territories, then the principal may need to reimburse their sales reps for time and expense.

In general, the more customer service responsibilities the independent sales rep takes from the principal, the greater the commission rates that are paid out to the sales rep.

What NOT to expect:

There are also several common things that you should NOT expect of your independent sales reps. These are important to be aware of, to ensure successful dealings between the principal and the independent rep.

• Inventory – Independent reps should not be expected to keep an inventory or take title of the line (meaning buy and resell). While some sales reps do offer these types of services, generally this type of business relationship is better left to distributors.

• Application Responsibility – Reps should not be expected to take application responsibility, or the financial burden to resolve warranty issues. This is the responsibility of the principal.

One of the most important things that you need to make sure you get right when you are hiring new independent sales reps is the sales contract you need to agree upon with every new sales rep. The sales contract is for the protection of both the manufacturer’s rep, as well as the principal. We strongly recommend entering into a formal contract with your sales reps, which will lead to a much better understanding of the obligations that both parties have. A contract will vary significantly depending on industry, but there are several key parts that should be included in every contract. These include:

• Responsibilities – You need to clearly define the role of each party involved in the contract.

• Define Independent Contractor – It must be clearly stated within the terms of your contract that your independent sales rep is a contractor, not an employee.

• Compensation – This is very important! You need to be very specific in terms of percentage of gross or net sales. In addition, a good faith clause should always be included. Depending on the volumes involved in an order, and the kind of competition involved as well, orders will often require discounts. In these cases it can be difficult to define commissions, but your sales reps have to be given flexibility in order to close a sale. A good faith clause states that in cases where the rep has to offer additional discounts, it may be necessary for the rep to take a cut in commission, and that any such commission reductions shall be negotiated in good faith. As incentive, we suggest that commissions increase with sales volume. This may lead to defining a quota and the commission structure based on how these quotas are met or exceeded. Not surprisingly, reps will put more time and effort into a line if it will provide them greater return.

• Termination – If the contract is terminated by either party, provisions for commissions paid on pending and existing orders must be provided.

• Non-compete – For technical or industry specific products, you may also want to draft a non-competition clause. You definitely do not want your independent sales rep to develop a good customer base, and then have him/her switch to a competing principal.

• Territory – Most sales reps will want a defined territory. We suggest doing this by either geography or industry type.

• Product Improvements – Because of their experience in the field, independent sales reps may sometimes have ideas in how to improve your product! You need to make sure that it is clearly stated that the principal takes ownership of all product improvements made by independent sales reps that are implemented.

• Confidentiality – If you have trade secrets or some type of technical advantage over competitors, you will want to include provisions for confidentiality.

• Liability – A contract must define liability issues with product use, negligence, and so on.

• Dispute Resolution – Provisions need to be included such as governing state laws and attorney fees.

For an example sales contract, click here.

If you have made the decision to use independent sales reps to sell your line, there are still a few things left to do that you will want to make sure you have under control before you proceed. You will want to make sure you set these things in place to avoid any delays or potential failure their absence could lead your manufacturer’s reps to:

• Prepare a contract! You will want to make sure you have an initial contract drawn up, which will settle a lot of questions right off the bat. A contract is a great way to convey your goals, objectives, and expectations to your independent sales reps. Contracts will also provide the foundation for setting up a commission structure. For your reference, click here for a link to a sample document.

• Ensure that promotional materials are available for your independent sales reps. Because of geography, there may be some services or lines that your business might not make available in other parts of the country. Independent sales reps should have accurate marketing materials that provide accurate information as to their supply capabilities. Remember: your independent sales reps represent you when they are out on the road! You do not want to misrepresent yourself, or mislead your clients as to what you can provide.

• Designate a contact person that can provide support services for your independent sales reps. One of the largest factors leading to the failure of a sales rep is a lack of communication. If it takes weeks or even days to answer questions or prepare quotations, your reps may begin to focus their efforts on other lines.

• Put reporting tools in place to support your independent sales reps. You need to set a system in place to keep track of the progress of your sales reps, and make sure you can keep track of their sales, deliveries, quotations, commissions, and so on.

• Make sure that training materials are available for all of your sales reps. It is understandably difficult for an independent sales rep to sell your line if they don’t understand your business and your line.

• Know ahead of time how you will transition your existing customers. If you have existing business within your new sales rep’s territories, how will you transition those accounts? This is an important detail, as you want to prevent your sales reps from feeling that they’re competing with you, their client.

With these factors accounted for, you are now ready to begin handling new independent sales reps.

An independent sales rep is an incredibly valuable asset for any company that sells lines or services to have! Essentially, you pay a sales rep to represent your line. It sounds simple, but it is in fact incredibly rewarding. The difference between a salesperson and a manufacturer’s rep is that rather than working for a single company, a sales rep carries multiple lines.

Why is that such a big deal? Well, because they also have established customers that buy their lines. This means that they can go to their customers and say “Hey, I have a new line similar to what I already sell to you that you might also be interested in.” This increases the likelihood of retailers and distributors picking up your line, because they already have an existing buyer’s relationship with the sales rep, who they already know and trust. Because of their abilities to sell your line so effectively, independent sales reps are one of the leading methods to build your business.

Independent sales reps are an extremely important factor for any manufacturer who wants to sell products to retailers. They can boost your business an amazing amount, but how do you know if manufacturer’s reps are the right thing for you? You’ll have to examine your business and determine your goals.

First of all, it’s important to understand how independent sales reps can help you. One of the most important things that a sales rep has to offer is their existing customer base. Sales reps have established relationships with their customers, and can quickly move related lines to market. Essentially, since they already know the customer, it’s easier for them to sell your product than it would be for you to do it yourself. Especially if you are looking to enter new territories, independent sales reps are one of the fastest ways to do it. You also have the added benefit of having the backing of a sales rep whose customers have an established level of trust with. If the customer has had good relations in the past with your sales rep, they’ll be confident in your product when your rep pitches it to them.

Independent sales reps tend to have fairly low overhead, since they require very little to sell your product. The direct costs associated with contracting new sales reps are essentially just those related to training them with your product, and providing the sales tools they need. They can also bring you new markets that you may or may not know about. Since most principals focus their direct sales efforts within certain industries or vertical markets, independent sales reps can sometimes bring in new applications for specific products within different vertical markets. Basically, they can open up your business in ways you may not have anticipated, due to their differing point of view, as well as their exposure to markets that you may have no experience dealing with.

With all that said, using manufacturer’s reps seems like a no brainer, right? Well, there are a few disadvantages as well that you need to be aware of before you decide to start placing your sales reps. First of all, you won’t have direct control of the activities of any sales rep that is selling your product, short of simply terminating your agreement with them. It can also sometimes be difficult to keep track of them. Because of this, you want to make sure you’re very clear with your agreements with your sales reps. While you don’t want to assume that sales reps will try to take advantage of you, you need to make sure that you’re covered in case of any mishaps. When giving an unaffiliated person the right to distribute your product, you need to make sure they will represent you in the ways you want them to, as well as make sure they take good care of your samples.

In addition, independent sales reps represent multiple principals. While this is part of their strength, allowing them to sell related lines to retailers easier than selling only one product, it also means that your product will not receive 100% of their attention. As with all businesses, there exists a minority of independent sales reps that will perform the majority of sales. As a result, it can be hard to find reps that will be productive for your business. But this should not make you lose hope. All it means is that it’s important for you to have a good method for getting in contact with sales reps.

In short, while working with independent sales reps can have some barriers to entry, the potential gains far outweigh the risks. Independent sales reps are one of the most effective ways to build your business.