Working with Independent Sales Reps

      A discussion of the pros and cons of working with independent sales reps, including thoughts on the compensation schedule. September 29, 2010

Question
I'm kicking around the idea of hiring an independent sales rep to sell my product (regionally) and want to hear the pros and cons, rates, and what to expect. I know some of this will greatly depend on the individual I hire (I have a firm in mind) but I'm interested in general experiences.

Forum Responses
(Business and Management Forum)
From contributor Y:
Keep in mind that the customers you gain from the rep aren't really your customers - if you outgrow your rep or if he/she is under-performing and you want to replace the rep, you will typically lose that customer.

And if it's an independent firm, they might also rep more than one cabinetry line. So if you start having production/delivery problems, the rep will move quotes to another company faster than your own dealer would.

The rep will also help you develop your product line - but will ask for absolutely everything. Stick to your guns and don't let them push you into certain traps that you're not ready for. The only companies that I know who told their reps "we can do everything you want" are bankrupt now!

It will really help if you can find out what other cabinet companies they rep and secure a product manual for them. Identify their product weaknesses and make them your strengths - on the same note, identify their product strengths and make sure those are not your weaknesses. Talking to common dealers and employees is also a great way of gaining information. Keep your actions above-board though - your reputation is at stake!

Final bit of advice: decide what you are making. Are you making a Lamborghini or a Toyota? You don't have to be the best in the world, just better than the rep's other cabinet lines. (Unless the rep is coming to you because of your excellent reputation for making 100-year, uniquely styled, highest quality cabinets of course!) I wish you the best of luck and hope to hear about your success.



From contributor Y:
I forgot the most important tip! Make sure you protect yourself by requiring that any commission paid is based on the actual received revenue (in other words, they get paid after you get paid!) This ensures that you are insulated against slow-payers, non-payers and order-returners. This may be a fight during negotiation, but well worth it in the long run.


From the original questioner:
Thanks. All good points to consider, and the paid-after-I'm-paid is good advice. I'm not so much after the technical aspects of the contract, but rather the overall sales picture. My business is pretty niche (not cabinets) and pretty small, so I would anticipate a significant up-tick if I decide to go this route. Anybody else have a good or bad story to share?


From contributor K:
Independent sales reps are not going to wait for you to get paid to receive their commissions... You want them to sell it today, and wait anywhere from 4-8 weeks until you get a check? The best way to get and keep motivated salespeople, independent or not, is to keep the cash coming... Commissioned salespeople are loyal to those they can count on to complete the formula. I sell X, you pay me Y, and so forth. That said, I don't think you would have a problem with keeping 10-15% for the back-end. But absolutely get them as much money upfront as possible, as it motivates them to continue to bring you money.
From contributor K:
Think about it - that would be like asking your shop employee to wait to get paid until the cabinets are done and you get paid, and he didn't even bring you the business to start with. You don't want your salesperson wondering whether or not they will get paid. It destroys the sales cycle.

The independent sales rep's main job is to bring you the business and handle the associated paperwork. Once he/she has completed the task, they should get paid. It's your job to collect, otherwise you place the salesperson in the position of sales and collections, which is not good long term policy...



From contributor M:
I work the interior shutter market, not so much cabinets.

Be sure you hire a rep that will tell about you in an honest fashion. There is a fine line between selling someone on your services and product, and manipulating someone through lies or half truths. I have had salespeople promise customers the moon to get the sale and a commission. The customer's expectations will not be inline with what you may be prepared to deliver. Whether it is the homeowner or a resale business, a salesperson will leave an impression of you and your business that will last many years. Be sure you discuss this line of thought before it becomes an issue. My wife and I do our own selling now, and we are considering another sales person. When we do, I will expect them to sell people on the fact that we are honest and truthful. Especially in these times, I believe it is just as important to promote yourself as your product.



From the original questioner:
Contributor K, I agree but was taking the advice as more of a negotiation point than a hard and fast rule. With business out of my immediate area/state, I'd be much more willing to sacrifice 3% to visa (and get paid immediately) than to offer credit and run the risk of getting taken. I think it goes without saying that salespeople are motivated by money.

Contributor M, good points. I'm sure your points can be easily overlooked but really turn ugly pretty quickly. The firm (group of two) that I'm considering seem to be stand up guys that can sell but are also capable of following up and doing a lot of the little things that a lot of sales people can't/don't do (that keep them from greatness). I wouldn't imagine that they would misrepresent my company to get a sale and will specifically address this should I move forward.



From contributor M:
We found it important to pay the salespeople as the orders progressed. We required a 50% deposit on orders, and when we received it, we paid the salesperson 50% of their commission. We have a 6 to 8 delivery, and found no one could pay for gas, travels and misc. if they were not receiving income. In some cases, we allowed draws towards future commissions, if the sales rep was really working the territory and bringing in leads and contacts, and our business was benefiting from the exposure. Usually we predetermined how far we would go with the draws, so the salesperson knew what to expect, or not to expect.


From the original questioner:
So have you hired independent salespeople or are you referring to outside salespeople (your direct employees)? If so, how much work was it to prepare them for sales calls (samples, literature, pricing guides, etc.)? Did your business pick up substantially?

Most of my sales are over the internet or with already established accounts, so my sales literature is almost nonexistent (I know I'll have to do some work there). Same thing goes for my samples. I'm imagining this is going to be a lot of work for me to start up and am trying to feel around to see if it is worth it. I guess the answer pretty much depends on the salesperson...



From contributor M:
I guess I've had both. Definitely yes on the outside sales that were my employees. And a couple of hybrids that were independent - they were self-employed and represented other products besides my own. Contributor Y makes some real valid points, and the problem I had with independents was the fact is, they were too independent. There was a certain lack of accountability. They could deliver the sales pitch, and show the product, but people just knew they weren't connected, almost like they were delivering a canned sales pitch.

I found a direct employee salesperson has more of a commitment to their job, as the customer can sense this. I'm not knocking all independents, it's just with our market it did not work for us. (We saw a pickup in the volume and quality of our sales when we dropped the presentation and started listening more to our customers.) We quit selling and started telling.

Overall, the hardest part of building sales is being sure you can keep everything else in balance. You have to grow production (when it's working), increase employees, change equipment, and maintain your quality. You start a ball rolling that can be difficult to handle. When my sales get too far out, I can back off selling. It's hard to do that if a salesperson is depending on their income. But of course, right now I would call that a good problem. Really think this through. I hope I'm not discouraging you. I actually had a situation where my wife set up 20 Home Depot stores at one time. Great day for sales, nightmare for production. It worked out, but overselling can be a problem too. This is a tough one - take your time.



From the original questioner:
Thanks. All great advice. I know the feeling about production and keeping up. I'm in a little bit of a growth spurt right now and not everything is getting done and I'm working too much. Seems this is the only way when you just don't quite have the steady work to hire additional hands. I would hope that independent representation could help with this, the hard part, sales.


From contributor M:
It could be a safer and slower route to growth, using the outside people. They would not be totally dependent on you, but they may not be as understanding of your situation either, if they want to push sales. Which will be the case. I've never been a "burn the ships" kind of person, but if you have a good exit strategy, maybe you can get into the growth, without it getting away from you. I was telling a vendor earlier today that I personally like the slower pace. I work with my wife and it helps there. I can focus on one job at a time and, I believe, do better work. My mental health is much better (don't ask the wife about this), but overall we could use more sales. You've got to figure out what's best for you and your situation, where you want to go with the business, and go with it.


From contributor M:
Your initial question really has me thinking about this. After 20 years, just my wife and I are selling. Around 50% of my work is repeat and referral from old customers, 30% from referral for new customers by another business and the other 20 from us contacting home builders or through our own sales efforts. The first area is limited - not much I can do to stimulate growth. The other areas have growth potential.

Putting wall displays of my product in another business creates small amounts of steady growth. We put in fliers and a referral form with the display. In November we put a $300.00 display in a local Ben Moore paint store. I've been buying some of my paint supplies there, so I knew a good bit about the dealer. A few weeks later a Dairy Queen store owner came in, saw the display and requested more information. The B/Moore dealer filled out the referral form, faxed it to me. Total sale for the order was $4,000.00 and has been installed and collected. I am sending a $125.00 referral fee to the B/M dealer. He had an interest in the process, he gets the fee. He had no investment, minimal risk (if I screwed up) and I can work with the customer, once sold, on how to schedule.

The best thing to me is, the store dealer is not totally dependent on me to make his living. I use a network of referral situations, 3 furniture stores, 3 paint stores, 1 custom home builder and 2 interior designers. I am working on adding 3 more furniture stores and possibly 4 tile and marble showrooms. This makes it easier to balance my shop production. Just something to think about.



From contributor P:
I have an outside rep who handles a particular market. I'm not going to comment at length on this relationship, but regarding his payment: his commission is XX percent of sales. He gets paid whenever a customer pays us, i.e. he gets his percentage from the ongoing revenue stream. I write his check and send it at the same time I log in the incoming payment - that way there's no temptation to spend it on someone else. I would never pay someone their whole commission out of the client's deposit payment - too expensive, too risky.


From the original questioner:
Thanks. I'm a still a new business (2 years old) and involved in a bunch of different markets. I service one particular market that I would like to solely pull jobs from, if and when I have enough steady work to drop the other offerings. I was thinking that an independent sales rep might help generate enough new leads that I can make this transition. Once I'm into one market, I can worry about hiring my own rep and/or how to further increase sales.

As it is now, most of my business is with the end user and I can (not all transactions are the same) spend a considerable amount of time completing the sale (educating the customer on options, providing multiple quotes, hand-holding, etc). Obviously, if I were able to better target dealers and repeat business clients, my sales opportunities should increase and my sales service time decrease. All of which should put a little more coin in my pocket, which will make the wife happy.

Naturally, I'm a little worried about getting this set up, as it will be time consuming to prepare all of the sales literature, etc. that is necessary to make my company look presentable. I'm also not looking forward to the transition period of overworking myself before business is steady enough to take on more workers. These are necessary evils if I want the business to grow (and I do), but definitely things that the technician side of me would like to postpone.



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