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Principles of Decision A Collective Effort of Partnership Guidelines from the Manufacturers’ Agents Association for the Food Service Industry (MAFSI) and The North American Association of Food Equipment Manufacturers (NAFEM)


NAFEM • MAFSI Principles of Decision

TABLE OF CONTENTS Italicized denotes articles Disclaimer ................................................................................................................................................................. 4 Food Service Industry Roles .................................................................................................................................. 5 Food Service Equipment and Supply Segments Performance Recommendations ..................................... 6 Statement on Channels of Distribution ....................................................................................................... 13 Hiring and Evaluation Considerations ................................................................................................................. 14 Guidelines for Evaluation of a Prospective Representative and Evaluation of a Prospective Principal ..... 15 Manufacturers; Representative Firm Total Performance Audit................................................................... 27 How to Screen Prospective Principals and Agents ..................................................................................... 31 How to Find Good Agents ........................................................................................................................... 36 Guidelines for Profitability Through Communications and Performance .................................................... 41 Guidelines for Planning the Business Year ................................................................................................ 53 Recognizing the Right Salesperson (New) ................................................................................................. 56 The Perfect Principal in the Eyes of the Rep (New) ................................................................................... 58 Building A Foundation for the Rep-Principal Relationship (New) ............................................................... 61 Reps and Manufacturers – Finding Each Other (New)............................................................................... 64 Making the Case for Outside Sales Reps (New) ........................................................................................ 68 Compensation ........................................................................................................................................................ 71 Compensation Guidelines for Manufacturers and Their Independent Representatives ............................. 72 Principal Compensation for Manufacturers’ Representatives ..................................................................... 75 Commission Options and Alternatives: How Principals Pay Their Representatives ................................. 81 Compensating Agencies for Non-Sales Work ............................................................................................ 88 Guidelines for Introduction of New or Improved Products .......................................................................... 97 The Cost of Selling ...................................................................................................................................... 98 Squeezing the Reps .................................................................................................................................... 99 Case Studies On How Reduced Commission Affect a Sales Agency ...................................................... 100 Commission Reduction Ramifications ...................................................................................................... 103 Providing an Incentive for the Sales Force (New) .................................................................................... 104 Commission Protection Acts are Not the Only Answer (New) .................................................................. 106 Specifier Identification System and Split Commission....................................................................... 107 Using the Specifier Identification Directory ............................................................................................... 108 Specifier Identification System .................................................................................................................. 109 SIS - Your Sister or a System? ................................................................................................................. 112 Specification Credit Registration ............................................................................................................... 114 Better Repping Survey Reports - Split Commissions ............................................................................... 115 Split Commissions: When Are They Used…Why They Are Used…And When They Are Abused ......... 121 Contracts............................................................................................................................................................... 124 Recommended Principal/Representative Agreement ............................................................................... 125 The Contract’s the Thing! .......................................................................................................................... 128 Guidelines for Negotiating Agreements Between Sales Representatives and Manufacturers................. 129 Guidelines for an Agreement to Warehouse Consigned Stock ................................................................ 135 Plain English or “Pain” English .................................................................................................................. 137 Better Repping Survey Reports - Contracts ............................................................................................ 139 Three Stages in the Life of a Manufacturers’ Representative Agreement ................................................ 146 How Much Can You Influence the Use of Sales Representatives ............................................................ 149 A Carefully Prepared Contract Can Not Only Save Time But Also Costly Litigation ................................ 151 Non-Competition Provision Not Enforceable Against Sales Representatives .......................................... 153 Indiana Takes the Lead in Protecting Against Opportunistic Terminations .............................................. 154 The ABC’s of Assumptions in Contracts (New) ........................................................................................ 155 The Importance of a Written Contract (New) ............................................................................................ 157 Tending to Your Commissions Before and After They Hatch (New) ........................................................ 160 Rep Definition Clarified by Wisconsin Supreme Court (New)................................................................... 161

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NAFEM • MAFSI Principles of Decision Sales Management ............................................................................................................................................... 162 Time and Territory Management............................................................................................................... 163 Line Profitability Analysis .......................................................................................................................... 177 An Alternate Approach to Line Profitability Analysis ................................................................................. 185 Employee Performance Reviews .............................................................................................................. 190 Working with Independent Sales Representatives: Who They Are, What Motivates Them and What They Do .................................................................................................................................... 201 Better Repping Survey Reports - Share of Time - Share of Mind ............................................................ 203 Better Repping Survey Reports - Evaluation of Principals and Representatives ..................................... 211 Better Repping Survey Reports - Time in the Field .................................................................................. 215 Better Repping Survey Reports - Getting to the End-User ....................................................................... 219 How Manufacturers Can Gain the Rep’s Mind-Share (New) .................................................................... 227 Improving Sales Partnerships with Technology (New) ............................................................................. 230 Measuring the Manufacturer/Rep Relationship (New).............................................................................. 232 The Perfect Forecast in the Eyes of the Rep (New) ................................................................................. 236 Training and Education ....................................................................................................................................... 240 Introduction: Why Develop a Factory Training Program for Your Independent Manufacturers Agents? ............................................................................................................................. 241 Carrying the Rep’s Message (New) .......................................................................................................... 242 Bridging the Communication Gap Between the Corporate Office and Sales (New) ................................ 245 Product Training ..................................................................................................................................... 247 Factory Product Training for Sales Representatives (Professional Field Sales Force Training).............. 248 The Mechanics of Good Product Training - Do It Right, Do It Regularly ................................................. 253 Effective New Product Training ................................................................................................................. 256 Product Training: What Agents Have to Say About It ............................................................................... 258 How to Get the Most Out of Your Agent Training ..................................................................................... 260 Agents Report on the Three Most important Training Issues ................................................................... 262 Manufacturers Use Agents to Train Agents .............................................................................................. 264 Personal Field Sales Training Via the Internet ......................................................................................... 266 Factory Training of Internal Personnel ................................................................................................. 268 A Training Program for Internal Factory Staff ........................................................................................... 269 Regional Sales Managers .................................................................................................................................... 271 Guidelines for Interaction Between Regional Sales Managers and Manufacturers’ Agents .................... 272 Guidelines on Effective Regional Sales Managers ................................................................................... 275 Guidelines for Relationships Between Regional Managers and Representatives.................................... 278 Ground Rules for Regional Managers and Representatives .................................................................... 280 What is an Effective Regional Sales Manager .......................................................................................... 287 Sales Meetings ..................................................................................................................................................... 289 Guidelines for Sales Meetings at National Trade Show ........................................................................... 290 Sales Meeting Success and Failures ........................................................................................................ 291 Plant Tours: How Agents and Manufacturers Can Cooperate to Make Them The Most Productive ................................................................................................................................. 293 Preparing for the Sales Meeting/Interview/Hostile Customer or Dealing with Crisis Management Issue 295 Trade Shows ......................................................................................................................................................... 300 Guidelines for National Trade Shows ....................................................................................................... 301 National Distributor Trade Show Financial Policy ..................................................................................... 302 Trade Show Planning for Representatives ............................................................................................... 304 Statement on Financial Support of Distributor Trade Shows .................................................................... 316 Liability Exposure Involved With Financial Support of Distributor Trade Shows ...................................... 317 Regional/Dealer Trade Show Participation Request ................................................................................ 318 Trade Show Evaluation Form ................................................................................................................... 319 Trade Shows Are More Than Exhibit and Meetings ................................................................................. 321

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NAFEM • MAFSI Principles of Decision Representative Councils ..................................................................................................................................... 324 Guidelines for Establishing Representative Councils ............................................................................... 325 Getting the Most Out of Rep Councils ...................................................................................................... 330 Better Repping Survey Reports - Representative Councils ...................................................................... 333 Manufacturers Who Have Representative Councils Think They Are Great ............................................. 341 Representative Councils - Breaking Down the Walls Between Manufacturers and Representatives ...... 346 Startup and Demo Procedures ........................................................................................................................... 349 Guidelines for Start-Up and Demonstration of Foodservice Equipment ................................................... 350 Guidelines for Producing Start-Up and Demonstration Videos ................................................................ 363 Basic Video Glossary ................................................................................................................................ 366 Video Demonstration Disclaimer ............................................................................................................... 368 Industry Certification ........................................................................................................................................... 369 Certified Foodservice Professional (CFSP) .............................................................................................. 370 Certified Professional Manufacturers’ Representative (CPMR)................................................................ 382 MAFSI Technology Certification ............................................................................................................... 388 ServSafe and HACCP ............................................................................................................................... 391 Why Credentials? ...................................................................................................................................... 393 Miscellaneous Forms.......................................................................................................................................... .394 Dealer Credit Information .......................................................................................................................... 395 Dealer Incentive Program ......................................................................................................................... 396 Dealer Sales Information........................................................................................................................... 397 Literature Request..................................................................................................................................... 398 Request for Complimentary Travel ........................................................................................................... 399 Request for Cooperative Advertising ........................................................................................................ 400 Request for Extended Billing ..................................................................................................................... 401 Request for Return Authorization .............................................................................................................. 402 Request for Special Event ........................................................................................................................ 403 Special Discount Request/Authorization ................................................................................................... 404 Telephone Order Form.............................................................................................................................. 405 Test/Show Unit Commitment Form ---------------------------------------------------------------------------------------- 406

DISCLAIMER The information contained in Principles of Decision is a collective attempt by the joint leadership of MAFSI and NAFEM to help define and augment the complex partnerships between independent manufacturers’ representatives and the manufacturers they represent. These strategies are meant to serve as helpful guidelines and concepts to think about in various decision affecting this partnership. They are not intended as legal advice, therefore it is important to consult your association headquarters and/or experienced legal counsel regarding the applicability of any guideline or point of information contained herein.

2814 Spring Road, Ste. 211 Atlanta, GA 30339 770.433.9844 Phone 770.433.2450 Fax info@mafsi.org www.mafsi.org

161 N. Clark, Ste. 2020 Chicago, IL 60601 312.245.1054 Phone 312.527.6658 Fax info@nafem.org www.nafem.org

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NAFEM • MAFSI Principles of Decision

Food Service Industry Roles Food Service Equipment and Supply Segments Performance Recommendations ..................................... 6 Statement on Channels of Distribution ....................................................................................................... 13

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NAFEM • MAFSI Principles of Decision

FOOD SERVICE EQUIPMENT AND SUPPLY INDUSTRY SEGMENTS PERFORMANCE RECOMMENDATIONS The original performance recommendations were developed in the early 90’s by members of the FCSI/NAFEM Liaison Committee. These recommendations were reviewed in 1994 by a group of industry leaders from all five major trade associations in the food service equipment, supplies and furniture industry: CFESA, FCSI, FEDA, MAFSI & NAFEM and revised as necessary. In the spring of 1998, leaders from all five associations were asked to update these recommendations to meet today’s marketplace realities. These revised performance recommendations reflect all updates received and serve as a reference in conducting your business with your partners.

REPRESENTATIVES Representatives’ Recommendations For Manufacturer’s • • • • • • • • • • • • • • • • • • • • • • • •

Treat representatives as your strategic partners - as your customers Provide specific sales and marketing support - Go to market as a team Provide training on equipment & demonstration; applications; and competition Make quality equipment with good value Establish mutually agreeable territory quotas Do not penalize representative’s commissions because of unilaterally make sales/marketing decisions with end users, buying groups, dealers and other customers Do not sell to unqualified organizations or people Spend your representatives time wisely Provide adequately sized and thoroughly trained inside sales/customer service and technical teams Have an excellent system of communication with representatives Introduce new products in a well planned fashion Pay commissions on time according to contract and provide complete and accurate commission statements Provide complete and accurate specifications sheets, price lists, sales literature and acknowledgments Do not accept orders that does not include the Specifier Identification System (SIS) alpha-numeric identifier suffix after every model number Invest in new product development Provide up-to-date order and shipment reports under partnership development Make correct and timely shipments - notify representative of any production and/or shipping delays Have a sales-oriented credit philosophy Establish a representative council Furnish contracts longer than 30 days Understand the representatives’ business Use technology to communicate with representatives on production/shipments/commissions to eliminate unnecessary phone calls between representative and factory. This leaves more time for selling! Incorporate revised Start Up & Demonstration guidelines as outlined in Principals of Decision Use Principals of Decision guidelines and articles in developing trusting relationships with your representatives

Representatives’ Recommendations For Consultants • • • • • • • • • •

Be open minded to representatives products Write clear specifications using your specifier identifier suffix for each product specified as outlined in the new Specifier Identification System (SIS) Use SIS to aid representatives in obtaining specification credits with manufacturer’s and in assisting the ultimate customer Write brand specific specifications, not generic specifications, when possible Adhere to specifications Be accessible for learning about new products Consider reliability, durability and service to be part of the products price Support those representatives who support you as an ethical and professional partnership Be fair on punch lists Incorporate revised Start Up & Demonstrations guidelines as outlined by FCSI/MAFSI/NAFEM

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NAFEM • MAFSI Principles of Decision

Representatives’ Recommendations for Dealers • • • • • • • • •

Try to make dealer’s sales staff available for sales meetings with representatives Provide leadership to your sales team in their dealings with representatives and factories that you support Support those representatives who support you as an ethical and professional partnership Provide general specifications, item specifications and related drawings for those projects needing quotation Include the Specifier Identification System (SIS) alpha-numeric identifier suffix after every model number in specification Allow adequate lead time for quotations Do not product substitute on specifications without authorization Pay promptly Incorporate revised Start Up & Demonstration guidelines as outlined by FCSI/MAFSI/NAFEM by scheduling adequate time for demonstrations, providing equipment start-up by authorized service agency or dealer, verify completion of installation prior to demonstration, and have a salesman present for the representatives demonstration

Representatives’ Recommendations for Service Agents • • • • • • • • •

Train service staff at factory schools Provide continuing education for service staff and sub-agents Provide good sub-network of service for rural areas Contact factory for assistance Have an adequately sized staff Promote a good working relationship factory representatives Consider providing start-up and check out of newly installed equipment for which your service agency is authorized Use CFESA’s guidelines for technicians service calls and conducting training Advise local representatives of dissatisfied customer

MANUFACTURERS Manufacturer’s Recommendations For Representatives • • • • • • • • • • • •

Treat your factory as you strategic partners - understand their business and go to market together Invite factories to learn about your business - how it works, etc. Have knowledge of territory, including dealers, end users, and consultants Have product knowledge of: applications, performance, mechanical, electrical, plumbing, product comparisons, accessories (standard and optional) Provide field liaison and follow-through Participation in Rep councils to align representative and factory goals Be familiar with consultant’s complete specification Provide skilled and complete demonstration training Have professionally trained field and inside sales and staff support Provide full market coverage in assigned areas Keep factory informed about competitive information, specific account potential, market potential, and developing trends Be the value link, the window to the marketplace for your factories

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NAFEM • MAFSI Principles of Decision • • • • •

Be a proactive problem solver and trouble shooter for your market area Be a good will ambassador by taking part in trade associations, providing liaison with code authorities and having general involvement in all facets of our industry in your market area Do not accept any orders without the Specifier Identification System (SIS) alpha-numeric identifier suffix after every model number Promote SIS to consultants, dealers and all specifiers Use Principals of Decision guidelines and articles in developing trusting relationships with your manufacturer’s

Manufacturer’s Recommendations For Consultants • • • • • • • • • • • • • •

Provide complete and accurate specifications using your SIS alpha numeric identifier suffix Understand manufacturer’s products and applications Be up-to-date and knowledgeable Do not over-extend product performance expectations Be open minded and provide a forum for learning about new products Turn shop drawings around promptly Do not specify two brands as equals if they are not equal Do not equate price to value - consider reliability, service and durability Instruct kitchen equipment contractor (KEC) to provide the general specification, item specification and related drawings when obtaining quotations from factories Adhere to specifications Lay responsibility for problems where they belong Try to referee any fallout between KEC, General Contractor or Owner In case of an error on someone else’s part, keep lines of communication open Incorporate revised Start Up & Demonstration guidelines as outlined by FCSI/MAFSI/NAFEM

Manufacturer’s Recommendations For Dealers • • • • • • • • • • • • • • • • •

Show loyalty to manufacturer’s Have a showroom/stock/warehouse Have knowledgeable and involved sales staff Be familiar with consultant’s complete specification Be sure specifier’s alpha-numeric identifier suffix follows all product numbers as outlined in the Specifier Identification System (SIS) Do not substitute for prime specifications Send a complete copy of specification for quotes, including all relevant requirements and drawings Send correct purchase orders to representatives or factories with all accessories Allow adequate fabrication lead time Verify manufacturer’s parts acknowledgments Verify field dimensions Coordinate shipping, receiving and delivery of equipment Promptly inspect shipments for possible freight damage Maintain adequate capitalization/credit Pay promptly Use professional equipment installation crews Provide skilled and complete demonstrations as outlined in revised Start Up & Demonstration guidelines as outlined by FCSI/MAFSI/NAFEM

Manufacturer’s Recommendations For Service Agents • • • •

Provide prompt, courteous, high quality service to our mutual customers Advise and update manufacturer’s on any unusual field service problems Provide service assistance to customer via phone, fax, email as requested Follow up on service calls to ensure customer satisfaction

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NAFEM • MAFSI Principles of Decision • • • • • • •

Advise accountable people of incorrect or incomplete installation Submit accurate, complete and timely warranty service reports and invoices Use manufacturer’s bulletins and training materials to keep staff professional, knowledgeable, and current Order, stock and use only OEM parts to ensure safety and proper repair Promptly order non-stock items, as requested Pay for part sales within manufacturer’s specified terms Do not offer opinions to owner regarding kitchen design, dealers or brands

CONSULTANTS Consultants’ Recommendations For Representatives • • • • • • • • • • • • •

Know your product, its applications and its competition Make useful and educational presentations and demonstrations Provide product application information Indicate product feature/benefit relationships Do not make end-user contact regarding specification changes during the bidding process unless mutually agreed by all parties involved Provide up-to-date catalogs and price lists Advise of changes in specifications Provide submittals for equals/substitutions in accordance with project bid documents Bring problems and questions to consultant before going to owner Keep in reasonable personal contact Provide follow-up/problem resolution Call consultant for appointment Provide proper training for dealer personnel to demonstrate care of equipment use

Consultants’ Recommendations For Manufacturers • • • • • • • • • • • • • • • •

Have knowledgeable sales representation Develop a network of high quality, factory-oriented service agencies Have a knowledgeable internal technical support staff Have an ethical marketing and sales strategy Provide prompt and accurate assistance for: specifications, technical questions, special applications and trends Provide complete and accurate specification sheets Follow FCSI/NAFEM specification sheet format recommendations Provide technical updates Verify accuracy of consultant’s specifications, including use of the Specifier Identification System (SIS) alphanumeric identifier suffix after all product numbers Strive for product reliability and improvement Establish all support activities prior to introduction of new products Produce shop drawings promptly Meet agreed ship and start-up promises Provide well written owner manuals Provide video tapes of equipment maintenance and operational procedures Advise of changes in specifications

Consultants’ Recommendations For Service Agents • • •

Stress professionalism and education for entire staff Have sufficiently trained staff and parts inventory for manufacturer’s for which yours is a factory authorized service agency Report to manufacturer any changes in equipment fabrication or components that affect reliability or serviceability

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NAFEM • MAFSI Principles of Decision • • •

Report to consultant on recurring problems with particular equipment Do not offer opinions to owner or owner’s staff regarding the quality, size, type or manufacturer of installed equipment Report to representatives on recurring problems with particular equipment

Consultants’ Recommendations For Dealers • • • • • • • • • • • • • • • • •

Understand and respect specifications Do not make unauthorized substitutions Ask questions on “gray areas” prior to the bid date Do not request post-bid substitutions Report problems first to consultant Send complete specifications and drawings to representatives of manufacturer’s for quotations Furnish correct and timely purchase orders Provide prompt and complete submittals Adhere to project schedule Make accurate field dimensions Maintain adequate capitalization and credit lines to sustain project completion Minimize change order activity Provide proper installation Provide coordination for in-service demonstrations Have the contract representative present during demonstrations Follow through on service and installation problems Provide submittals for equals/substitutions in accordance with the project bid documents

DEALERS Dealers’ Recommendations For Representatives • • • • • • • • • • • •

Have complete product knowledge Know your competitor’s products Assist in training dealer sales personnel Indicate product feature/benefit relationships Assist with equipment demonstrations and training Provide field assistance with dealer sales calls when needed Assist with solving service problems Make timely catalog specifications and price updates Provide product application information Provide timely quotations Provide follow-up/problem resolution Provide customer leads

Dealers’ Recommendations For Manufacturers • • • • • • • • •

Have knowledgeable sales representation Utilize high quality service agencies Have a knowledgeable internal technical support staff Have an ethical marketing and sales strategy Provide assistance for: specifications, technical questions, special applications and trends Provide complete and accurate specification sheets Be familiar with industry’s view of distribution Strive for product reliability and improvement Establish all support activities prior to introduction of new products

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NAFEM • MAFSI Principles of Decision • • • • • • •

Acknowledge purchase orders promptly Produce shop drawings promptly Provide advance notice of price increases Provide accurate and timely shipping dates Crate products to avoid damage Do not sell to non-qualified organizations or people Advise of changes in specifications

Dealers’ Recommendations For Consultants • • • • • • • • •

Be open minded Understand product applications Provide clear specifications and drawings Provide prompt turnaround of shop drawings Treat dealers equally with punch lists Minimize the number of equals specified Allow enough time to bid a project Communicate with the dealer frequently during the installation period Process and pay requests promptly

Dealers’ Recommendations For Service Agents • • • • • • •

Do not sell new or used equipment Have knowledgeable service technicians Stock as many key parts as possible on service trucks to avoid second trips Provide quick response times Report status of repair work to the dealer requesting the service Do not make adverse comments to the owner regarding the quality of equipment or manufacturer Do not perform warranty work that is not authorized by the manufacturer

SERVICE AGENTS Service Agents’ Recommendations For Representatives • • • • • • •

Schedule regular visits to service centers Understand what is included and not included in product warranties and explain it to the owner Provide suggestions on how to better serve our mutual customer Participate in local service councils Assist in training service and parts personnel on your products Contact service agency regarding upcoming installations or large sales to discuss required parts stock Provide advance start-up date in accordance with revised Start Up & Demonstration guidelines as outlined by FCSI/MAFSI/NAFEM

Service Agents’ Recommendations For Manufacturers • • • • • • •

Provide product information and training for service agency parts and warranty personnel Provide trained technical support staff Implement field service training programs, complete with video training tapes Provide suggestions on how to better serve the customer Provide clearly written detailed parts and service manuals and schematics, including periodic and preventive maintenance schedules Distribute service/parts manual prior to releasing new equipment Price replacement parts on a competitive basis with generic parts

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NAFEM • MAFSI Principles of Decision • • • • • •

Keep minimum order for parts reasonable Eliminate drop-shipment charges Pay warranty claims within terms Negotiate contracts for longer than 30 days Provide for annual slow-moving stock returns without penalty Assist in training service and parts personnel on your products

Service Agents’ Recommendations For Consultants • • • • • •

Specify that new equipment start-ups be performed by the authorized service agency Specify that the dealer be present during demonstrations in accordance with the revised Start-Up & Demonstration guidelines as outlined by FCSI/MAFSI/NAFEM Specify that all equipment warranties be explained to the owner Provide the service agency with a punch list relating to special concerns on new installations Provide suggestions on how to better serve our mutual customer Participate in local service councils

Service Agents’ Recommendations For Dealers • • • • • • • • • • • • •

Provide suggestions on how to better serve our mutual customer Be knowledgeable of local service support before selling a piece of equipment Educate sales staff on product warranties Schedule regular visits to local service agency Advise service agency of new facility openings Provide equipment lists for new installations Confirm complete installation of new equipment before requesting start-up Provide advance notice of new equipment start-up date in accordance with the revised Start Up & Demonstration guidelines as outlined by FCSI/MAFSI/NAFEM Explain manufacturer’s periodic and preventative maintenance procedures to the owner Investigate service problems thoroughly before drawing conclusions Participate in local service councils Do not sell parts Understand what is included and not included in product warranties and explain it to the owner

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NAFEM • MAFSI Principles of Decision

STATEMENT ON CHANNELS OF DISTRIBUTION The industry currently defines distribution as a manufacturer's product channel to the end user. The manufacturers' representative is not part of the distribution channel unless taking title of the product and reselling it which is dictated by some manufacturers. However the manufacturers’ representative is part of the channel of communication. Ultimately the end user will dictate all forms of channel distribution.

15 Channels of Distribution Manufacturer/representative

Dealer

Manufacturer/representative

Chain

Manufacturer/representative

Refrigeration dealer

Manufacturer/representative

Stocking representative ⇒

Dealer

End user

Manufacturer/representative

Buying group

Dealer

End user

Manufacturer/representative

Broadliner

End user

Manufacturer/representative

Designer

End user

Manufacturer/representative

Ice machine dealer

End user

Manufacturer/representative

Master distributor

Dealer

End user

Manufacturer/representative

Master distributor

Chain

Manufacturer/representative

Fabricator

Dealer

End user

Manufacturer/representative

Fabricator

Chain

Manufacturer/representative

Catalog house

End user

Manufacturer /representative

Chain purchasing (Pepsico)

Chains

Manufacturer

Wholesale club

End user

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End user

End user


NAFEM • MAFSI Principles of Decision

Hiring and Evaluation Considerations Guidelines for Evaluation of a Prospective Representative and Evaluation of a Prospective Principal ..... 15 Manufacturers; Representative Firm Total Performance Audit................................................................... 27 How to Screen Prospective Principals and Agents ..................................................................................... 31 How to Find Good Agents ........................................................................................................................... 36 Guidelines for Profitability Through Communications and Performance .................................................... 41 Guidelines for Planning the Business Year ................................................................................................ 53 Recognizing the Right Salesperson (New) ................................................................................................. 56 The Perfect Principal in the Eyes of the Rep (New) ................................................................................... 58 Building A Foundation for the Rep-Principal Relationship (New) ............................................................... 61 Reps and Manufacturers – Finding Each Other (New)............................................................................... 64 Making the Case for Outside Sales Reps (New) ........................................................................................ 68

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NAFEM • MAFSI Principles of Decision

GUIDELINES FOR EVALUATION OF A PROSPECTIVE REPRESENTATIVE AND EVALUATION OF A PROSPECTIVE PRINCIPAL The manufacturers' representative takes an aggressive pride in his territory and he invests, literally, his whole lifetime in it. The better he is, the longer he stays and serves and succeeds in his territory. Factory sales people come and go in a territory. The better they are - the quicker they change. Constant change. That’s the complaint expressed most often by frustrated distributors: "Just when the factory person gets to know us and our special needs, he's off to a new, more lucrative territory." Not so with the manufacturers' representative. The better he is - the longer he stays and serves and succeeds in his territory. His territory is his whole world! He has been around, in that same territory, for most of his life. He doesn't plan to leave it - ever. He has built his customer base with meticulous care. He groups his product mix with his customer mix. He provides his factories and his customers with the kind of synergism that cuts out waste and inefficiency. His capacity for multiple-line selling provides cost effectiveness and cost efficiency to both his manufacturers and his customers. The manufacturers representative is the mainstay of the marketplace he serves. He's the professional. He provides the manpower and the skills and the determination to succeed: lie takes all of these assets and he builds his business under the most compelling of incentives: "We don't get compensated for our efforts unless and until we sell something." That is why the independent manufacturers representative takes such aggressive pride in his territory and why he Invests, literally, his whole lifetime in it and why he does everything in his power to build those sales. His territory is his domain. He guards it with his reputation. And he will never leave that territory except in the hands of those he has trained to serve It as solicitously as he has during his lifetime.

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NAFEM • MAFSI Principles of Decision

Evaluation of A Prospective Representative Name: ______________________________________________________ Date: _________________________ Address: ______________________________________City, State, ZIP: ________________________________ Phone: __________________________________________ Fax: ______________________________________ Person Interviewed: __________________________________________________ Position: _______________ E-Mail: _______________________________________ Web Site: _____________________________________ 1. Representative Company Information: (a) History: (1) Are you a corporation, a partnership or a sole proprietorship? _______________________________________ (2) In what state (and year) was your business established? ___________________________________________ (3) Who are the owners of your company? _________________________________________________________ (4) Will you furnish a brief company history or brochure? _____________________________________________ (b) Company Growth and Future Plans: (1) Will you describe your sales performance history? ________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ (2) Do you have a formal marketing plan? _________________________________________________________ (3) Do you have a business succession plan? ______________________________________________________ (4) Do you prepare an annual budget? ____________________________________________________________ (c) Territory Covered and Market Served: (1) What territory do you cover? _________________________________________________________________ (2) Will you supply a territory map? ______________________________________________________________ (3) Under what conditions will you accept deviations from your traditional territory? _________________________ __________________________________________________________________________________________ (4) What do you consider to be your primary and secondary markets? ___________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________

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NAFEM • MAFSI Principles of Decision (d) Office Facilities: (1) How many offices do you have and what are their size and locations? ________________________________ (2) Please describe your investment in technology and telecommunications equipment. _____________________ __________________________________________________________________________________________ (3) Do you use contact tracking software? _________________________________________________________ (4) Do you use computer order tracking software? ___________________________________________________ (5) How do you track commissions? ______________________________________________________________ (e) Warehousing: (1) Do you have a warehouse? __________________________________________________________________ (2) What is its size? ___________________________________________________________________________ (3) Do you presently stock items for resale?________________________________________________________ (f) Personnel: (1) How many full-time people are employed by your company? ________________________________________ (2) How many part-time people are employed by your company? _______________________________________ (3) How many outside salespeople do you have? ___________________________________________________ (4) How many inside salespeople do you have? ____________________________________________________ (5) How many administrative/customer support people do you have? ____________________________________ (6) Do you have independent contractors working for you? ____________________________________________ (7) How many people are involved in the management of your company? ________________________________ (8) Are any of your people certified (CPMRs/CFSPs) or enrolled as CPMR/CFSP candidates—how many? _____ (9) How many of your people hold college degrees? _________________________________________________ (10) Will you furnish resumes of your key people? ___________________________________________________ (g) Present Lines Represented: (1) Will you furnish a complete, current line list? ____________________________________________________ (2) Do you feel there is compatibility with our products? ______________________________________________ (3) Do any of our products conflict with any of your principals? _________________________________________ (4) Will you supply several principal references? ____________________________________________________

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NAFEM • MAFSI Principles of Decision (h) Professional Affiliations: (1) Are you a member of an association of MAFSI? __________________________________________________ (2) How long have you been a member of MAFSI? __________________________________________________ (3) Are you a member of the Chamber of Commerce? _______________________________________________ (4) Do you or any of your people have any other professional affiliations? ________________________________ (i) Stock Ownership (1) Do you, or any of your people, participate in stock ownership of any of your current principals? ____________

2. Value Added Marketing Services: (a) Quotations: (1) Do you prepare and present quotations? _______________________________________________________ (2) Do you prepare and present proposals? ________________________________________________________ (b) Sales Forecasts: (1) Do you prepare sales forecasts - how often? ____________________________________________________ (2) Are these forecasts initiated by you or required by your principals? ___________________________________ (3) Do you or your principals have a program to follow up on these forecasts?_____________________________ (c) Market Research: (1) Do you conduct market research for any of your principals? ________________________________________ (2) How are you compensated for conducting this research? __________________________________________ (d) Representative Councils: (1) Do you participate on any Representative Councils? ______________________________________________ (e) Purchase Order Management: (1) Are you on line with any of your principals with EDI? ______________________________________________ (2) Do you accept and manage (expedite) orders for your principals? ____________________________________ (3) How are you compensated for this service? _____________________________________________________ (f) Sales Performance: (1) How do you monitor sales performance? _______________________________________________________ (2) Do you report sales performance to your principal if requested? _____________________________________ (3) Do you provide regular sales activity reports to your principals? _____________________________________

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NAFEM • MAFSI Principles of Decision

3. Value Added Sales Promotion: (a) Direct Mail: (1) Do you have a direct mail program? ___________________________________________________________ (2) How many people are on your mail list and how was it compiled? ____________________________________ (3) Do you use "bounce back" cards in your mailings? _______________________________________________ (4) Do you have your own company mailer? _______________________________________________________ (5) How often do you do mailings? _______________________________________________________________ (6) How much do your principals contribute to the cost of your mail program? _____________________________ (b) Trade Shows: (1) Do you participate in local trade shows - which ones? _____________________________________________ (2) Do you participate in national trade shows - which ones? __________________________________________ (3) What support do you expect from your principals for these activities? _________________________________ (c) Sales Literature: (1) Do you have a professionally printed company brochure? __________________________________________ (2) Do you prepare sales promotional literature for any of your principals? ________________________________ (3) Do you produce a newsletter? ________________________________________________________________ (4) Do you have computer graphics capability? _____________________________________________________ (5) Do you have your own catalog? ______________________________________________________________ (6) Do you have any other sales promotional activity? ________________________________________________

4. Visits By Factory Personnel: (a) Policy Regarding Territory Visits by Factory Personnel (1) Do you work from a prepared itinerary? ________________________________________________________ (2) Who prepares the itinerary? _________________________________________________________________ (3) Who is responsible for trip reports? ____________________________________________________________ (4) Do you have a policy regarding customer entertainment expenses? __________________________________ (5) How often and under what circumstances are such visits warranted? _________________________________ (6) How much lead time is necessary to schedule a factory visit? _______________________________________

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NAFEM • MAFSI Principles of Decision

5. Compensation: (a) How do you compensate your salespeople? (b) Do you have incentive programs? _____________________________________________________________ (c) Do you have a profit sharing program? _________________________________________________________ (d) Do you have a qualified retirement program? ____________________________________________________ (e) What type of insurance plan do you have for your employees? ______________________________________ (f) Do you pay your employees expenses?_________________________________________________________ (g) Do you have employment contracts? __________________________________________________________ (h) What other benefits is your company providing? _________________________________________________

6. Training: (a) Product Training: (1) Will you send your salespeople to factory seminars? ______________________________________________ (2) Will you send your salespeople to regional seminars? _____________________________________________ (3) What expenses will you expect the principal to pay? ______________________________________________ (4) Will you plan and facilitate product training at your facilities? ________________________________________ (b) Sales Training: (1) Do you provide a regular sales training program for your salespeople? ________________________________ (2) Do your people attend sales training programs and/or seminars? ____________________________________ (3) How often do they attend? ___________________________________________________________________ (4) Do you subscribe to any sales consultant or improvement programs? _________________________________ (c) Improvement Programs: (1) Do you encourage your employees to further their education at company expense? _____________________ (2) What type of continuing education programs are you promoting for your employees to keep abreast of our changing times? _____________________________________________________________________________

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NAFEM • MAFSI Principles of Decision

7. Territorial Coverage: (a) What type of customers do you contact? _______________________________________________________ (b) How do you rank your customers? Who are your key accounts? _____________________________________ (c) Are your salespeople assigned by account, geographical area or by type of line? _______________________ (d) Will you provide us with customer references? ___________________________________________________

8. Other Value Added Service: (a) Do you conduct product demonstrations? _______________________________________________________ (b) Can your salespeople perform minor repair services? _____________________________________________ (c) Do you perform any other value added services? _________________________________________________

9. References/Finance: (a) Name(s) of bank(s) and account numbers? _____________________________________________________ (b) Do you have a line of credit? _________________________________________________________________ (c) Do you have a cash reserve? ________________________________________________________________ (d) Will you provide several trade references? ______________________________________________________

10. Additional Information: __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________

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NAFEM • MAFSI Principles of Decision

Evaluation of A Prospective Principal Name: ______________________________________________________ Date: _________________________ Address: ______________________________________City, State, ZIP: ________________________________ Phone: __________________________________________ Fax: ______________________________________ Person Interviewed: __________________________________________________ Position: _______________ E-Mail _______________________________________ Web Site: _____________________________________

Your Present Representative: a. Do you presently have a representative in our trading area? _______________________________________ b. Has your present representative been notified of your intentions? ___________________________________ c.

How were they notified and when?____________________________________________________________

d. Why did you decide to change representation? __________________________________________________

e. Why did you choose us from others in our trading area to conduct this interview? _______________________ __________________________________________________________________________________________ e. How many others are you interviewing? _______________________________________________________ f.

Who will make the ultimate decision?__________________________________________________________

Contracts: a. Does your company have a contract (written) with your representatives? _____________________________ b. Have you seen MAFSI’s principal-representative contract guidelines? _______________________________ c.

Could you supply us with a copy of your representative contract? ___________________________________

The Territory: a. Is this an exclusive territory? ________________________________________________________________ b. Do you have any "house accounts" in the territory? ______________________________________________ c.

What are the territorial boundaries under consideration?

d.

How have you covered this territory in the past? _________________________________________________

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NAFEM • MAFSI Principles of Decision

Sample Policy: a. Do you provide samples at no cost to the representative? _________________________________________ b. What are your shipping policies for samples? ___________________________________________________ __________________________________________________________________________________________ c. Do you provide insurance on samples in the field? ________________________________________________

Sales Support: a. What do you have in the way of sales support to our people in the field? ______________________________ __________________________________________________________________________________________ b. At our request, do you encourage factory marketing/technical people to make field visits to customers? _____ __________________________________________________________________________________________ c.

What are your present sales in our territory? ____________________________________________________

d. What is the territory's last five years' sales and growth rate? _______________________________________ __________________________________________________________________________________________ e. What are your expectations for this territory? ____________________________________________________ __________________________________________________________________________________________

Training Programs: a

What programs do you have for training our people? _____________________________________________

__________________________________________________________________________________________ a

How often do you hold training sessions and where? _____________________________________________

b

Do you pay expenses of salespeople attending training sessions at the factory? ________________________

c.

What is your program for keeping the representative informed of new product information? _______________

__________________________________________________________________________________________ d. Do you share expenses of field training seminars (with distributor people, sales meetings, etc.)? ___________ __________________________________________________________________________________________

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NAFEM • MAFSI Principles of Decision

Commissions: a. What is the commission rate on the range of products in your line? __________________________________ Warehouse allowance? _______________________________________________________________________ b. How do you pay commissions to your representatives? ___________________________________________ __________________ c.

on receipt of order (or confirmation)

on shipment of order

on receipt of payment

Do you have an incentive commission for new product introduction/pioneering? ________________________

d. Do you have an incentive commission for exceeding quota? _______________________________________ How is quota established? _____________________________________________________________________ e. Do you have a policy of "revenue sharing� to encourage more profitable orders? _______________________ f.

Are you aware of the Specifier Identification System and do you have a split commission policy? __________

__________________________________________________________________________________________ g. What is your policy regarding commissions if you are required to offer a discount? ______________________ __________________________________________________________________________________________ h. What is your company's commission policy regarding sales to buying groups/cooperatives? ______________ __________________________________________________________________________________________ i.

Do you have incentive programs that include direct compensation to my salespeople? __________________

What control does the representative have over these? ______________________________________________

Equity Consideration: a. Do you have a stock option plan for your representatives? _________________________________________ b. Do you make your stock available to representatives for purchase? __________________________________

Representative - Principal Relations: a. Do you have a representative advisory council? _________________________________________________ b. Do you have representatives on your new product planning committee? _____________________________ c.

How much of your business goes through representatives? _______________________________________

d. Do you see your company expanding its marketing concentration through representatives? ______________ __________________________________________________________________________________________

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NAFEM • MAFSI Principles of Decision

Termination Procedures: a. What are your company's policies on termination? _______________________________________________ b. Have you considered extending the termination period based on the representative's length of service? _____ __________________________________________________________________________________________

Marketing Services a. What marketing services do you require (quotas, forecasting, market surveys, etc.)? ____________________ __________________________________________________________________________________________ b. Do you provide compensation to cover these services? ___________________________________________ c.

What assistance do you provide the representative to help him develop these marketing services to your

specifications? _______________________________________________________________________________

Advertising / Sales Promotion a. Where is the bulk of your advertising emphasis placed? ___________________________________________ __________________________________________________________________________________________ a. What percentage of your sales dollar do you budget for advertising? _________________________________ b. Do you budget for co-op advertising support for your representatives—direct mail programs, promotion, etc.? __________________________________________________________________________________________ d. Do you provide literature, in quantity, at no charge? ______________________________________________ e. What kind of direct mail campaign do you conduct? ______________________________________________ f.

How do you qualify sales leads? _____________________________________________________________

How do you want your representative to handle these leads? __________________________________________ g. Do you provide financial support and products for the representative's participation in local and regional trade shows? ____________________________________________________________________________________ h. What advertising/promotion do you expect your representatives to conduct locally? _____________________ __________________________________________________________________________________________

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NAFEM • MAFSI Principles of Decision

In General a. Will our contract be the same as all other representatives on your line? _______________________________ b. Are there any representatives on your line receiving a higher commission than the one offered to us? _______ c.

Do your insurance carriers have the power to exercise the right of subrogation? ________________________

d. In your company's product liability coverage, does it offer protection to the representative as an "additional insured"? ___________________________________________________________________________________ e. If a customer defaults on payment of an order your representative places against the factory for him (and is approved by your credit department), what is your policy on collection of that account (or adverse commission deduct on future orders placed on the factory)? _____________________________________________________ f.

What type of insurance does your company carry on consigned inventory in the representative's warehouse

locations? __________________________________________________________________________________ g. What is the one weakness of your former representative in our territory that you would like to see the newly appointed representative concentrate his/her efforts on correcting and strengthening? ______________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________

Additional Information: __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________

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NAFEM • MAFSI Principles of Decision

MANUFACTURERS’ REPRESENTATIVE FIRM TOTAL PERFORMANCE AUDIT Instructions 1. Rate how well each statement describes your firm today by circling the appropriate number. The audit is confidential and for your personal use only. Please be as honest as possible. 2. Total the score for each section. 3. Compute your overall organizational score and draw your profile. 4. Begin to plan for improvement. 5. Do something!

Keys 1 = Almost Never; 2 = Seldom; 3 = Sometimes; 4 = Frequently; 5 = Almost Always

I. Customer Focus 1. We are constantly looking for ways to help our customers be more successful, not just for ways to make a sale.

1

2

3

4

5

2. We use a variety of ways to listen to our customers so that we can fulfill their current needs and anticipate future wants.

1

2

3

4

5

3. We make it easy for our customers to give us feedback.

1

2

3

4

5

4. We know the needs, wants, hopes and fears of ALL the key influencers and decision-makers in our targeted customers’ organizations.

1

2

3

4

5

5. If something goes wrong, we take corrective action immediately, and we keep customers fully informed throughout the process.

1

2

3

4

5

6. We regularly measure customer satisfaction.

1

2

3

4

5

7. We have a formal process in place for reviewing customer complaints and feedback with ALL employees.

1

2

3

4

5

8. We serve as advocates of our customers with our principals.

1

2

3

4

5

9. We understand and can articulate the value we add as reps for our customers.

1

2

3

4

5

10. We develop and regularly update business profiles (mission, vision, strategic objectives, financial targets, business threats, development projects, etc.) for our targeted customers.

1

2

3

4

5

Customer Focus Total _____

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NAFEM • MAFSI Principles of Decision Keys 1 = Almost Never; 2 = Seldom; 3 = Sometimes; 4 = Frequently; 5 = Almost Always

II. Positive Principal Relationships 1. We have a clearly articulated long-term plan for creating and nurturing true “partnerships” with selected principals.

1

2

3

4

5

2. We use a variety of ways to listen to our principals and understand what they really want and expect from us.

1

2

3

4

5

3. We make it easy for our principals to give us feedback.

1

2

3

4

5

4. We regard our principals as allies, not as a necessary evil.

1

2

3

4

5

5. We regularly measure how satisfied our principals are with our firm.

1

2

3

4

5

6. We know the needs, wants, hopes and fears of our principals’ key influencers and decision-makers.

1

2

3

4

5

7. We regularly share information about our principals with our employees so they fully understand our principals’ businesses as well as their products.

1

2

3

4

5

8. We work with our principals in a truly consultative and mutually supportive fashion.

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1. ALL our employees know how we add value for our customers.

1

2

3

4

5

2. Everyone in our firm can recite the essence of our mission and service strategy.

1

2

3

4

5

3. We set clear priorities and have the discipline to say “no” to opportunities that would divert us from our long-term plan.

1

2

3

4

5

4. We regularly monitor our performance with measures that are easily understood by all employees.

1

2

3

4

5

5. We have a concisely written business plan and service strategy for our firm.

1

2

3

4

5

6. The “voice of the customer” plays a critical role in every decision we make.

1

2

3

4

5

7. ALL employees understand the implications of our service strategy in their day-to-day work.

1

2

3

4

5

8. We all have specific written goals and objectives that make it clear what we are trying to accomplish.

1

2

3

4

5

9. We have strict standards for quality and timeliness to ensure consistently good customer service and principal support.

1

2

3

4

5

10. We regularly share our results with our employees so that everyone knows if we are achieving our goals.

1

2

3

4

5

11. We have a clear and systematic business development plan for identifying and creating new customers.

1

2

3

4

5

9. We constantly strive to educate our principals about changing customer needs. 10. We have well-developed systems and procedures for keeping our principals fully informed.

Positive Principal Relationships Total _____ III. Clear Direction

Clear Direction Total

Page 28

_____


NAFEM • MAFSI Principles of Decision Keys 1 = Almost Never; 2 = Seldom; 3 = Sometimes; 4 = Frequently; 5 = Almost Always

IV. Supportive Systems 1. Our customers and principals tell us our systems and procedures are hassle-free.

1

2

3

4

5

2. We are always looking for ways to eliminate internal procedures that either don’t add value or hassle our customers and principals.

1

2

3

4

5

3. “Bureaucracy busting” is a key part of everyone’s job.

1

2

3

4

5

4. People have the information they need, when they need it and in useful forms to do their jobs well.

1

2

3

4

5

5. We hire people who like people and who want to please the customer. We are crystal clear about the qualities we want in our employees.

1

2

3

4

5

6. We invest heavily in developing our most important asset, our people.

1

2

3

4

5

7. We have quality and customer satisfaction measures for all employees, and we make them available for everyone to see.

1

2

3

4

5

8. We make it as easy as possible for our employees to be successful and effective.

1

2

3

4

5

9. We are always looking for ways to recognize and reward our employees when they go out of their way to satisfy a customer or principal.

1

2

3

4

5

10.

1

2

3

4

5

1. We “walk our talk” in everything we do.

1

2

3

4

5

2. Management cares as much about the success of the people working for them as they do about their own success.

1

2

3

4

5

3. We truly believe that if we take care of our employees, our employees will take care of our customers, and our customers will take care of our bottom line.

1

2

3

4

5

4. We demand total integrity from all members of our firm, and we are tough on even the smallest infractions.

1

2

3

4

5

5. There is a high level of trust throughout our firm.

1

2

3

4

5

6. We have clearly articulated our values and guiding principles, and they serve as guides for everything we do.

1

2

3

4

5

7. Respect for people (employees, customers and principals) is the foundation of our firm.

1

2

3

4

5

8. For us, “quality” is a frame of mind everyone shares, not just a set of procedures.

1

2

3

4

5

9. We have high performance standards, and we strive to do everything well.

1

2

3

4

5

10. We respect our people and we treat them as adults, willing and able to do the right thing for our customers, our principals and the firm.

1

2

3

4

5

All employees benefit financially when the firm does well.

Supportive Systems Total _____ V. Character and Leadership

Character and Leadership Total _____ Developing Your Total Performance Profile Page 29


NAFEM • MAFSI Principles of Decision Transfer your totals from each section of the audit to the appropriate box below. Place an “X” for each category on the Performance Profile column. Starting at the top, draw a straight line between each pair of “X’s.” This is your Total Performance Profile. Category Total

Performance Profile

Customer Focus

ÃÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄ´ 0 10 20 30 40 50

Positive Principal Relationships

ÃÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄ´ 0 10 20 30 40 50

Clear Direction

ÃÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄ´ 0 10 20 30 40 50

Supportive Systems

ÃÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄ´ 0 10 20 30 40 50

Character and Leadership

ÃÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄÅÄÄÄÄÄ´ 0 10 20 30 40 50

Planning for Improvement 1. What insights did you gain from your Total Performance Profile? What are your lowest and highest categories? Why? 2. Choose two areas you would like to improve. How much would you like to increase your score in this category within the next 12 months? Category

Next Year

_______________________

⇒ ⇒

_______________________

⇒ ⇒

__ __

Today

3. For each of these areas, what one to two specific things do you want to improve? Review the questions in each category for ideas. 4. Why do you want to improve your performance in these areas? 5. What obstacles or challenges might get in your way and inhibit your progress? 6. Translate the improvement areas you have identified into a few SMART goals (Specific ... Measurable ... Achievable ... Results-oriented ... Time-bounded). For each goal, specify one to two steps that you will complete this month to get started. To help you track your improvement progress, create a Total Quality Rep Action Plan form. The form can be a simple one, divided into five columns with these headings, from left to right: Improvement Goal; Completion Date; Measure of Success; Who; Next Steps. Review the action plan regularly and jot notes to record your progress, any changes to the plan and when each goal is accomplished. The written record will help you develop realistic expectations and timelines for further goals.

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NAFEM • MAFSI Principles of Decision

HOW TO SCREEN PROSPECTIVE PRINCIPALS AND AGENTS A Guide to Help You Get to Know Each Other Nothing is more fundamental to the relationship between agents and manufacturers than choosing the right partner in the first place. The agent must spend countless hours and thousands of dollars in expenses selling his new principal’s line before he sees a dollar in commissions. Meanwhile, the manufacturer might well be making an investment in inventory of materials and production of product in anticipation of larger sales which he expects his new agent to write; and if he doesn’t choose his agent wisely, he may lose the factory-to-shelf timing which can be critical to the success of his product. Given this equation, effective screening of a prospective partner is essential for both sides. How do you start the process? Manufacturers have long asked agents to submit information which will help them choose their representation. Usually this takes the form of a questionnaire which tends to be quite detailed. There is no reason why agents shouldn’t receive the same courtesy - a simple exchange of information - and most of them do. This helps dispel any remnant of a one-sided relationship and clearly establishes that each prospective partner has a negotiating option. There’s too much at stake on each side not to have this decision receive the most careful consideration: profitable, long-term associations depend on a full exchange at the outset.

Screening Guidelines for the Agent Checking the established manufacturer’s desirability as a partner is, of course, far easier than performing the same task where the new manufacturer is concerned. In the former case, the agent can make his own inquiries through fellow agents, trade associations, customers, banks (have your own banker acquire the general fiscal information you need) and through published information available in public libraries, chambers of commerce, and such guides as Thomas Register and state manufacturers’ directories. The experienced agent has learned to be cautious when assuming representation for a new manufacturer, particularly if he does not negotiate a pioneering fee with him. Three general avenues should be explored here: (1) the manufacturer’s fiscal soundness [again, your own banker can be of help]; (2) managerial interest and integrity; and (3) a careful analysis of quality and market potential of the product. Your own knowledge of the industry and the contacts you have built up within it will be invaluable in making this analysis. The submission of a detailed questionnaire is of far less use with the new manufacturer than the established principal since there is little business history to draw on. But it can be a help in setting projections and defining sales policy and in informing this new manufacturer just what you expect from him. The sample questionnaire below will not meet every requirement of every agent, but it will provide some of the major guidelines. You will want to “build to suit,” as the developers say, in order to get specific questions answered.

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NAFEM • MAFSI Principles of Decision

Important Points to Cover with a Prospective Principal I. Product Information A. Please name, give short description and principal applications. B. List the advantages and disadvantages of each product in relation to competition and industry requirements. Be objective and include: 1. Quality/performance. 2. Production. 3. Current delivery time from receipt of order. 4. Service policy. 5. Are you prepared to communicate with your agency on all matters influencing the marketing of your product? 6. Are you prepared to completely inform all members of this agency of your product knowledge? 7. Are you prepared to work in the field with members of this agency? II. Pricing Information A. Describe method used to establish price. B. What are the policies on price? (Discounts, returns, allowances, etc.) C. Show your price in relation to the principal competitors’ prices for each product. D. If your prices are higher than those of your competitors, can you justify them in terms of quality, service and delivery? E. Are you prepared to provide quotes on time and follow them up in writing? III. Market Information A. Estimate total industry sales and unit volume attainable on each product for this territory on a shortrange (1 year) and long-range (3-5 years) basis breakdown by classifications, i.e., commercial, institutional, schools, etc. B. Estimate the percentage share of this sales volume you now have and expect to have (break-down by classification). C. Estimate the share of this volume your principal competitors have (short range by product). D. Please give your annual volume for the last three years. E. Long-range trend on each product. IV. Customer Information A. Estimate number of customers for each product in this territory (short- and long-range). B. Description of purchasing procedures for each product: 1. Initial orders. a. Primary buying influences. b. Secondary buying influences. 2. Orders after being specified. a. Primary buying influences. b. Secondary buying influences. V. Competitive Information A. Companies in competition by product. 1. Number and size. 2. Location. 3. Characteristics. 4. Policies. 5. How long have they been in business? 6. Evaluate their trade relations. 7. Are they making a profit? Estimate. 8. Are they growing? How fast? B. Competitive sales situation. 1. How good are their salespeople? 2. What kind of reputation do their salespeople have? 3. Is the morale of their contact people good? 4. Do they have a high rate of turnover?

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NAFEM • MAFSI Principles of Decision VI. Sales Information A. Description of internal sales organization. B. Description of external sales organization. C. System used for agent/principal communication. D. Methods used to evaluate sales representation. 1. Effectiveness. 2. Reputation. 3. Morale. 4. Training. 5. Reports. E. Record of sales volume by product to date for this territory. F. Sales objectives for next year for this territory. VII. Production Situation A. Is production limited or flexible? B. Difficulties in obtaining materials (projected). C. Pending production limitations and forecasts. VIII. Advertising and Sales Promotion Information A. Advertising budget for this region, if any. B. Samples of advertising developed. C. Description of sales promotion activities (trade shows, films, etc.). D. Description of publicity samples and activities. E. Evaluation of activities to date. F. Samples of competitive advertising and literature. G. Estimate of competitive expenditures and allocations. H. Policies on cooperative advertising, if applicable. IX. Sales Leads A. How are they generated? B. Qualified? C. How quickly are they furnished to agents? X. Agent/Principal Relationship A. How is the exclusivity of this territory described and what are its boundaries? B. Have you any house accounts and if so, what is your commission structure? C. What are your policies on field back-up and visitation? D. What is your commission structure? 1. Percentage amount. 2. When paid. E. Do you currently work with a Representatives Advisory Council? F. What are your policies for termination? XI. Written Agreement with Agent What are the points you would like it to cover?

Guidelines For a Manufacturer’s Interview With An Agent Because the selection of agents is so crucial to the success of your sales program, it is imperative that this choice be based on comprehensive information that can only be obtained through pre-screening and in-depth personal interviews. There is a tendency to classify agents as one group, but there is a wide variety of agency operations in every industry—one person and father/son or daughter operations, firms with 10 salespeople covering a particular area, and companies with 30 salespeople and 10 offices concentrating their efforts in the metropolitan areas, etc. Each has its own advantages, and your efforts to find the proper match will succeed if you persist in the search.

Page 33


NAFEM • MAFSI Principles of Decision The preliminary screening process should include: (1) A general matching of the agent’s sales territory with the area you wish to cover. However, it needn’t be an exact fit; the agent may be willing to make adjustments to fill your needs. (2) Reviewing his product specialization and/or the industry he serves for compatibility with your own role in the marketplace. (3) Making inquiries within the industry as to the prospective agent’s reputation and success in selling current lines. Distance may dictate that you do some of your screening of prospective agents by telephone. If this is the case, don’t judge the worth of the candidate by the sound of his voice or by how readily he tells you what you want to hear. Use the call strictly for the gathering of facts, and to make sure you treat all the agents fairly and have some basis for comparison; use the same guidelines for all agents during your telephone interviews. However you conduct your screening, here are some of the points you will want to cover, adding or subtracting from the list as needed to fit your own special requirements:

Important Points to Cover With a Prospective Agent I. Agency Size A. How many field sales personnel does your agency have? B. Do you work with sub-agents? C. Is the owner actively involved as a salesperson? D. What is the number of office personnel? E. Describe any long-range expansion plans. F. Would you be willing to expand in order to accommodate a new account? G. If so, how would you go about it? H. Is the agency a corporation, partnership or sole proprietorship? I. How many offices do you have? J. Do you have any plans for opening K. Do you have any plans for opening new offices? II. Growth Patterns A. How long has the agency been established? B. Describe your sales growth pattern during this time. C. What is your present sales volume? D. What is your sales volume per outside agent? E. What are your sales objectives for next year? III. Territory A. Describe the territory covered by your agency. B. Are you willing to expand the territory? C. If so, how would you go about such an expansion? IV. Product Line A. How many lines do you represent? B. Are your present lines compatible with ours? C. Do you feel there would be any conflict or competition? D. Would you be willing to change from your present product market? E. If so, how would you handle the new product line? F. What do you consider the minimum sales you need to justify handling our line? V. Facilities and Equipment A. Do you have warehouse facilities? B. If so, what size? C. What is your method of stock control? D. Do you have data processing equipment? If so, please describe. E. What type of technology or communications facilities do you have?

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NAFEM • MAFSI Principles of Decision VI. Company Policies A. Describe your agency’s program for sales staff compensation, benefit programs and training. B. Do you have any special incentive or motivation programs? C. How do you monitor sales performance? 1. Sales volume 2. Effectiveness 3. Morale 4. Reputation 5. Reports D. Would you and/or your sales staff attend factory seminars? E. If so, what expenses would you expect the manufacturer to pay? F. What is your policy regarding field visitation by factory personnel? VII. Customers A. Describe the kinds of customers you currently are contacting. B. Are they compatible to our product line? C. Who are your key accounts? VIII. Principals A. How many principals are you currently representing? B. Do you have a line card? C. Would you be willing to furnish us with a copy? IX. Marketing and Sales Promotion A. Would you be willing to assist us in compiling market research information for use in making forecasts? B. Are you presently doing this with your other principals? C. What media do you use to promote your principals’ products? D. If you use direct mail, how many customers are on your mailing list? E. What type of brochure do you use to describe your agency? X. Special Services A. Can your agency offer services such as writing quotes, making proposals and helping with customer education? B. Do you have a sales reporting system? C. If so, are present records available? D. Do you consider your agency a sales and service organization? E. What do you consider your agency’s major strengths? XI. Have you made contingency plans for the continuation of the agency? XII. References A. Banks B. Principals C. Customers One important question you’ll want to answer on your own about prospective agents is this: how do they feel about your line—are they enthusiastic about it and its prospects with their customers? While you won’t get a definitive answer until the face-to-face interview, take readings during pre-screening and monitor it as the selection process continues. The professional agent will usually request a personal visit to your plant, and as he or she tours your facilities and becomes familiar with your product you will have a good opportunity to gauge interest. Another question you’ll want to answer is this: does the right “chemistry” exist between you and the prospective agent? The same gut feeling you employ when hiring an important member of your staff will come in handy here, and many manufacturers say this frequently develops best during an interview in the agency office. A well-organized pre-screening effort can be of tremendous value in the agency selection process. It filters out errors, saves you time in the long run, and helps you find the best possible agency to furnish effective, long-term representation for your product. Reprinted from Agency Sales Magazine, Copyright 1994, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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HOW TO FIND GOOD AGENTS Start With A Profile of The Appropriate Agent and The Job Is A Lot Easier When a manufacturer decides to contract with an independent agent, where does he or she begin? There’s really no difference between finding good agents and finding good employees, except that the agent you appoint won’t work for you, he or she will work with you. And as most personnel in hiring positions will tell you, the first step used to find the right person is to create a profile of what the perfect candidate should look like. And, many add, the second step is realizing that no one’s perfect! Sadly, too many manufacturers don’t put in the necessary time and effort they should when looking for agents. A manufacturer’s personnel director told us, “Too many people think of agents simply as squares filled in on their organization chart. They give about as much thought to finding and appointing an independent sales agent as they do to deciding whether to go to the movies or stay home and watch television. It’s my opinion that you should do everything that we in personnel do, when we seek people.” We agree, and so do a number of manufacturers who have over the years built up enviable teams of hardworking, independent sales agencies. “We shifted from direct sales to independent agents about ten years ago,” a marketing vice-president told us. “When we did, we offered our field people the line as agents. Some took it and have built up nice businesses since then. Others moved on to different corporate sales jobs. But we were still faced with the very real job of finding about a dozen more agencies when we had very little experience dealing with them.” “Before we did anything, two of us went to a MANA seminar for manufacturers and got some very helpful advice. Then we turned to our personnel manager who advised us to create a profile of the perfect candidate. Frankly, this was a more difficult job than we thought. Finding a good agent is like painting a house. Anyone can slap a coat of paint over an old coat, which is sure to peel off in a year. But if you take the time to do the right prep work, a coat of paint will last for years. We wanted our agents to be with us for years.” “The first step we took was to fully understand the relationship that exists between agents and their principals. We took for granted that anyone who has become an agent living on commissions knows how to sell. What we wanted to know was what else an agent had to be and know in order to effectively sell our line.” “Good business experience was important. We wanted to be sure that any agents we appointed were able to run their business efficiently. After all, we were going to be business partners. Next, our profiles included a description of the professional experience our typical agent would have. He or she should have a technical background in our field, and be able to make contacts at rather high levels in customer organizations. Notice, we’re talking in the singular. I have to say that we weren’t concerned whether our agents were solo operations, or multi-person agencies, at least relative to specific territories. In territories where there was a heavy concentration of customers and prospects, we did give preference to multi-person agencies for obvious reasons.” “Plus our agent had to be the kind of person who would represent us at a level we felt was appropriate. We wanted agents who had considerable professional bearing.” “On the business side, we wanted agents that had strong and closely related products to ours. One of the reasons we were switching to agents was to get the benefit of the contacts the agents had built up over the years.” This man described the details of the business which he thought were appropriate, and we were very impressed with the extent of the research he had done to create the profile. While the other details may be interesting, they were fairly specific and will not be of interest to all readers. However, we do want to stress that long before he ever talked to an agent, he had on paper and in his mind’s eye a clear picture of what his perfect agent would look like. We then asked him to describe the steps he took after creating this detailed profile.

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NAFEM • MAFSI Principles of Decision “First,” he said, “I went to the MANA Membership Directory Of Manufacturers’ Sales Agencies and made a list of all the potential candidates in the open territories. Next, I wrote each of them a detailed letter. In this letter I was quite clear to say that we were writing to several agents in his territory, and that we intended to talk to all of them. I wanted to make it perfectly clear that this wasn’t a beauty contest. We were serious about matching agents to our profile.” “Most of the agents we contacted were interested in discussing the line with us. I made appointments and visited each one in the first territory we wanted to cover. This was going to be our shake-down cruise, and I wanted to make sure that whatever mistakes we made the first time out wouldn’t be repeated in other territories.” “Now comes the interesting part,” he said quite emphatically. “Because I really don’t have any personnel experience, I fully expected that our profile would do all the work; the agent who fit the profile would get the territory. It was Cinderella’s glass slipper. But it didn’t work that way at all. I met with about a half dozen agents and three came very close, one was sort of a possibility and one was definitely in the running. So, you say, three out of six ain’t bad. Sure, but remember that I had expected that one agent would fit the profile exactly. This just wasn’t the case. It certainly wasn’t that any of the three had serious problems. It was just that each was quite different on a few dimensions, but each was very well qualified. Still I wanted to squeeze one of those three into my idealized profile.” “To make a long story short, I finally had to revise my profile. No, I didn’t have to compromise in a negative way, but I had to see some of the characteristics I considered important in a slightly different perspective. For example, my profile called for an ideal candidate to have an engineering degree and very strong business and sales experience. The agent who most personally impressed me, had an engineering background but no degree. He had plenty of sales and business experience. At first, I thought that I would just look further until I could fit the person to the profile. But our personnel manager told me that this would be a mistake. He explained that the cumulative technical and business experience added up to a good candidate, just as though the actual experience were heavier in reverse. He said that a profile is a guide, not a cut-and-dry test. My first lesson in seeking and appointing agents was that you pay more attention to the total person, rather than get hung up on one factor.” We should point out that many personnel people will agree with this, but they do say that if a specific skill is critical, it’s important for you to see that your successful candidate must have that skill. Next, this marketing manager said that he thought of revising his profile as he began to interview for the next territory. “Again the personnel guy set me straight,” he explained. “He told me that I should stick with the original profile but that I should look at candidates as a composite of the skills that made up the profile, and be flexible when good candidates came along. I followed his recommendations and I have to say that we now have a very strong team of independent manufacturers' agents.”

What is the Difference Between an Agent and a Good Agent? We once got a letter from a manufacturer member who asked, “Where have all the good agents gone?” He was lamenting the fact that he had been unable to find the right agent for his line in several territories. We don’t know whether he had created any sort of a profile which contained standards that couldn’t be met by anyone, or that there were, indeed, no good agents in his territory. We doubt that the latter was the case. However, the issue was that he couldn’t find the agents he wanted. As it turned out, he was going about his search in a very haphazard way. Yes, he had written and called several agents listed in the MANA Directory. None responded to his letter. He showed us the letter and we knew why. It had to have been one of the worst letters we have ever seen. It said nothing about the product. It said nothing about his company and his plans for the territory. It simply said that his company, a leader in the field (doubtful!), was looking for agents. He included no product literature. He included no corporate literature. He said nothing at all that would get an agent’s attention. He proceeded to take us to task about the “quality” of the members listed in our Directory. We did try to explain that most agents get solicitation letters quite regularly from manufacturers. And those letters that the agents respond to are quite specific. They tell the agent about the company, its plans and its products. Apparently this man felt his belief that his company was the leader in the field should have been sufficient to get agents breaking down his door.

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NAFEM • MAFSI Principles of Decision But what is the difference between an agent and a good agent? At an informal discussion with manufacturers at a MANA seminar we asked several for their thoughts on the subject. The manufacturer who put it most clearly and succinctly said, “A good agent is one who sells your products well in his territory. It’s as simple as that.” He’s right, but it's a deceptive answer. You’ll never know whether an agent is good or not until he or she takes your product to the market. However, you can make some educated guesses about an agent’s potential by asking a lot of questions. We’d like to tell you about another manufacturer who has what he believes are the key questions to ask prospective agents. First, he asks them to describe the history of the agency. He wants to know how and why it got started. He wants to know the steps the agent took to bring the agency to its present state. Next, he wants to know who the agent calls on when he makes sales calls. If the manufacturer sells products that are bought more often by purchasing agents than anyone else, and if the agent spends a lot of time calling on his customers' engineers, then he knows that the agency probably isn't right for him. He wants to get a clear picture of the products and principals the agent currently represents. He wants to know whether there will be any competition. But, more important, he wants to know whether any of the agent's present lines will open doors for his products. He also wants to know if the agent feels that his line will open any doors for the agent's other products. The manufacturer wants to know the agent's plans for growth and continuity. He said that his interest is in long-term relationships so this is an especially important issue for him. He said that he would like to know something about the agency's financial position, but he feels that it's not appropriate to ask detailed questions. His interest in the agency's financial situation stems mainly from a problem he had with an agency a number of years ago. He had taken on what appeared to be a solid agency only to have the agency go bankrupt in a few years. The owner had been taking more than he should—not at all illegally—but it left the business with virtually no working or expansion capital. Needless to say, within each of the categories, he asks a number of specific questions. This gives you an idea of how he goes about separating the agents from the good agents.

Networking Can Get You Connected When manufacturers first start with agents, the activity is intense. They devote considerable attention to the job of finding and negotiating with the agents. Then, once things are running smoothly, this activity either subsides, or drops out altogether. However, most manufacturers seldom cover all the territory they envision. There are always one or two areas where they just don't seem to be able to get an agent. And then there are always times when there is a parting with an agent for one reason or another. All of this means that unless you've covered every territory and are firmly convinced that all your agents will be with you forever, you should keep your ear to the ground. That is, you should network. Getting back to the personnel executive we talked with earlier, he provided some interesting insight on this subject. He said, "Personnel people always keep files of good candidates for important jobs in our company, even though we have top people filling them now. However, this isn't a perfect world, and only last year one of our key vice presidents was killed in an automobile accident. This was a man we all thought would become the next president when our present one retired. We were in an unfortunate bind. The problem was solved when we were able to move another vice-president into the job; we then went to my file for a candidate to replace the promoted man. Fortunately, I had kept in touch with three good candidates, and after the appropriate meetings we had our replacement.” "I think it's important for corporate marketing people to do the same thing. You should know who the other good agents are in your territory. Nobody wants to lose a good agent, but you can for many reasons, most of which have no bearing on the agent-principal relationship.” “Marketing people generally belong to one or more professional organizations where they meet others and exchange ideas. It's at these meetings that our marketing people get word on the good agents in the territories. They simply file them away and when it becomes necessary to look, that networking will have paid off."

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NAFEM • MAFSI Principles of Decision

Appoint the Good Agents Surprisingly, many manufacturers we talked with told us that the real problem they faced was not in identifying the best agents, but in signing them up. As one manufacturer said, "If you're at all in touch with your market, you know who is selling what to whom. When an agent is doing the selling, unless he or she is selling a competitive product, it's just a matter of making contact and stating your case.” "The real problem, however, is coming to terms. Not that agents are prima donnas, but the really good agents want to make absolutely sure that your line is going to fit with their growth plans. There are some agents who are more than willing to add your name to their line cards and then do little or nothing with the line. So even though an agent may take his or her time in making a decision—if you offer the line—this should be a sign that they want to add lines in a planned and practical way." This man said that he was currently in the process of negotiating with an agent to take his line in an open territory. He explained, "We have offered the agent the line and he said that he is very interested. We told him that we have no house accounts and that whatever business we have in the territory will be his from day one. Needless to say, he was most appreciative of this. He did say that he does want to work with us and likes the line very much, but he is concerned at the moment with his ability to do justice for the line. He has four salespeople in the field but feels that he should add another person to relieve some of the heavy work on the other four, in order to make it possible to fairly represent and sell our line. He is talking with several applicants for that job right now. If he is able to hire the right person, he said he will take on the line. I have to say that I really appreciate his honesty. We have appointed agents in the past who grabbed the line and did very little with it and I have to say that part of the fault was ours. We really didn't look too closely at candidates and just appointed them to have a warm body in the territory." We cannot stress too strongly that appointing an agent is as serious a job as hiring a vice president. You wouldn't hire a vice president over the phone without having at least one serious, face-to-face meeting. You should meet with your agent candidates and have a planned agenda for the meeting. Again, our personnel friend offered some good advice. He said, "An employment interview, or in this case an interview with an agent you are considering, should be done on a very structured basis. It's not enough just to say nice things to each other. You should have all your questions planned in advance and you should take careful notes as you talk. The notes are important because you will probably forget most of what was said during the meeting when it comes time to make the decision. Don't tape the interview. That is very intimidating to anyone." A manufacturer who has a reputation for selecting good agents told us that he actually sends a list of topics he is going to cover with the agent candidate before the meeting. "I want him or her to be prepared to discuss a number of issues. It's not like giving away the answers to a test," he stressed. "I tell candidates to feel free to bring with them whatever material they feel will make their case. All too often during agent interviews, the agent says that he or she will send supporting material later. When it arrives, you have often forgotten the context in which the material was to be used. But when an agent is told in advance the subjects that will be discussed and is asked to bring material that will justify or amplify his or her answers, you get a good clear picture on the spot." We asked this manufacturer to give us an idea of the subjects he covers with prospective agent candidates. "First," he said, "I want them to demonstrate a knowledge of our product and its applications. They may not know our specific product that well, but they should know and understand the generic products and they should have a good knowledge of how customers use them. Second, I want them to give me an idea of how they sell related products to the kind of people who buy our products. Here, agents usually bring with them the promotional material they have prepared for their own use. They often bring pictures of trade show exhibits that have run. In one case, we had an agent who brought us a radio script. This may seem unusual for an industrial product, but it really wasn't. The agent explained that most of his customers drove to work, and most of them listened to the same drive-time business program. So he thought it was appropriate to run a few radio spots. So did we. We thought that this was a very imaginative way to go about promoting products.

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NAFEM • MAFSI Principles of Decision Next, I ask them to tell me what they expect from us in terms of support. Of course, I'm prepared to tell them exactly what we are doing now with our other agents. And, finally, I want to know something about the history of the agency, and where the owners see it in the next five, ten and fifteen years. We want our agents to be with us for the long haul and I think the answers to this question are very critical for us."

Who Picks Up the Expenses? Many manufacturers have asked us about the protocol of cost when either the manufacturer or the agent must travel to a meeting. While some agents are willing to pick up the cost of their travel to meet a manufacturer, we feel it's appropriate only if the agent initiated the contact. If the manufacturer sought out the agent, he or she should bear the expense of travel. Several manufacturers have told us that they split the expenses of such travel with potential agents. Another told us that he expects agent candidates to pick up the travel cost, but that he reimburses them if he appoints them. There are other ways and places to meet as well, and many feel that meeting during a trade show or industry conference, where both will be attending at their own expense, is often a good way to handle the issue. However, if you wait for an appropriate conference, you could be a year away from getting the good agent you want—and need. It's best to prearrange meetings with agents at shows and conventions. You spend money to attend a show and want to make the most of your investment meeting with prospects and customers. Of course, meeting with and appointing agents is an important activity, but a planned meeting puts everything on a solid footing right from the start.

An Agent Has Advice for Manufacturers An agent with many years of solid experience and an impressive line card told us that he gets quite a few queries from manufacturers looking for representation in his territory. He explained that most of the manufacturers who contact him haven't done their homework. "Believe it or not," he said, "some don't even know what other lines we have. They have just heard that we are a good agency and they want us to sell their line. We sell to industrial distributors, and one guy was trying to persuade us to take on his line of lawn furniture.” "We pay attention to letters and calls we get from manufacturers looking for representation when they show us they know something about our agency, the markets we sell to, and the other lines we carry. Just the other day, I got a letter from a manufacturer who wants us to consider his line. He went into considerable detail about how his line fits very closely with two other lines we have. He even explained how his line, if we took it, would help us sell more of the other lines we have. Now, that guy did his homework and he got my attention. We are in the process of setting up a meeting with him. If everything else looks good, I'd like to represent him."

It's a Two-Way Street Manufacturers tell us that they are looking for a few good agents. Agents tell us that they are looking for a few good manufacturers. Does this suggest anything to you? To us it says that if you do your homework and do the right thing, you'll be that good agent or good manufacturer. Then, maybe, that dream agent or manufacturer will come a'calling. It's worth thinking about! Reprinted from Agency Sales Magazine, Copyright 1994, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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NAFEM • MAFSI Principles of Decision

GUIDELINES FOR PROFITABILTY THROUGH COMMUNICATIONS AND PERFORMANCE For Independent Representatives, Manufacturers and Regional Managers in the Establishment of Joint Standards of Cooperation, Communication and Performance Introduction The GUIDELINES for Profitability Through Communications and Performance that follow have been for the sole purpose of establishing a "blueprint" for joint standards of cooperation, communication and performance between representatives and manufacturers/regional managers. The MISSION of these guidelines is as follows: "To jointly identify and define guidelines for communication and performance between representatives and manufacturers/regional managers resulting in the promotion of profitability for the representative/manufacturer partnership." These GUIDELINES were developed and are presented as a starting point in a communications process where representatives and manufacturers and representatives and regional managers mutually create a co-performance analysis and mutually establish co-performance objectives. Please Note: These GUIDELINES can be used to enhance communication and profitability between representatives and manufacturers/regional managers. In some cases, the representative and manufacturer may want to initiate the communication process. In other situations, the GUIDELINES may be more useful when used between the representative and regional manager. To these ends, the GUIDELINES were designed to accommodate both communication situations. As in most situations, the reward from using these GUIDELINES is directly proportional to the time and effort you put into making communications work.

I. Overview THE REPRESENTATIVE-MANUFACTURER RELATIONSHIP - The relationship is a partnership with attributes similar to those found in a family-type system. As a system, this partnership must be in balance to be productive and to meet its primary objective of profitability. The first step in achieving balance, is for each party to assess their own goals, needs and expectations. In turn, both parties need to understand the goals and expectations of their "partner." To accomplish the first step towards profitability, the representative and manufacturer should utilize a set of guidelines to walk them through this important communication process. The purpose of this document is just that - a set of guidelines for Profitability Through Communications and Performance. The primary function of the representative-manufacturer partnership is marketing and sales. In today's turbulent and highly competitive marketplace, open communications, accurate information and mutually agreed upon goals will foster greater productivity and success. There is a simple solution for representatives and manufacturers to achieve increased productivity and profitability, greater innovation, and higher degrees of trust and communication. The remedy is to openly share information and facts, and to use this process as a measure of competence, contribution and reward. This means that representatives and manufacturers share information among themselves as marketing partners. Factual information of this type can be clearly and openly sought, measured and communicated. Organizations that are driven by the marketplace, facts, reality and cooperation, rather than power and politics, will be those that move toward higher levels of performance and profitability into the next millennium.

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NAFEM • MAFSI Principles of Decision In order to properly serve the market, manufacturers and representatives must be working toward mutual goals. Their efforts must be coordinated and their communications must be open and honest. In this type of properly structured relationship, there should be no surprises for either partner because information and performance goals are shared. THE REPRESENTATIVE-REGIONAL MANAGER RELATIONSHIP - Representatives work most directly with regional managers. Based on industry surveys conducted by Berman Publications, and in formal presentations and discussion groups at industry conferences, there are a number of on-going issues and communication problems between representatives and regional managers which can be resolved through better communication and cooperation. This important relationship should foster productivity and profitability for both partners. THE REALITIES OF OPEN-COMMUNICATION - In the foodservice industry, change itself may be the only constant. As the independent representative and the manufacturer go forward, their partnership must remain flexible and responsive, focused on meeting the product and specification needs of their end-users. In addition, and in order to survive and prosper within the context of constant change, the partnership between the manufacturer and the independent representative must also be open to change. This marketing partnership will only succeed to the extent that both parties create an environment and communication process that has the following key components: •

Recognition by both parties that fixing blame is not the primary goal, sales and profit production are.

Open, two-way communication and immediate feedback about problems, needs and expectations so that goals and a common direction are mutually agreed upon.

Use of GUIDELINES and rules to create a balanced and mutually productive relationship.

Consistent and measurable results and rewards.

II. Purpose These GUIDELINES were developed as a tool for both the independent representative, the manufacturer and/or the regional manager to use when designing, implementing and evaluating a process of communication and performance between the two parties. This process is meant to be constructive and must be developed within an environment of open communication, trust and mutual consent -the ultimate goal being one of increased productivity and profitability for both the manufacturer and the independent representative.

III. Benefits and Results When communication is open, constructive and honest the independent representative will build his/ her marketing agenda in concert with their manufacturing partner. The benefits to both parties will be a mutually agreed upon direction and commonly held goals. By strengthening this partnership through open communication and joint goal setting, the representative, the manufacturer and/or the regional manager will reap the results of increased market penetration, achieve greater levels of product sales/ profitability and insure the long-term continuity of the relationship. A well-designed communication program will result in the achievement of the following manufacturer's objectives: • • • • • • • •

Increased Income Market Knowledge Influence and Feedback Market Share Growth Achievement of Sales Goals Enhanced Agency Marketing Skills Enhanced Agency Management Skills Sales Force Continuity Achieve Strategic Direction

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NAFEM • MAFSI Principles of Decision A well-designed communication program will also result in the achievement of the following representative's objectives: • • • • • • •

Increased Income Market Knowledge Influence and Feedback Market Share Growth Increased Product Knowledge Management and Marketing Skills Development Agency Continuity Achieve Strategic Direction

IV. The Process The overall spirit that is at the heart of GUIDELINES for Profitability Through Communications and Performance, is a process that encourages the representative and the manufacturer to develop a constructive means to open communications so that respective agendas and goals are discussed and understood. This process is designed to prevent surprises and allow each party to take appropriate and necessary action to avert irreconcilable differences and rifts between marketing partners. The representative-manufacturer communication process has been divided into FIVE key steps: Step 1. ASSESSMENT OF THE CURRENT SITUATION ("Where are we now?") Step 2. DIRECTION/GOAL SETTING ("Where are we going?" and "When do we expect to get there?") Step 3. METHOD/CRITICAL SUCCESS FACTORS ("How do we get there?") Step 4. ACTIONS, FOLLOW-THROUGH AND MONITORING ("How well did we follow through and monitor our actions and progress?" and 'Who is responsible to do what?") Step 5. RESULTS, REVIEW AND ADJUSTMENTS ("How well did we do in accomplishing our goal? and "What adjustments should we make?") Please note: To achieve the overall objectives of GUIDELINES for Profitability Through Communications and Performance, the implementation of "The Process" must be on-going, nonlinear, flexible, adaptable to change and reviewed continually. For maximum success the planner must be the implementer.

Step 1. CURRENT SITUATION ("Where are we now?”) As a starting point in the process of developing Profitability Through Communication and Performance the independent representative and the manufacturer and/or regional manager must accurately assess and define the current market situation and the strengths and weaknesses of their respective marketing partner. The following assessment tool may be of use in defining the current marketing situation and the strengths and weaknesses as perceived by each respective party. Current situation for XYZ Repco and AB Manufacturing company. Date:________________ 1. Assess each partners' performance from 1 (performance rarely equaled) to 5 (failed to meet minimum agreed upon standards). 2. In making your assessment compare the other party to other partners you work with. For example, representatives compare this manufacturer to others you represent, and manufacturers compare this representative with others you work with.

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3. Each marketing partnership must decide upon areas of importance that fit their unique situation. Some examples of areas of assessment are on the following page. 4. Make your assessment prior to meeting with your respective marketing partner so that both the representative and the manufacturer are prepared to conduct a productive discussion during the assessment meeting. 5. After conducting the CURRENT SITUATION (this assessment) conduct the GOAL SETTING phase (Step 2) immediately. 6. While an assessment is helpful in achieving a quantifiable evaluation, the assessment should not be an end in itself. In this step of the process, it is more important to have an open, two-way discussion revolving around the strengths and weakness of each marketing partner in areas of importance to overall profitability for both parties. The discussion that evolves from this phase of the process should focus on how each can be improved and the resulting benefits, rather than a recitation of past problems. Example Areas of Assessment Marketing Program thoroughness, follow-through, etc. Price Realization value of line, objectives, etc.

Manufacturer/ Regional manager 1 2 3 4 5 N/A

Representative

1 2 3 4 5 N/A

1 2 3 4 5 N/A

1 2 3 4 5 N/A

During the Current Situation step it may also be productive for the manufacturer/regional manager and representative to discuss some of the other areas of mutual interest listed below. • Market Conditions, the Competition and Opportunities • Marketing Strategy, Direction and Current Objectives • Market Share Analysis • Market Forecasting • Marketing Services and Telemarketing • Joint Calls • Training • New Product Development and Introduction • Communications, Quality of Reporting • Paperwork and Feedback • Delivery and Returns • Management and Staffing • Administrative Support • Automation and Computerization • Value-Added Services • Warehousing Inventory • Value of Line • Commissions • Support on Promotions • Product Line Mix/Conflicts • Sales History/Performance • Planning Requirements In the Appendix section of these GUIDELINES we have included some sample assessment forms that the representative and manufacturer/regional manager may want to incorporate in Step 1: ASSESSMENT OF THE CURRENT SITUATION.

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NAFEM • MAFSI Principles of Decision Step 2. GOAL SETTING (Where are we going?. " and "When do we expect to get there?") The GOAL SETTING step of GUIDELINES for Profitability Through Communications and Performance is an introspective process. Once agreed upon, the GOALS are most constructive when committed to writing. One of the most pressing communication problems between manufacturers/regional managers and representatives revolves around miscommunication about goals and expectations. To alleviate some of the destructive aspects of miscommunication, manufacturers and/or regional managers and representatives need to have mutually agreed upon goals. Reaching a consensus on clearly defined goals is the second step in establishing the cooperation and communication that should eventually result in profitability for the representative and the manufacturer. To start this phase, both the representative and manufacturer/regional manager must mutually define their respective goals. If these goals do not match, the chances of success towards profitability are minimal. If the respective goals do not compliment each other, both parties need to know what it will take to get them congruent Assuming the goals are synchronized, both parties will need to determine the specific action-areas including marketing, that need to be addressed and what each participant will do to insure success. In addition, the manufacturer and the representative need to agree upon the standards of performance to reach the established goals and the time frame in which the goals will be achieved. Please note: THE GOALS MUST BE CLEAR, SIMPLE AND MEASURABLE. Goal Setting Example #1 Goal Increase market penetration by 1% on the new XYZ Widget System. Actions: Manufacturer/Regional Manager develop mailer identify prospects by SIC train representatives on product provide leads provide samplers maintain inventory

Representative conduct mailing develop call list list stocking distributors make calls and close orders provide product training follow up on orders focus on reorders

Standards of Performance: Add "X" number of stocking locations and close "X" number of sales by_____(date). Time Frame: "Y" weeks after factory notification of inventory availability. Goal Setting Example #2 Goal: Conduct a series of joint calls/meetings with customers to introduce the new XYZ widget. Actions: Manufacturer/Regional Manager Call representative to establish who will be contacted, when and where

Representative Representative calls to set up appointment/ representative calls to confirm appointment

Regional manager and representative conduct the meeting

Same

Regional manager provides product information to representative, if needed

Representative follows up with additional information as requested by the distributor

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NAFEM • MAFSI Principles of Decision Closes order with distributor

After order is taken, regional manager follows-up on initial order and delivery

Continues to provide sales support and talks to distributor regarding the order status and solicits future orders

Standards of Performance: Make "X" number of joint sales calls by_____(date). Time Frame: "Y" weeks after the goal established. Step 3. CRITICAL SUCCESS FACTORS ( “How do we get there?”) In this phase of the process towards Profitability Through Communications and Performance, the manufacturer/regional manager and the representative must answer the following basic question: “What factors are mutually agreed upon and considered critical to accomplish each GOAL (those goals agreed to in the GOAL SETTING phase) within the agreed upon time frame?" Example: Goal: Increase stock locations for the new XYZ Widget System. Critical Success Factors - Manufacturer/Regional Manager • product availability • collateral materials • representative training accomplished • price guidelines • measurement reporting Critical Success Factors- Representative • action plan • resource commitment • develop distributor awareness by calling on "W' of distributors • specification development - update catalogs • conduct counter days with "#" of distributors • develop end user awareness calling program Step 4. ACTIONS, FOLLOW-THROUGH and MONITORING ("How will we take action, follow-through and monitor our progress?", "How frequently will we communicate?" and "Who is responsible to do what?") The purpose of this phase in the GUIDELINES is not to create more paperwork for either the representative or the manufacturer. The objective is to structure an on-going mode of two-way communications between the marketing partners so that actions are taken, follow-through accomplished and progress monitored. The process should be interactive, timely and sometimes immediate. Action Examples Manufacturer/Regional ManagerACTION: Report stock situation and orders received from each distributor. FOLLOW-THROUGH: Weekly MONITORING: Written form sent to representative.

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NAFEM • MAFSI Principles of Decision ACTION: Report success stories from field. FOLLOW-THROUGH: Immediately MONITORING: Verbal - call representative. ACTION: Provide lead generation from advertisements. FOLLOW-THROUGH: Weekly MONITORING: Written list sent to representative. Representative ACTION: Completion report for counter day. FOLLOW-THROUGH: Immediately MONITORING: Written form sent to regional manager. ACTION: Update catalog. FOLLOW-THROUGH: Weekly MONITORING: Send update form to factory. ACTION: Progress update to Product Manager. FOLLOW-THROUGH: Monthly MONITORING: Call Product Manager during introduction period. Step 5. RESULTS, REVIEW and ADJUSTMENTS ("How well did we do in accomplishing our goals?" and "What adjustments should we make?") In this last step of Profitability Through Communications and Performance, both the manufacturer and the independent representative will assess the other's performance on the goals established in Step 2: GOAL SETTING. While the following format provides a basic framework for rating your marketing partner's results, it is more important to discuss what each party will do to enhance profitability and to better communicate when the entire process is re-initiated. Directions: Rate your marketing partner's performance on each goal established in Step 2: Goal Setting. Use the following ratings or develop your own which will best characterize the results of your partner's performance on each goal. RE = Performance Rarely Equaled CE = Clearly exceeded expectations. Contributed significantly to the success of the overall program towards profitability. MR = Met all requirements of accomplishing the goal MM = Met minimum standards FM = Failed to meet minimum agreed upon standards

V. Legal Considerations Independent representatives are in fact independent contractors that serve as the marketing arm for manufacturers. As independent agents, this type of performance analysis can and should be tailored to the individual firm. While there are no legal requirements that all programs be the same, it is important for the independent representative and the manufacturer/regional manager to have open, two-way communications as to where they are going, how to get there, and the overall results of these joint efforts.

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VI. Guideline Summary And Evaluation Forms What The Representative Should Expect From The Manufacturer • Thorough education on product line • Field work in territory • Competitive pricing • New products/Quality products • Reasonably prompt shipments • Professional literature • Adequate samples • Fair contracts for services • Telephone availability of key personnel • Telephone calls promptly returned • Promotions for distributors • Fair commission rate of compensation • Accurate, on time commission payments • Commissions paid on shipment • Accurate shipping information • Awareness of account contact, be it in person, telephone, or in written form • Sales summary reports • Knowledge and review of company's goals and plans • Critique of performance • Factory site education • Quality control • Regular and timely sales meetings • Timely, accurate competitive information What The Manufacturer Should Expect From The Representative • Quality sales effort • Immediate exposure to major accounts • Professional sales presentations • Knowledge of product line • Accurate knowledge of competitive activity • Help in account collections; • Support of promotions • Distributor b-dining on product line • Timely follow-up on requests • Trade show participation • Well-scheduled field sales work • Effective program for lead follow-up • Non-competitive representation • Reasonable feedback on leads • Updating distributor literature and price fists • Conduct distributor sales meetings • Input on sales projections • Telephone calls promptly returned • Knows position in marketplace • Fair amount of time selling line • Samples in good condition • Belief in products • Ethical business conduct • Attendance at sales meetings

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Manufacturer’s Assessment of the Representative Manufacturer: ______________________________________________ Representative Agency: ______________________________________ Territory: __________________________________________________ Individual(s): _______________________________________________ _________________________________________________________ _________________________________________________________

KEY 1 = Performance rarely equaled. 2 = Clearly exceeded expectations. Contributed significantly to the success of the overall program toward profitability. 3 = Met all requirements of accomplishing the goal. 4 = Met minimum requirements 5 = Failed to meet minimum agreed upon standards.

Regional Manager: __________________________________________ Date: _____________________________________________________

Assessment Item

Evaluation Points

Comments/Assessment

Quality of Representative Staff Written Marketing Plan Ability to Carry Out Plan Communications With Manufacturer Investment in Representative Business Sales to Plan % Margin Index New Product Sales Quality of Customer Service Representative Staff Training Representative's Succession Plan Representative's Selling Skills Sales Forecast Accuracy Product Knowledge Page 49


NAFEM • MAFSI Principles of Decision Competitive Feedback Timely Follow-Up Sales Lead Follow-Up and Feedback Distributor Training and Sales Meetings Specification Effort Total Evaluation Points (Add Column)

20-40 - Very Favorable for Business Relationship 40-60 - Need Further Evaluation of Problem Areas (see comments) 60 or more - Explore Other Alternatives

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Representative’s Assessment of the Manufacturer Representative Agency: ______________________________________ Manufacturer: ______________________________________________ Individual(s): _______________________________________________ _________________________________________________________ _________________________________________________________ Regional Manager: __________________________________________

KEY 1 = Performance rarely equaled. 2 = Clearly exceeded expectations. Contributed significantly to the success of the overall program toward profitability. 3 = Met all requirements of accomplishing the goal. 4 = Met minimum requirements 5 = Failed to meet minimum agreed upon standards.

Date: _____________________________________________________ Assessment Item

Evaluation Points

Comments/Assessment

Top Management Regional Managers Customer Service Commissions Paid on Time Systems and Follow-Up Inside Support Availability Manufacturer’s Marketing Services and Programs Regional Managers Product Knowledge Communication with Representative(s) Quality of Products New Product Development and Introduction Sales Literature Overall Service Quality Ethics and Fairness Advertising

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NAFEM • MAFSI Principles of Decision Factory Training Competitive Pricing On Time Shipments Sales Reporting Total Evaluation Points (Add Column)

20-40 - Very Favorable for Business Relationship 40-60 - Need Further Evaluation of Problem Areas (see comments) 60 or more - Explore Other Alternatives

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GUIDELINES FOR PLANNING THE BUSINESS YEAR Overview Relationships between independent manufacturers representatives and their manufacturing principals are founded upon each of the party's expectations as to the other party's performance, capabilities, and actions. Exceeding these expectations make the relationships prosper, and failing to meet expectations sow the seeds of discontent and ultimately lead to a dissolution of the relationship. The key element in the "expectation scenario" is the communications that take place between the independent representative and the manufacturer. Obviously, communications is an ongoing process and not something that is reserved for special times or specific instances. However, there are certain times in the business cycle where a more formal process of communicating and clarifying expectations are essential to a healthy and continuous relationship. We suggest that at the beginning of each business cycle (usually annually) certain questions need to be asked and certain issues need to be addressed openly and honestly between representative and manufacturer. What follows is a suggested list of areas that each independent representative should discuss with their manufacturing partners. These are not mutually exclusive areas of discussion. Each needs to be addressed from the perspective of the two parties. When the expectations are defined and agreed to, the stage is set between the independent representative and manufacturer for a successful business partnership. The critical issue is that at the beginning of each business cycle the relationship is renewed. the expectations are defined and mutual agreement is established. Once the checklist is established, it can be revisited periodically to keep the relationship on track, healthy, and most of all, profitable.

Suggestions for Use Obviously, this document is just what its title implies - a guideline! Any relationship might require the addition of other areas of discussion or the deletion of some of those that are suggested here. The following guideline of suggested topics should be discussed in establishing mutually agreed upon objectives prior to the commencement of a business cycle. These topics and their content then become the platform for ongoing dialogue between the manufacturers representative and the manufacturer during the year. These topics could be the basis of a planning meeting between a regional sales manager and agency principal and/or others in the agency. Once discussed, a two-page summary or bullet point around each criterion would form the key communication link to objectives for the new year.

Meeting Topics 1. Goals and Objectives A clear, concise summation of the goals and objectives for the upcoming year. Suggested topics: Increase/decrease for agency/manufacturer vs. prior year Increase/decrease for manufacturer/agency vs. prior year Review quota spread Key product line emphasis points Possible key account targets What are the trends/history (2-3 years) in this market? Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

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2. Planning "Who's on first," "who's on second,� etc. and are there any changes that should be discussed? Suggested topics: People assignments Ownership/succession plan Personnel changes/assignments Key contacts at agency/manufacturer Policy changes Future markets Strategic direction Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

3. Distribution After discussing mutual goals in regard to distribution, consider covering the following points: Suggested topics: Planned additions (who, when, what product) Planned deletions (who, reasons, when) Critical strategic distribution moves (chain, buying group, target market, niche/specialty markets, etc.) Channel focus Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

4. Compensation A key element always to be reviewed so as to prevent any misunderstanding. Suggested topics: Commission plan by product Any incentive plans in place Other (warehouse allowance, specification work, co-op programs. etc.) Are the compensation plans for manufacturer and representative personnel structured to accomplish the market objectives? Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

5. Promotion To assist both the representative and manufacturer in their planning. At minimum a skeleton of promotion plans and expectations should be reviewed. Suggested topics: Available and planned promotions (local/national) Collateral (brochures, catalogs, sell sheets, etc.) Advertising schedule, if applicable Review for local effectiveness Trade shows Promotional target audience (distributor, end user, specifier, etc.) Electronic media Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

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6. New Products It is important to establish the timing. expectations and rationale in upcoming new product introductions. Suggested topics: Planned introductions/training Sales goals/competition Rational/application Field input on potential products and results Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

7. Training What will be the key objective in the coming year for the representative to distribution and/or end users? Likewise, is there planned training for the representative and/or manufacturer? Suggested topics: Representative - product/skills Distributor sessions End user and/or consulting engineer Frequency Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

8. Reporting Any expectations should be discussed and agreed upon. Suggested topics: Format Prepared to discuss the 7 points above Any other agreed upon criteria - Example: 2x per year competitive overview Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

9. Factory Visits What factory visits are planned? What is the representative's role? What will be accomplished with the visits? How will costs be handled? Suggested topics: Who (representative. distributor, specifiers. end-users) Frequency Planning Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

10. Specific Objectives/ Action Plan The final step is to summarize the results and create a written document that can provide a guide and a benchmark for progress throughout the business year. The objective is to be very clear about the expectations and to remove any assumptions. Suggested topics: List what and who Representative responsibilities Manufacturer responsibilities Other ___________________________________________________________________________________ Other ___________________________________________________________________________________

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RECOGNIZING THE RIGHT SALESPERSON By John R. Graham What does it take to be the type of salesperson who produces positive results year after year? Just ask any sales manager or salesperson this question. Each one will have a ready answer. Nor surprisingly, it usually mirrors the way they think of themselves. But that aside, we all seem to think we know what it takes to be a sales pro. “He’s a great closer.” “She won’t quit until she gets the appointment.” “She’s relentless when it comes to follow-up.” “You can count on George to up-sell every customer.” “There’s no one that Richard doesn’t know.” “He’s great at cold calling.” And on it goes. But there’s more to quality selling performance than even outstanding traits. And there’s more to it than even spotting the right traits. What’s often missing in identifying sales excellence is a profile of behaviors. These form a constellation of qualities that separate the average from the extraordinary salesperson. Being friendly, personable, and attentive are helpful, of course. So is being aggressive and persistent. But even more critical are such easily identifiable behaviors as the following. · The salesperson who invests time understanding customers rather than simply “qualifying” them The difference is as wide as the Grand Canyon. This is the salesperson who asks lots of questions to gain an indepth understanding of the customer’s operation with the objective of uncovering what is being done well and where there are unresolved ó and often unidentified ó problems. He never even thinks about asking “Who makes the buying decisions? “ or “When do you expect to place the order?” Such issues will be addressed normally through the information gathering process. Of course every salesperson should be adept at qualifying customers. No one wants to spend time getting the order only to discover that there are credit problems. But “qualifying” has another meaning ó figuring out if the person is ripe to buy. The right salesperson wants to make every possible sale, but recognizes that from today’s contacts come tomorrow’s customers as well. This is quite different from a commitment to understand them so they see you on their side, and not just another salesperson looking for a quick sale. The salesperson who uses knowledge to attract customers Although there is something to be said for relationships fostered on common interests and other forms of compatibility, more is needed today; frankly, much more. The primary task for salespeople is getting customers to want to do business with them ó and no one else. The right salesperson recognizes that products and services change, as do customer needs. Therefore, this salesperson builds a knowledge bond with customers that is based on bringing their expertise, ability to analyze problems, and articulate solutions to bear on customer issues. It’s easy to test this behavior. Customers often ask, “Even though it has nothing to do with what you sell, could I run something by you?” The attraction is knowledge. The salesperson who stays close to customers because buying decisions take longer than ever The right salespeople know that customers are unpredictable when making buying decisions. For example, they have made presentations and six months or a year later, the customers call and indicate they are ready to move ahead. They have also discovered that writing off a customer too soon can be a major mistake. After one or more meetings the salesperson decides this particular customer isn’t going to buy. Then a year or so later, a competitor gets the business. More often than not, it is failing to stay in contact with the customer that causes the problem. The customer perceives the lack of contact as a lack of interest. There is always that initial flurry of calls and meetings, and when the prospect fails to buy, there’s silence. This sends the message that the salesperson is no longer interested. Should it be surprising that the customer looks elsewhere when it’s time to sign the order?

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NAFEM • MAFSI Principles of Decision Every salesperson knows that decisions are taking longer than ever. Because of this, it’s a mistake to assume that the customer has no genuine interest in buying. The salesperson who expects prospecting to be company-driven This one is a hot potato! While the right salesperson is always alert to spotting new business opportunities, he refuses to spend valuable selling time simply trying to get through someone’s door. The day of “spending valuable time trying to get your foot in the door” is gone. The major task is establishing conditions so you will be invited through the door. Customers are turned off by the “office or home invasion” techniques used by so many salespeople. Their actions are blatant indications that making the sale is more important than anything else ó including meeting customer needs. When the salesperson is “invited in,” the atmosphere is welcoming, professional, and non-defensive. The salesperson who becomes one with customers When talking about their customers, the highly competent salesperson unconsciously uses “we” rather than “they.” Nothing is contrived. It’s so natural, they don’t realize what they are saying. They so completely put themselves in the customer’s shoes, they become one with the customer. “We” is simply an expression of the quality of the business relationship. The salesperson who serves as the customer’s consultant Some salespeople say they walk when the customers start asking for information. That’s a short-sighted view. What we’re really discussing here is “mind-set,” or attitude. And it’s not so-called “consultative selling,“ where salespeople attempt to present themselves as “consultants” but have no intention of fulfilling the role. The salesperson who knows how to say “No” There are some sales that should not be made ó when it’s in the best interest of the customer to take a pass. But most salespeople are so conditioned to get every possible order that they cannot turn down a sale, even when they know it’s not right for the customer. They’ve invested time and effort and they have a live one on the line. No one wants to walk away from those sales. The right salesperson does exactly that. He walks away when it becomes clear that what is being sold to the customer won’t solve the problem. The right salesperson recognizes the fallacy of making the wrong sale. The salesperson who understands that the company matters For what now seems as one brief second, even though it lasted for seven or eight years, business was victimized by “free agentry.” One survey of about 1,100 employees in Silicon Valley showed that they had averaged three jobs in about 13 months. Resumes were filled with a long series of jobs that looked more like “rest stops” than they did anything else. How times change. Today employers look with caution at those same resumes. The salesperson who exhibits a commitment to the future Everyone knows what happens to a beagle when it ventures out on a busy street. It’s sure death because its nose is down on the ground. Many salespeople have the “Beagle Syndrome.” They are only concerned about what’s happening today, and they fail to see what’s going on around them. When a salesperson says “It’s just become a rat race” or “I hate to get up in the morning,” this isn’t burnout as much as it reflects a long-term misunderstanding of what selling is all about. The right salesperson prepares his customers for what’s coming and how to cope with change. Whether you call this “the right salesperson” or just “a good salesperson” makes no difference. It’s the selling behaviors that are important, that set the competent apart from the run-of-the-mill sales rep. It’s what they do that separates the average from the peak performer. Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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THE PERFECT PRINCIPAL IN THE EYES OF THE REP By Harry J. Abramson Is there such a thing as a perfect spouse in a perfect marriage? Do you drive a perfect car and live in a perfect home in a perfect neighborhood? May I dare ask -- Do you have perfect children, who receive perfect grades and who give you the utmost of perfect respect? The answer is obviously a resounding NO! I may not know you, but I do know that there is no such thing as perfection in our personal lives. Nonetheless, you and I strive for it. Now let’s look at the business side of our professional lives. As a manufacturers’ rep, a proud and noble livelihood, I -- like other reps -- strive to engage with the perfect manufacturer (principal). The word engage is probably very appropriate, since we felt that our fiancee was as close to perfection as is humanly possible. But au contraire! Once we get married, we may have experienced the sudden shock of stark reality. He or she wasn’t so perfect after all and that applies to the rep/principal relationship as well. There ain’t no such thing as the perfect rep or the perfect principal, but we never stop looking! Reps have a vision of the perfect principal, and I’ll share mine with you.

The List There are numerous qualities that would be inherent in the perfect principal. I’ll list and dissect some of them for you. 1. Respect 2. Understanding 3. Support 4. Quality Products 5. Quality Service 6. Leadership 7. Market Pricing 8. Communication 9. Rep Advocacy 10. Fair Contract and Compensation 11. Partnership Mentality 12. Integrity

Respect Respect doesn’t work unless it is mutual -- a two-way street. Reps should be viewed and treated with the same degree of respect that they show their principals! The “perfect principal” sees reps as peers, not peddlers. They should realize that reps are just as educated, sophisticated and motivated as they are. Reps and their principals both aspire to the same goals and successes. They work every bit as hard, if not harder. If they don’t perform, they don’t get paid. Reps want to sell more for their principals and are not “independent reps” when it comes to success -- principals and reps are dependent on each other!

Understanding I believe that most reps try to understand their principals’ business -- they must to be successful. Likewise principals should try to better understand the rep business. As reps, we have to better educate them. Reps can’t just leave it up to our great trade associations like MANA, ERA, NEMRA, etc. Principals and reps should take the time to figure out what makes each other tick. Reps have to express their goals and problems. Reps want to have financially healthy principals and our principals should want the same for their reps.

Support It takes a team to “make things happen.” The team consists of the rep, principal and -- in many cases -- the distributor. For the purpose of this article, we’ll focus on the rep/principal aspect. In regard to support, some manufacturers are sensational and others putrid -- they run the full gamut! Unfortunately, many of the putrid ones see themselves as perfect. Scary, isn’t it?

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NAFEM • MAFSI Principles of Decision Below is a wish list of the ultimate and perfect principal support: 1. Products: Always perfect 2. Technology: The leader 3. Delivery: Always on time 4. Pricing: Never an issue 5. Samples: As soon as needed 6. Responsiveness: Immediate 7. Technical Support: As required 8. Web Site: State of the art 9. Customer Service: Second to none 10. Training: As required for new employees, new products and distributor partners

Quality Products Who said quality is a “given”? Products are no more perfect than the people who design and manufacture them. Reps should sell their entire line card with total commitment and with a sense of product excellence. Manufacturers should strive for continued improvement of quality and value. Perfect quality is not to be taken for granted -- it is still a goal.

Quality Service Service is truly a team effort! This means being communicative and responsive -- both ways. Be verbal and document. E-mail makes it easy. Today more than ever before, products are looked upon as the same or similar, therefore, the edge is now heavily weighing in the “service arena.” Reps want lines that make their customers “deliriously happy” with great service. It often warrants and justifies greater margins. We know how precious this is to the bottom line.

Leadership Leadership is what gets suppliers “preferred vendor status.” It is the force that takes you to the “leader of the pack” or, better yet, sets you a “breed apart.” It makes your product or service stand out. It makes you “customer friendly” and innovative. Leaders set the standard throughout your company and the industry. It brings you business, because you’ve earned the recognition as “the leader.” Reps long to represent the “industry leaders.”

Market Pricing Good reps don’t expect the lowest prices. They want to sell fabulous products at fair market pricing. If the principal senses their reps sell on price, it may signal a professional incompatibility. Frankly, I have no room in my professional life for “price predators” -- be it reps, manufacturers, distributors or the “Jolly Green Giant.”

Communication Communication should be open and honest. Manufacturers should not feel slighted that they don’t talk to their rep as often as before. Why? Commission rate reductions have forced reps to take on more lines, thus diluting mind share and time share -- and yes, talk time. Reps are accountable to their principals on all opportunities. However, it’s a two-way street. Reps should be notified of problems as they happen. They should not have to be informed and surprised by their customer, especially on late deliveries or quality issues. In regard to commission rates, reductions due to profit margin issues should be discussed before the customer is quoted and not after the order is placed. Unfortunately, this does happen and I feel that it is inexcusable.

Rep Advocacy Kudos to those manufacturers who recognize and appreciate the viability of outsourcing the sales function. It is truly the cost-effective approach to an efficient and professional sales effort. Once a company is committed to reps, all parties should buy into it. This includes the “bean counters,” who are issuing some very large commission checks, and any other envious parties. A rep should be looked upon as an inherent part of the same team and not an outsider or necessary evil. If negative thoughts are uttered, they should be immediately suppressed by managers who had the wisdom to utilize manufacturers’ reps as their sales engine.

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The Perfect Principal Checklist 1. Understands the rep function 2. Has a history of rep stability 3. Has a stable management team 4. Has a fair contract with tenure considerations 5. Has fair commission rates that are paid on time 6. Grants exclusive territories 7. Has no house accounts 8. Has sample cases 9. Has great RSMs who are businesspeople 10. Has technical field support/FAEs 11. Has an ongoing training program 12. Develops exciting new products and knows how to introduce them 13. Utilizes a rep council 14. Helps track split commissions 15. Generates pre-qualified leads and sends to reps immediately 16. Exhibits at appropriate shows 17. Co-ops promos 18. Has a great interactive web site for technical issues 19. Has Intranet capability to check stock, shipments, special pricing, etc. 20. Has a stock option program for reps

Fair Contract and Compensation Being a representative, I would not want this paragraph to appear to be self-serving. More importantly, I want it to be looked upon as good business practice. The perfect principal should have an equitable contract with fair commission rates, which are paid on a timely basis. The perfect principal does not have house accounts nor does he arbitrarily reduce commissions because he feels the rep is making too much money. Team members should revel in their mutual success and the perfect principal will not have a sense of greed.

Partnership Mentality The perfect principal considers and treats their reps as part of the family. They practice the golden rule and do not have double standards. They value their rep’s opinion and utilize rep councils. They strategize with reps on significant business opportunities. They don’t point the finger at the rep if they lose the order. On the contrary, they say “we” lost the order.” When we win, they congratulate us, as we do them. In other words, we win as a team and we lose as a team. We share both the good and the bad. We should also be profit partners. If profit margins are cut, the rep’s commission rate may be affected. However, the percentage of the commission reduction should not exceed the percentage of the gross profit margin reduction. At the very least, commissions should be negotiated and not dictated or mandated. Partnerships are intended to be fair to both parties and not selfish or self-serving.

Integrity I wish this were a “given” and in most cases it is. It applies to all of the supply chain partners: suppliers (principals), distributors, reps, OEMs, CEMs, B2Bs, brokers and the entire brigade of intermediaries. It encompasses the buyers of spare parts to those with billion-dollar budgets. It includes the MRO distributors to the global giants. Dishonesty has no place in our great industry, but good ethics does. We should all be introspective. Most of you have heard the expression, “Be honest to thine own self.” I’ll dare to expound on it and say, “Be honest to thine own self and to thy customers and supply chain partners.”

Summary As businesspeople we try to do things as perfectly as possible. However, we should be realists enough to know that neither people nor companies are perfect. Principals are no more perfect than their imperfect reps. The important thing is that we collectively strive to serve our imperfect customers with the perfect product and service. Let’s respect each other for our strengths and help each other improve and overcome our weaknesses. Let’s win, grow and strive for perfection together! Reprinted from Agency Sales Magazine, Copyright 2001, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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BUILDING A FOUNDATION FOR THE REP-PRINCIPAL RELATIONSHIP Learning all you can about your principals and their operations is the linchpin for a strong rep-manufacturer relationship, maintains Bob Farley Jr., The Farley Group LLC, Madison Lake, Minnesota. The Farley Group has been in business since 1969. Twelve years ago Bob Farley joined his father’s agency and eventually took the operation over from his father. Today, the agency, with a staff of four salespeople, sells OEM components, injection molded plastic and metal components, design services and prototypes/models primarily to OEM manufacturers in Wisconsin, Minnesota and Iowa.

Working Hard on the Relationship According to Farley, “I can’t over-emphasize how critical a thorough knowledge of your principal is.” He adds, however, that this isn’t something that’s accomplished overnight, rather it’s an ongoing process -- one that’s an integral part of the rep’s daily job. “The single principal that I represent has eight separate business units. To learn what we need to know about them isn’t necessarily a simple process. It’s not like you can just open a book or visit their web site and read about them. You must meet with as many of their people as you can, get to know them and actually drum up your own case studies to learn how they operate in various situations. You have to thoroughly understand their business philosophy if you want to properly represent them in the field.” He adds that the need to have this intrinsic knowledge of the principal “can work against me somewhat when I’m recruiting new salespeople. It limits me in my choices in that I have to determine if the potential salesperson is in possession of the necessary bandwidth to absorb all the needed information. The principal shares this same concern when they hire a direct person.”

Six Operating Principles While gaining that information is critical to the rep’s success, Farley has integrated six operating principles into his rep-manufacturer relationship process that have served him well over the years. Those principles are: • Face time -- “These days as we and our manufacturers rely so much on the phone and e-mail for communication, I believe even more in the importance of face time with our principals and customers, “ he explains. “I don’t want my salespeople spending their time in the office. You only have from 8 a.m. to 5 p.m. to be face-to-face with your customer or principal, so maximize that time and fit your administrative tasks (paperwork) in the remaining time or after hours. And, especially with principals -- spend those hours meeting with manufacturers, touring plants, developing contacts and relationships and talking directly to them. Do the paperwork in your off hours. It’s the easiest thing in the world to get lulled into completing two days of paperwork in the office, but we don’t do that.” •

Persistence -- “There’s no magic involved in what we do. Simply never underestimate the importance and the results of hard work, especially as it involves your relations with principals.”

Follow-through -- “Most people, not just reps, are weak in the area of follow-through. Follow-through is critical for reps in their dealings with customers and principals. But the problem occurs because reps don’t like to deliver ‘bad news’ or to stay in touch when there’s no news at all. If you told a principal you’ll get back to him today, do it, no matter what you have to report. If you’ve told a principal you’ll be calling on this or that account -- do it. Don’t procrastinate. Then report back to the principal and let him know what you’ve done.”

Integrity -- “This is a given. You either have integrity or you don’t. Reps especially can’t be looking for shortterm gains. Customers and principals will appreciate you long-term if you are honest and forthright with them. Tell it like it is.”

Stay focused -- “I always encourage my sales staff to stay focused in their communication with principals. If they’ve got a whole list of things to communicate, chances are they’ll lose them on the second or third item. Stay on message, show them what you’re talking about and then give them results.”

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Enthusiasm -- “It goes without saying that this is important. If you have enthusiasm for the manufacturer you’re representing and the products or services he provides, then you’re going to want to do all you can to learn more about them. Once you’ve done that, you’ll incorporate the knowledge and enthusiasm into what you do in the field with your customers.”

Judging Performance When asked how he incorporates these six elements into his agency’s operating philosophy, Farley is quick to respond “It’s easy. I emphasize it with everyone by using how each of the salesmen performs when I conduct reviews. I just look at the numbers. If, for instance, we have an annual goal of 25 percent growth, I just look at how they’ve performed against that goal keeping the six elements in mind. I know that many of the them, e.g., integrity and enthusiasm, are subjective, but still, when you ask someone how they performed, they’ll come up with a fairly accurate answer. For instance, when you said you were going to deliver some parts to a customer or you were working towards getting them to market two weeks sooner than promised, did you do it? If not, why not?” Another important ingredient that Farley has put to good use in building and nurturing good relations with principals is the existence of an agency business plan. Not only does he have one -- he shares it with the principal. “I’ve always had a two-year forecast and shared it with the principal. Now the principal has grown to expect and require it. They’ve always appreciated my efforts, and over the years they’ve incorporated it into their planning process.”

Communication and Flexibility Finally, Farley emphasizes the need for any rep to possess and use the attributes of communication and flexibility when dealing with the firm’s principals. “First of all, regular communication is important because staying in touch with your principals can prevent small issues from becoming big ones. Consider if something happens that makes the rep unhappy -- whether it has to do with future commissions or extra services the manufacturer is requiring of you. If you don’t have the means in place to communicate your dissatisfaction with the manufacturer, your dissatisfaction is bound to grow. Likewise, you’ve got to be flexible in your relations with principals. As changes develop in the marketplace or in your relationship with the principal, you have to be willing and able to adapt.”

Adding More Ingredients to the Recipe Bob Farley isn’t the only manufacturers’ representative who has developed a workable plan for nurturing his relations with manufacturers. Seconding a lot of what Farley does is Norm Poisson -- but then he goes on to add some more ingredients that make the rep-manufacturer recipe work best for him. Normand Poisson, Ritec Enterprises, Inc., Rochester, New York, has been in business for 30 years and can count several principals that have been with him for most of that time. Over the years, as the industries and the markets he serves have undergone some fairly substantial changes, there are a number of proactive steps he can point to that have allowed him to hold firm and, in fact, strengthen relationships with those principals. •

“From the beginning, when choosing the principals you go to market with, take all the steps possible to see to it that you’ve got a good fit for yourself, your agency and your principals.”

Be aware of the big picture -- “Take note of the fact your industry, your market and, in fact, the operation of your principals have changed and keep up with those changes in your own operation.”

The only defense is a good offense -- “Don’t wait for your principals to ask you for something. Take the initiative yourself.”

Avoid critiquing a principal -- “Even if the principal asks for your advice, don’t critique him. This is especially true these days when principals are more concerned with meeting their numbers. Rather than critiquing them, the best thing the rep can do is to provide them with better, faster performance than ever before -- and give it to them the way they want it.”

Ritec Enterprises, which has been a member of MANA since 1977, sells process instruments, controls and automation products to OEMs and end users in New York State.

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Interviewing is Mandatory According to Poisson, relationships that reps should be looking for “start with the interview process. That’s where it all begins.” Armed with a hindsight built on three decades of experience, he warns that “Sometimes people (principals) try to hire you over the phone. That doesn’t work. He must come in person and make a case for the product and the opportunity he and his product can offer you -- and your customers. He must personally meet with the rep, look at him and his operation, check his background, history and product mix. From my position as an established rep, we look for established manufacturers that have existing business in our territory. At this point in our agency’s life, it doesn’t serve much of a purpose to take on a company that doesn’t have some business already unless they have a truly innovative product that we can piggyback on with our other efforts.” If that’s how Poisson envisions the beginning of the rep-principal relationship, there’s much that has to be done to sustain and nurture the relationship for the long haul. “Because of the industry that we’re in, we’ve found that long-term relationships are critical,” he explains. “Our efforts are directed to building market share. An integral part of building that market share is being able to share a feeling of trust with our principals.”

Building the Relationship Among the elements needed to build the relationships and the trust that comes along with them, according to Poisson, are: •

Thinking as a businessman -- “I can’t dwell on the fact that the type of relationships we used to enjoy with principals are a thing of the past. I miss those relationships -- they were fun. But, that’s not the way business is done today. As I was growing up in the business, sure the contract with the principal was important, but even more important was the handshake you had with him. We could tell after the first couple of orders whether the relationship was going to work or not. Now, instead of that handshake, we’ve done everything we can to put systems in place in our operation that allow us to respond to the needs of the new professional managers. For instance, we’ve invested heavily in software that allows us to keep close track of all of our activities. When a regional manager calls and asks us for our thoughts on the coming year, quarter or week, we can answer him immediately. We can consolidate proposals, quotes, leads and all sorts of background material right away. This takes a tremendous amount of pressure off of our shoulders.”

Synergy -- “When considering a new principal you’ve got to be aware of how the manufacturer’s products fit with your existing lines. Look at the broadness of the product line and the synergy it provides you in dealing with customers. It’s those synergistic lines that really add strength to your agency. Once you have them in place, you wrap services around those lines. All of these steps add strength to your relationships with your principals.”

Communicate -- “It’s up to us to let our principals know what we’re doing for them. That’s important because we know that they’re being asked the same questions -- concerning what we’re doing -- within their own organizations. Now, we can wait until they ask us questions, or we can take the initiative and copy them on all important activities. This allows us to build a better rapport with our regional managers. That’s important because a large part of his job is to critique and defend reps within the organization. By providing him with this kind of information, we make his job easier.”

Having taken these and other steps necessary for establishing firm relations with principals, Poisson looks back over 30 years of experience and maintains that to this day, he’s glad he chose the rep profession. “I originally wanted to be a manufacturer,” he explains, “but I got to be a rep because long ago, as a sales manager, I saw the growing need for professionally run rep firms -- firms that not only can sell, but that managed their business and the rep/principal relationship using good business practices. “Over the years we’ve developed long and deep roots in the marketplace. This is what we bring to the partnership with our principals and it allows us to thrive in good times and bad. We’ve always received positive feedback from our sales managers, which shows me that they’ve had very little concern about our performance. I’ve enjoyed what I do and I’ve been in the desirable position where no single principal has represented more than 20 percent of my income. This has allowed Ritec to maintain a healthy independent status over the last 30 years, and our principals have benefited.” Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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REPS AND MANUFACTURERS – FINDING EACH OTHER Simply stated, Richard Sinclair and the manufacturers he represents get it! In speaking with the Scottsdale, Arizona-based representative who brings a variety of products to customers in need of water treatment products, the message comes through loud and clear. • He has carefully picked the manufacturers he wants to work with. • Those manufacturers carefully picked him as the kind of rep they want to go to market with. • They like each other personally and professionally. • They’ve worked on cementing their relationships over the years. • The marketing partnerships that have been forged between rep and manufacturer are long lasting and beneficial to all sides - rep, manufacturer and customer. It all sounds so simple, but only because they’ve worked so hard on what they’ve accomplished. Sinclair is the president of Applied Process Equipment, Inc. (www.apewater.com), an agency that “meets customers’ water treatment needs through innovative products and personalized service.” In explaining how he got where he is today, Sinclair relates that he began his career as a sub-rep, covering Arizona and New Mexico for an agency located in California. “By late 1988, I realized that this was something I wanted to do for myself.” Shortly after opening his agency, Sinclair joined MANA, and one of the first things he did was to open the pages of MANA’s Directory of Manufacturers’ Sales Agencies. “I searched out manufacturers I thought I’d be interested in; read their descriptions; considered whether they carried products I could relate to with my background and experience; and, attempted to determine if there would be much business for them in Arizona.” Once that initial research was completed, he selected a group of manufacturers and contacted them. Much to his surprise 36 of the approximately 200 manufacturers he contacted expressed an interest in his fledgling agency. From the outset, the rep decided to take advantage of his background, which included a familiarity with foundry and automation operations. “I thought it was a natural to take advantage of my engineering background and concentrate on industrial OEM business. That was my initial thrust. However, in the original group of manufacturers I contacted, there was one company that manufactured pumps and water systems products. I felt that was something I could be comfortable with, so I added them to my line card. Surprisingly, within a year, I found I was spending more than half my time on the water side. It wasn’t long before I determined I was drawn to water rather than castings or forgings. As a result, in less than two years, I changed the direction of my company. I dropped the OEM side and embraced water totally. While there was a sudden and immediate learning curve with many of the products, my previous work experience served me well and I made the change easily and successfully.” To help climb that sudden learning curve, Sinclair is full of praise for the principals he was dealing with. “I can’t say I ever dealt with a manufacturer who wasn’t able to provide good training. I will say this, however - some were very good at it and others were excellent.” The Applied Process Equipment, Inc. File  Location: Scottsdale, Arizona  President: Richard W. Sinclair  Founded: 1988, joined MANA in 1990  Products: pumps, filtration, pretreatment/wastewater treatment equipment; fluid process with water as the common denominator.  Personnel: four full-time, one part-time.  Territory: Southern California, Arizona, New Mexico, Utah and Colorado

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Choosing Partners With that historic synopsis of how Sinclair got to the point where today he represents sewage systems, pumps, water and waste-water treatment systems throughout California, Nevada, Utah, Colorado, Arizona and New Mexico, let’s consider some of the things he has learned about manufacturers - and how to choose them - over the years. “Choosing manufacturer partners is a process that begins early on,” he maintains. “You begin forming impressions and making decisions based on that first letter you receive from them or the first telephone conversation you have. You evaluate the quality of the letter or product literature you receive. Is their web site professional? You ask yourself, ‘Do they really have a sales and marketing program or are they simply trying to use you to move products? For instance, I had a call yesterday from a prospective manufacturer, and I could tell all he wanted was to sell products - not form a relationship or partnership with reps.” With that as a starting point, the rep moves on to a virtual checklist of concerns that must be addressed when considering a prospective manufacturer. Here are some of the areas that must be looked at: • Is the manufacturer talking about an exclusive territory? • Are there any house accounts? • Is there existing business in the territory? • Is there repeatability of business? • What’s the commission rate? • Is there a buy/sell option? • What level of training will the manufacturer provide? • How about support materials? • ”We also ask for references from a manufacturer’s existing reps,” explains Sinclair. “Our experience is that reps won’t lie to each other.”

Warning Signals Sinclair continues that after several years of working with manufacturers, it’s not all that difficult to make a decision concerning what will work and what won’t work. “One of the warning signals I’ve learned to detect is when a manufacturer is quick to send you all their literature, and they include a contract in the same mailing. My feeling is if we are valuable enough to rep a manufacturer, then it should be important for the manufacturer to get on a plane to come see us and evaluate our facility before we talk contract. Likewise, one of the first steps for us is to go see them at their headquarters. That’s something we’ve done with any and all the firms we represent. We’ve made the effort to see them, whether it’s been a company-sponsored sales meeting or it’s a new principal and we’re making a special trip - at our expense - to meet them and their staff.” He adds that something these mutual visits can help with is in determining whether there’s going to be any type of personal chemistry between the people at the agency and the manufacturer. He adds, however, “Personal chemistry certainly helps, but it’s not the whole story. We work with many people who are completely professional, they treat us well, they have the right products and we like their products. But what we have with them is simply a professional relationship, and it’s one that leads us to do a good job for them.” But by and large, Sinclair maintains, “I like all my principals personally. On the one hand there may be a national sales manager with whom I go skiing. On the other hand, there may be a company where we finish a day’s work with them and say ‘goodbye’ until the next time and it’s all professional and business. But basically, I like the people with whom I do business, I enjoy their company, they provide excellent products and the interaction between us is excellent. They are communicative, responsive and they listen to what we have to report from the field.” Lest we depart from Applied Process Equipment, Inc., with the impression we’re dealing with a one-sided “love fest,” conversations with some of the agency’s principals let us know Sinclair’s feelings are hardly unilateral.

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SJE-Rhombus SJE-Rhombus, Detroit Lakes, Michigan, (www.sje-rhombus.com) is a manufacturer of a variety of products including level controls for water, wastewater, sump and sewage systems. According to Sinclair, “they are a 180-person ESOP company. They know they are not going to be the dominant player for us or any agency,” he explains. “As a result, they follow the basic rules of competition by competing with themselves. They are constantly asking themselves, “What is the next step to take to make us better in the marketplace? How can we make our product line better?” They’re not looking to buy other companies, they are simply trying to improve themselves and stay focused on their own business. With that kind of approach, we constantly give them very high marks as a marketing partner. “Furthermore, they are excellent with their reps. Most of their reps have been with them for years - they still work with their first rep - and they excel at communicating with them.” One thing Sinclair remembers prior to beginning with SJE-Rhombus is the extensive and expensive interview process. “It wasn’t just lunch and ‘We’ll give you an answer.’ Rather, it was a three-month process during which we got to know each other.” Sinclair adds, however, that once you pass the interview process test with SJERhombus, “sales managers from other manufacturers learn about it and several other lines can come your way for that reason alone.” He adds that the company provides excellent sales aids, and “One thing I especially love is the fact that they provide us with 1% of our gross sales as our advertising budget that we spend as we see fit - whether it’s trade shows, direct mail or specialty items. We’ve learned that the worst thing we can do is not spend that money.” Sinclair’s positive views are shared by Richard Rankka, field manager for SJE-Rhombus. According to Rankka, “We’ve been working with reps since the company began back in the late ‚70s. In general, what we look for in a rep begins with integrity and sincerity. When I join the rep on a customer visit, I can see immediately what kind of relationship he has with that customer, and I can tell whether the customer values what the rep does for him.” Speaking specifically about Sinclair’s relations with the manufacturer, Rankka adds that “Our beginning with him was a little different in that his product mix wasn’t exactly our product mix. But what he did offer was a technical background that we knew would be very valuable. In addition, a large part of the growth we were looking for with our products included control panels, and he had a background in that area. We knew from the beginning that he was a good fit because of the other products he carried - they were complementary to what we offered. Since the beginning of our relationship he’s enhanced his offering with other complementary product lines including pump and basin lines. “And finally, I’d have to say that what we have with Richard is more than just a business relationship. There’s a real friendship that has developed over the years.”

Highland Tank Another manufacturer with a “true commitment to reps,” according to Sinclair, is Highland Tank (www.highlandtank.com), Stoystown, Pennsylvania. The company manufactures above-ground and underground storage tanks, oil water separators, pressure vessels, interceptors and pump systems. “We have an exclusive territory with them,” he continues. “They produce a high-quality product, have a great reputation and we’re able to work with very responsive estimators. In addition, if the occasion occurs that I need an immediate answer to proceed on a project, I can go to anyone in the company - including the president - to complete the sale. We’ve got excellent teamwork that benefits all of us.”

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NAFEM • MAFSI Principles of Decision Greg Aymong, vice president of wastewater treatment for Highland Tank, agrees with everything Sinclair says, and he cites the company’s long-standing relationships with reps as proof of their commitment. To illustrate how long-tenured reps feel about the company, he relates the following anecdote that happened recently: “All of the independent manufacturers’ reps who work with us have very long relationships. One of our reps, who retired at the age of 87, had been working with us for more than 40 years. As he was approaching his retirement, we had a job in Trinidad that he was involved in. He insisted on traveling there to see the job through to the end. When we voiced our concern for him traveling at his age, his response was ‘Don’t worry about me, I won’t be alone. I’m taking my older brother with me.’” While Richard Sinclair has many years to go before he reaches octogenarian status, he possesses the very same attributes the manufacturer is looking for. “What Richard brings to the table is many years of experience and education in the industry,” explains Aymong. “If I was a manufacturer looking to hire a direct salesperson who possessed those very same characteristics, I would find it very difficult and costly to find someone nearly as good as he is.” He adds that what he’s found in Sinclair and the other reps who represent Highland Tank are “a detailed knowledge of a specific territory and the customer base. He knows the economic condition of the territory and helps us zero in on markets. In addition, the reps we work with - including Richard - let us know how our competition is doing in the marketplace.” Then there’s the personal touch that Sinclair brings to the relationship. “The personal contact we see between him and the customer is invaluable. He serves as a perfect example of someone who has grown up in the industry and he knows who all the decision makers are,” explains Aymong.

Sta-Rite Industries Thanks to Applied Process Equipment’s successful partnership with SJE-Rhombus, Sta-Rite Industries (www.sta-rite.com), a Delavan, Wisconsin-based manufacturer of pumps and other water filtration products, contacted the agency. “When they discovered that their sump, sewage and effluent line of pumps was performing below expectations, they contacted us to a large extent because of our existing relationship with SJERhombus.” At the time the two came together, Sinclair explains, “they weren’t dominating in our territory as they do in almost every other slice of the pump market.” Armed with more than two years of experience with the manufacturer, Sinclair maintains that with Sta-Rite “We’re working with a company that possesses incredible resources, and an excellent product line. They are a huge prospect that takes a good deal of missionary work, but we provide them with a lot of attention. Our sales manager, Steve Rust, understands reps and how to work with them, and we get all the support we need. As a person, Steve ranks up there as one of my favorite people.” It was a combination of a short learning curve and immediate access to the market that attracted Steve Rust, national accounts manager, Sta-Rite Industries, to Richard Sinclair and Applied Process Equipment. “Just as I do any time, I went through a lengthy process in evaluating Richard’s capabilities,” he explains, “before I made a decision. It was his engineering background, combined with the fact he had experience selling pumps and water filtration products that made the decision easy.” Since Sta-Rite and Sinclair have joined forces, Rust admits that the rep’s willingness to communicate has made the combination that much more effective. “We’ve always communicated a lot, four or five times a week whether by phone or e-mail. In addition to his communicative abilities, it makes it a lot easier to do business with someone you like. We all like Richard, and he does an excellent job for us.” Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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MAKING THE CASE FOR OUTSIDE SALES REPS During the economic downturn that most of corporate America experienced in 2001, the following companies had something in common: Intel, Texas Instruments, Cirrus Logic and Hunt Wesson. What tied them together was their decision last year to go from a direct (in-house) sales force to a contract, or outside, sales agency for some or all of their major product lines. Two other companies – Motorola and Phillips – chose to use a contract sales force after spinning off a division (the semiconductor operation for Motorola; the Airpax for Phillips). Indeed, in times of recession and/or cost-cutting, the use of outside sales representatives or agencies typically increases. As Erin Anderson, a marketing professor at INSEAD puts it, "These agencies tend to do well when times are bad." But if Anderson and colleague Len Lodish, a marketing professor at Wharton, had their way, outside sales agencies would flourish regardless of the economic climate. The two have collaborated on research that studies how to get the most out of an outside sales force consisting of employees "who don’t report to you, don’t take orders from you and in general can’t be managed the way your own employees are managed," says Anderson. It’s hardly an academic question. The payoff for a productive relationship with an outside sales force can be substantial. Properly handled, says Anderson, outside sales representatives will not just work hard to sell your products, but can provide you with important information about the market in general and your competitors in particular. Given the broad interest in sales force management, both in-house and on a contract sales basis, Anderson and Lodish will teach an executive education course March 3-7, 2002 in San Francisco titled "Leading the Effective Sales Force." The best available statistics, says Anderson, indicate that about 50% of all companies operating in North America use a contract sales force in some capacity, whether for a piece of their product line, a certain geographic region or a particular application. The 50% figure is high because "a lot of companies use outside reps for the ‘leftovers’ – segments or products that aren’t really central to what they are doing," Anderson says. For example, a company that makes power tools might hire an outside sales force to sell its products to one particular and not very large customer segment, such as military PXes. On the other hand, some industries, like electronic components, hardware and chemicals, use outside reps for a substantial part of their business. National Semiconductor and Advanced Micro Devices fall into this category, in part because their components are used in so many products in so many industries that it would be difficult for an in-house sales force to cover the entire market. Contract sales forces can sell services as well, such as advertising. For example, a radio station might use an outside sales force to sell its radio time to advertisers. The theory is the same, says Anderson. "Potentially anyone could advertise, and an in-house sales force can’t cover everybody." While some outside agencies are huge – especially in the food business where one agency ("food broker") often employs several hundred people – agencies in most other industries tend to be small. The typical outfit is a 5 to 10-person firm covering a well-defined and somewhat narrow geography. Anderson says that some industries don’t lend themselves well to outside reps. Pharmaceutical companies’ sales forces are almost always in-house because of ethics and accountability issues unique to selling drugs. But for smaller pharmaceutical products, says Lodish, drug companies "are finding they can’t give them the attention they need. An outside sales force, one with expertise in the industry, can. So the pharmaceuticals are turning to outsourcing in these instances."

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"Optimal Allocation" In their research into business-to-business markets, Anderson and Lodish have studied how outside agencies allocate their time to their various manufacturer clients, i.e. which manufacturers received more of the sales reps’ time and which received less. The key, it turns out, is "optimal allocation." "The biggest thing you as a manufacturer can do to make your outside sales force interested in selling your product is to make it financially interesting compared to the rest of the agency’s products," says Anderson. "Basically you have to sell your product to the sales force before you can sell it to your customers." Anderson and Lodish worked out the time split that would maximize an agency’s profits. "We asked the following question: If we were the owners of this agency and all we wanted to do is make as much money as we could, what amount of time should we give each product? What time spread would give us the optimal return? The optimal return goes up if one product line offers a better commission to the sales force. It goes up if one hour spent selling that product gives the agency more volume than one hour spent selling something else. The optimal return goes down if an hour spent selling doesn’t lead to many sales or if the commission rate is lower." The important thing to remember, says Anderson, is that "sales agencies are run by good managers with a good nose for where the money is. Some manufacturers don’t think sales reps have the brains to figure that out. They do." Anderson and Lodish also looked at the "more human" side of the business when trying to determine which manufacturers were able to get the most selling time from their outside reps. They found that the second biggest factor, behind optimal allocation, was the manufacturer’s ability to communicate with the agency. That includes "good listening." Manufacturers who listened as well as talked were successful in getting a rep’s attention, which resulted in two payoffs – more of the rep’s time and more information from that rep on the market. "One of the reasons many companies don’t like to use an outside sales force is because they say they can get market reports from their own people. But a lot of inside people don’t take the time to make those reports, while many outside agencies do," says Anderson. The third most important dynamic in the manufacturer/sales force relationship is synergy. An outside sales rep will make up a portfolio of products that are complementary, but not competitive. For example, the rep will sign up a paper manufacturer, a desk supplies manufacturer, a printer manufacturer and so forth, so that he or she has one brand in every product category. When the sales rep calls on an office products buyer, the rep covering this market has the advantage of a full product line that not only increases sales for him and his client but also ensures better access to the time-challenged buyer. "A sales rep can leverage off the fact that he is the trusted source of information for a whole slew of products. He sells more products and provides a service to the buyer," says Anderson. Synergy, she adds, "means your line fits in well with the other lines. The more your product has synergy, the more time you will get from your rep." Anderson recalled an electronic components sales rep who was convinced by a manufacturer of rotating crystal balls to include his product in sales calls to discotheque owners. Discos are stuffed with sophisticated electronic equipment, so the rep, an engineer by training, made long sales calls dominated by discussion of electronics. The rep later told the crystal ball manufacturer that he was "too embarrassed" to promote the product during his calls. "That’s negative synergy," says Anderson. "An engineer talking about crystal balls" was not a winning combination. The researchers also studied the impact that "getting along well" with your outside reps has on a successful relationship. "Yes, it’s important to get along with, and trust, each other but what was striking in our research is that this attribute is not that big," says Anderson. "At the end of the day, the reps are businesspeople. They won’t spend more time on your product just because they like you. The price you pay for not being buddies with them is not very high. Again, this goes against the image many manufactures have of sales people which is that are unsophisticated. They aren’t."

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The Importance of Forecasting Sales agencies care about accurate forecasts, mainly because it helps them decide how much time to put into selling a particular product. While forecasts were not as influential as the other factors mentioned above, "No news is bad news when trying to develop a sales forecast. We tell manufacturers that if they have any kind of information that would indicate how their product will sell in the field, don’t hold it back," says Anderson. "Share it with the sales agency so the rep will be more confident in his forecast. It will get you more time." Almost important as accurate forecasting are the growth prospects for a manufacturer’s product category. "The potential for that category to grow over five years will affect the attention it gets from the rep," says Anderson. "It shows sales agencies are thinking about the future." Anderson and Lodish also studied the manufacturer’s power over the agent. "We find, as you would expect, that the more powerful the manufacturer is, the more time his product gets. The more powerful the agency is, the more it can decide how much time to give. But overall, this relationship is not that big a factor, mainly because these agencies very carefully keep a diversified portfolio of manufacturers," says Anderson. "They follow the ‘rule of one third.’ If one manufacturer is beginning to account for more than one third of the agency’s sales, it risks becoming too powerful. The agency will most likely focus on growing its business" in order to dilute that power.

Scapegoats for Poor Performance After more than a decade of research into this field, Anderson is more convinced than ever that outside sales agencies, if managed properly, make sense for most companies. Yet even companies that sign on with agencies "are almost apologetic about doing it and, in fact, tend to misuse them. And when they misuse them, these manufacturers then turn around and blame the sales agency rather than themselves or their product." In the 1980s, Apple Computer used all outside sales reps but eventually went to an all direct (in-house) sales force after claiming that reps weren’t doing a good enough job of selling Apple’s products. "We now know, of course, that there were significant market reasons why the computers weren’t selling, but Apple chose instead to blame the reps," says Anderson. Companies that mismanage outside sales agencies will also mismanage their own direct sales force and often end up in bankruptcy, she added. Ironically, even when outside sales forces are doing well, companies will use that as another excuse to discontinue them. "One of the most common reasons a manufacturer will ditch the rep and go direct is because the rep is doing a great job," says Anderson. "The manufacturer thinks, ‘Wow. We could do even better if we had our own people.’ It’s the fundamental attribution bias: You blame external forces for all bad news and take credit for all good news. So reps are in danger of losing business if they do well or if they do badly." What some companies don’t realize, adds Lodish, "is that outside sales reps are often more motivated than the internal sales force. They know more about the market and they are hungry for the business." Anderson recently spent time interviewing members of a $100 million manufacturer of electronic components located in the northeastern U.S. that uses an outside sales force. She also interviewed several of the outside reps. "One of the things that was clear from talking to company employees was that they have an unquestioned respect for their sales agents. They view them the way others view their lawyers or consultants or accountants. They trust and respect them and treat them as professionals. The sales reps handle 85% of the manufacturer’s business. It’s a very successful relationship." Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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Compensation Compensation Guidelines for Manufacturers and Their Independent Representatives ............................. 72 Principal Compensation for Manufacturers’ Representatives ..................................................................... 75 Commission Options and Alternatives: How Principals Pay Their Representatives ................................. 81 Compensating Agencies for Non-Sales Work ............................................................................................ 88 Guidelines for Introduction of New or Improved Products .......................................................................... 97 The Cost of Selling ...................................................................................................................................... 98 Squeezing the Reps .................................................................................................................................... 99 Case Studies On How Reduced Commission Affect a Sales Agency ...................................................... 100 Commission Reduction Ramifications ...................................................................................................... 103 Providing an Incentive for the Sales Force (New) .................................................................................... 104 Commission Protection Acts are Not the Only Answer (New) .................................................................. 106 Specifier Identification System and Split Commission....................................................................... 107 Using the Specifier Identification Directory ............................................................................................... 108 Specifier Identification System .................................................................................................................. 109 SIS - Your Sister or a System? ................................................................................................................. 112 Specification Credit Registration ............................................................................................................... 114 Better Repping Survey Reports - Split Commissions ............................................................................... 115 Split Commissions: When Are They Used…Why They Are Used…And When They Are Abused ......... 121

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Compensation Guidelines for Manufacturers and Their Independent Representatives I. Introduction The mission of these guidelines is to identify and define those elements of the manufacturer and independent manufacturer representative's relationship and compensation mix so that a series of appropriate guidelines and recommendations could be developed which would encourage, motivate and promote a mutually profitable partnership. These guidelines are presented as a starting point in helping create mutually profitable compensation programs. In today's new operating environment where specialized user applications and sales support are at a premium, the independent manufacturers’ representative has become a value-added component in the marketplace. No longer is it just enough to sell products. Representatives must undertake constant factory administered product training, provide pre- and post-sales support, warehouse products, support sophisticated computer systems, and provide marketing services. The independent manufacturers’ representative must manage the interface between the manufacturer and the specifier, distributor, contractor and end user. Increasing income for both the manufacturer and the independent representative creates a significant win/win scenario which is the key to a long term and mutually profitable partnership. As the relationship between manufacturers and their independent representatives matures, new and innovative ways should be found to benefit and compensate both parties.

II. Purpose These guidelines are presented as a tool to be evaluated and where feasible utilized by manufacturers and independent manufacturers’ representatives to design. implement and measure effective compensation and incentive programs. It is the purpose of these guidelines to explore the entire compensation relationship of sales, marketing and services performed by the independent representative in pursuit of the manufacturer’s goals and objectives.

III. How Manufacturers and Representatives Mutually Benefit When compensation is appropriate the representative will build his agency with additional higher quality personnel, at a reduced turnover rate. By strengthening the representative, the manufacturer will strengthen himself, substantially increase market penetration and achieve greater levels of profitability. As more functions move closer to the customer, manufacturers will benefit by being able to convert more fixed costs to variable costs. A well designed compensation program will mutually meet manufacturer’s goals of: • Increased Income • Market Expansion • Improved Market Share • Market Knowledge • Agency Management • Sales Force Continuity And provide the resources for representatives to accomplish their objectives of: • Increased Income • Market Expansion • Improved Market Share • Market Knowledge and Influence • Management Skills Development • Agency Continuity

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IV. Overview When determining an appropriate commission/compensation program it is necessary to define the elements or tasks which make up the total work performed. Historically, the independent representative’s task has been loosely described as "sales.” On closer inspection this task is made up sales, marketing and service functions. The traditional sales function is typically rewarded with a base commission level and may be increased with incentives for growth, price realization, product mix, market penetration, etc., allowing for compensation at different levels of performance and different rates. It is important to note that all representatives need not be paid or compensated alike. The availability of computer generated commission statements makes it possible to compensate representatives differently based on a variety of factors. Services are those functions within the sales/marketing mix which can be selected by the manufacturer to be performed by the independent representative or provided directly by the manufacturer. When these services are provided by the representative, the representative should be compensated. At the same time, a manufacturer should not be required to pay for services that are not used just because the independent representative happens to offer them. The written contract between the manufacturer and the independent representative should delineate all services included in the compensation mix.

V. Sales and Marketing Considerations A wide variety of sales and marketing functions are provided by independent representatives. Manufacturers should consider their utilization of these functions in developing the level of a compensation program. The following lists many of these sales and marketing functions: • Warehousing • End User Calls • Sales • Detailed Marketing Forecasts • Product Specification • Sales Planning • Factory Dedicated Computer System • Order Processing • Sales Forecasting • Market Research • Customer Service/Expediting • Merchandising • Price Administration • Training • Collections • Special Mailings • Order Handling • Formal Consulting • Incentive Program Management • New Product Promotions/Introductions • Buy/Sell • Trade Show Costs • Market Feedback • Marketing/Communications • Quotations • Distributor Inventory Control • Joint Calls • Installation and Product Demonstration

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VI. Compensation and Current Objectives Compensation programs frequently encourage independent representatives to accomplish mutually agreed upon goals. It is imperative for the representative/manufacturer to develop commission programs that are in concert with their current goals and objectives. Steps for developing an effective, mutually agreed upon compensation program: 1. Determine what services constitute the basic sales function which is compensated by the base commission. 2. Determine what additional services are needed and develop a fee schedule or added compensation rate. 3. Develop objectives: assign a weight to each - i.e. profits, volume, market penetration. 4. Define and weigh the tasks necessary to accomplish the objectives. Who performs them? Manufacturer or representative. 5. Determine what new tools or services are required to implement the program. 6. Define an empirical measurement for each objective. Set goals and benchmarks. 7. Create a reward structure to be paid as goals are met or exceeded. 8. Monitor market and redefine program elements as goals are met or as market objectives shift. 9. Keep program growing and make it beneficial to both manufacturer and representative.

VII. Measure Results For Effectiveness It is appropriate to compensate independent representatives based on a variety of factors. Consideration of at least the following four: 1. Gross Volume 2. Price Realization 3. Market Penetration (Share) 4. Services Performed Any of these factors alone can be used, or any combination in order to support, recognize and differentiate between adequate and outstanding independent representative performance and production.

VIII. Methods of Compensation • • • • • • • • • • •

Commission Performance Incentives Warehouse Allowance Promotion Allowance Special Service Allowance Consulting Fee Extended Contracts Office Equipment Allowance Factory "800" Lines On-site Product Specialist Forms Allowance

IX. Legal Considerations Independent representatives are in fact independent contractors, compensation programs can and should be tailored to the individual firm. There is no legal requirement that all program be the same.

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Principal Compensation for Manufacturers’ Representatives Author: Melvin H. Daskal, C.P.A., M.B.A. As an overall generalization, I think about half of all principals don't understand the idea of sales motivation at all! If those principals truly understood how to financially motivate their representatives, the income of both the principal and the representative would jump! I feel the biggest problem in principal relationships is that lack of understanding.

Sales Managers The second biggest problem is with some (Just some!) manufacturers' sales managers. A number of sales managers are just plain jealous of their representatives - stemming from a lack of insight about the sales agency business and almost invariably without cause. These misguided sales managers think that: 1. The representatives' gross commissions from the factory are the same as their net income, after expenses. (Key point!) Any time a sales manager says to the representative: "Look how much you made last month," you have a sales manager who doesn't understand your business! (Of course "made" incorrectly refers to the total commission check, before expenses and taxes.) Just to give you an idea, in numerous surveys of representative operations that we have done, their average net profit runs about 15-20 percent of their gross commission income. So when some representative gets a $10,000 check from the factory, that might translate to a $1,500 profit, but some sales managers are sitting there saying: "Wow! That representative 'makes' $120,000 a year (12 X $10,000) from our line." This is utter nonsense! 2. Representatives work about three hours a day, maybe four days a week. 3. Most of the representatives’ "selling" time is really spent on lavish entertaining and it's really not "work." 4. There is no stress in the representative business. How can there be stress, when all the agent does is work just a few hours a day, some days, and most of that time is spent entertaining? 5. The representative makes more money than the sales manager (see point 1 above). 6. Most representatives drive big, expensive cars because they are "rich," not because many of them spend as much as four hours a day in their cars, which are really "rolling offices" and not for "show" at all. 7. Sales agents are just "order takers" and selling is easy. When you walk into the average customer's buying office, they usually beg to buy from you. Computerized purchasing limits and "not open to buy" are unfamiliar terms. 8. There is no competition for their factory's product-it is always the best, technologically the most advanced, very reasonably priced and, therefore, the easiest to sell. Always! (And the tooth fairy leaves your commission check under your pillow, while you are asleep at night.) 9. Anybody can "sell." It doesn't take any: skill, product knowledge, experience, determination, psychology, education or intelligence. 10. For all those reasons, the least the representative can do is pick up all that misguided sales manager's expenses, whenever he/she comes into the territory!

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NAFEM • MAFSI Principles of Decision 11. As a result of these damaging opinions, some sales managers always think that "the representative is being paid too much," and they act and recommend according. This is the heart of the matter: The single most damaging part of these certain sales managers' convictions is that they are then transmitted to top management and/or owners of the factory! Once top management at any principal begins to share the opinions I have just outlined, eventually that line will become a real problem for any sales agent. In such situations, both the principal and the representative will be the ultimate losers. (COMMENT: Please don't take this as in indictment of all, or most sales managers. These observations are just aimed at the minority that fit the pattern described.)

Sales Motivation Unfortunately, many very successful principals got that way by being very skilled in the manufacturing process. Some of them understand little about the selling process and marketing, and they rely on their sales managers to supply that expertise. And, to repeat, some sales managers, unfortunately, have the conceptions just expressed. In truth, how to motivate a sales representative is so simple, it's just pitiful when this prime idea is ignored or perverted. This is not a joke or a clever saying, the whole idea is simply this: "If you sell more, you make more."

Reverse Commissions Consider this topic in the light of that last key idea. All too often, I come across one of the dumbest of all selling ideas, i.e., that the more you sell, the less the commission percentage. For example: "On the first $1 million in sales, the commission rate is 6 percent. On the next $1 million - 5 percent; on the next $1 million - 4 percent; on all over $3 million - 3 percent." Whatta' deal! I suppose if you sell over $6 million, there's no commission at all! Consider the poor psychology of this arrangement. Say the representative generates $3 million in sales. At that point, on any additional sales, it's a 3 percent line! The commission rate has dropped 50 percent, from 6 to 3 percent. So from then on, for the rest of the year, the representative naturally concentrates on selling any or all other lines that pay a greater commission than 3 percent. Why not? Further, if it's toward the end of the sales year, the agent - may actually work hard to delay any further orders until the next year, when the commission rate again starts at 6 percent. Why not? And the dumbbell who invented this idea, cannot figure out why nationwide sales always drop in the last quarter of the sales year but are wonderful in the first quarter of the new sales year. This arrangement: destroys sales incentive, encourages the representative to eventually switch sales efforts to lines that pay more, and causes factory sales distortions in the last and first quarter of every sales year. It is the antithesis of how to motivate sales agents.

Incentive Commissions SALES TIP: To increase factory sales, the simple key to getting any representative to kill himself/herself selling is to offer a higher percentage commission for higher sales. It's as easy as that, and you just learned one of the deep, dark secrets of the (sales) universe! For example: "On annual sales in your territory of up to $2 million, we pay a 5 percent commission. On all annual sales above $2 million, we pay 6 percent." There can even be a sliding scale of 5, 6, 7, 8 percent, as sales get higher and higher. There is absolutely no better sales motivation in the world than one that offers the representative higher and higher commissions, with higher and higher sales! It always works, with the right person and the right line. What line do you think the representative will concentrate on selling - the one that just dropped to 3 percent or the one that just increased to 7 percent? It's as simple as that.

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The Principal's Costs In very simple terms, there are two kinds of costs in the manufacturing business: fixed and variable. The fixed costs (e.g., expenses such as rent) are the same, whether the company manufactures 100,000 gizmos or 1,000,000. The variable costs are about the same for each gizmo produced, so they only increase with greater production of the factory product. Now relate that to an incentive commission program for the representatives selling the gizmos. Let's assume that the fixed costs are 5 percent of the selling price of each gizmo and that those costs are spread ("absorbed") over "normal" production of 500,000 gizmos. Further assume the factory is paying a 5 percent commission to its representatives. Now the principal puts in an incentive commission plan for all the representatives, in which representatives will be paid a 6 percent commission on all sales over their normal share of the total 500,000 of standard gizmo production. The representatives make 1 percent more and "sell like hell", but the factory, with all fixed costs already covered, makes at least another 4 percent (5 percent fixed cost saving, less 1 percent additional commission)! Further, as production increases, there is usually a drop in per unit costs as a result of manufacturing economies, learning curves, volume buying and dozens of similar factors. The principal may well end up earning an additional 10 percent on those "extra" sales—at an added commission cost of 1 percent for the representatives. How can the factory lose? If the principals would talk to their own CPAs about this idea, instead of their marketing departments, they would be quickly convinced! Said another way, virtually every manufacturing operation makes a much greater profit on any increased unit sales, over the standard ("normal") number of units of production. Any accountant or other financial consultant will confirm these facts. It's a "win-win" arrangement for both principals and their sales agents, yet one that is unfortunately ignored by many principals who only consult their marketing experts about how to motivate representatives. Well, we CPAs could teach them a thing or two about manufacturing costs and sales motivation ... and that's the end of the accounting lesson.

Commission Philosophy Many years ago, I had a very successful client who owned two manufacturing companies in the Chicago area (my home town). He always used sales representatives for both companies, and his favorite line was: "I wish I could find a representative who would earn $1 million a year in commissions from my companies." When people would look at him as if he was crazy, his next lines were: "That would mean that the representative brought in $20 million in annual sales for our companies! In fact, I really wish I had 10 representatives who each earned $1 million a year in commissions!" He was a very smart man ... and a very rich man. However, it's very rare to hear such comments from principals (or their sales manager). You very well might hear it, however, if you asked the company's CPA.

Retroactive Incentive Commissions SALES TIP: This is absolutely the best way in the world to compensate representatives! Not only does the commission percentage increase with sales, but it also increases retroactively to the first dollar of sales, if the sales target is reached. Here is an actual case, from one of our more successful representative clients. (Don't get hung up with the particular figures involved. Just understand the wonderful idea behind it.) Our client got a new line, in which the previous representative (who was terminated for disappointing performance) did $700,000 in sales in the previous year. It was a 6 percent line. The principal felt that there was a much greater sales potential in the territory, and the new representative agreed. Here is the smart deal offered by the factory: The same 6 percent commission will be paid on all sales. However, if the representative can increase annual sales from $700,000 to $1.2 million or greater, a 10 percent commission will be paid retroactively, to the first dollar in sales! In other words, if the representative hits $1.2 million in sales, he will be paid $120,000 in commissions (10 percent) on all the sales. If he only hits $1 million in sales, he will be paid $60,000 in commissions (6 percent). So, at $1 million in sales, he has a chance to double the total commissions (from $60,000 to $120,000) by selling just $200,000 more (from a total of $1 million, to $1.2 million). How about that for sales motivation?

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NAFEM • MAFSI Principles of Decision He will sell that last $200,000 ... if he has to buy the bloody things himself! It's very likely that be is going to sell so much for that principal that the factory will probably have to add a second shift to its assembly line. How does the principal make out? That extra 4 percent commission will probably result in sales doubling in the territory. As mentioned earlier, the principal might be netting an extra 10 percent or so on those increased sales. Win-win!

Why Manufacturers’ Agents? The biggest champion of the independent sales agent is hardly the person you would expect. It's the average CPA! Sales agents offer the principal the ultimate in cost control - a totally variable cost, which is directly related to actual sales. Almost every CPA would like to show his/her clients how to take on more variable expenses and reduce more fixed expenses (see earlier). Variable expenses only increase with increased sales. Therefore, to accountants, any variable cost (that only increases as sales go up) is "good." Any fixed cost that must be paid, regardless of sales, is "bad." Fixed costs can break a business, while (properly controlled) variable costs cannot. The representative not only offers every principal a 100 percent variable cost, but concealed within the commission rate are two other dollar savings for the principal: 1) employee payroll taxes and related fringe benefits, and 2) travel, entertainment and auto expenses. An accurate generalization is that about 30-35 percent must be added to payroll, to cover all those additional payroll-related taxes/expenses, including: federal and state payroll taxes; workers' compensation insurance; retirement plan contributions; vacations, holidays, sick pay, etc. Additionally, payment of travel, entertainment and auto expenses of the direct factory salesperson can reasonably be expected to cost at least another 10 percent of salary, for a total additional cost of say 40 percent (or more) of compensation. But all those expenses are paid by the independent sales agent, in return for just that factory commission check. So, a $50,000 direct factory salesperson actually costs the company about $70,000 ($50,000 plus 40 percent), or more. However, a representative earning $50,000 in commissions costs the principal exactly that. No ups and no extras! If the representative does $1 million in sales at 5 percent, then $50,000 is exactly what he/she is paid. However, the factory salesperson selling $1 million, can really cost the principal $70,000 or more, as previously explained. That's not the end of the story. The factory salesperson represents a fixed expense, while the representative is, of course, a variable expense. In this example, if the sales in the territory drop to $800,000, the factory person still costs $70,000, while the representative would now cost the principal only $40,000 (5 percent X $800,000). Well, you say, what if sales go up? Even if sales jump 40 percent, to $1.4 million, the representative would get $70,000 (5 percent X $1.4 million), and the factory person still costs the principal about $70,000. But, in this example, if sales drop, the principal gets wounded with a direct salesperson. And even if sales increase 40 percent, it's a "push" between the cost of the independent sales agent or the direct salesperson. This leads to one generalization: if any principal "goes direct," the company bad better achieve more than about a 40 percent increase in sales to offset the additional costs of at least 40 percent. However, the firm now, for the first time, has a downside risk, in that if sales drop, the manufacturer is faced with inflexible and fixed payroll (and all related) costs. Finally, in many cases of "going direct," the terminated agent picks up a substantial competing line and "eats the new factory person for lunch." And sales do indeed drop for the old line. (CAVEAT: These figures are just an example. Of course, some principals hire direct factory salespersons: 1) for under or over $50,000; 2) on a base salary plus commission; 3) or with other incentive arrangements. But the examples I have used are not atypical and make the general point.)

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NAFEM • MAFSI Principles of Decision Here's a true story. Another of our bigger representative clients represented a line in which he was doing about 18 percent of the total U.S. factory sales and was far ahead of his sales quota for the year. The company was bought by a well- known corporate "raider." Among the new owner's first acts, he fired all the sales representatives and was reported to have privately stated: "I can replace all those representatives with $25,000 a year salesmen and get the same results." Well, not quite. So our representative got fired, but because of his reputation, was promptly solicited by a major competitor of the lost line. He gladly took on the new principal and, in the first year, outsold his old line "from hell to breakfast." His old principal reportedly suffered a 30 percent sales drop the first year. Isn't that a nice true story? It gives me the warm fuzzies. As completely prejudiced statements, but ones I firmly believe to be true, the average sales agent is: "More highly motivated than the average factory salesperson; usually is more experienced and 'knows the territory' better; has far more 'friends' among the customers; frequently has more technical knowledge about the product and is, overall, a better salesperson." He/she is obviously an "entrepreneurial type", or would not have his/her own business to begin with. Try this one: "Independent entrepreneurs, by their very nature, sell more than employees." Hm? Above all, motivation makes the difference! When you must sell, or you cannot meet the payroll or pay the rent, that motivation is one of the most powerful on earth (probably second only to hunger.) That's the direct motivation of every independent sales agent, and with all due respect to many fine factory salespersons, their incentives are just not that direct or that strong. Sure they can lose their job, but they'll probably find another, and they won't have to meet a payroll in the meantime. Sure they may be on base salary plus commission, but it's just not the same as representing six lines, all on straight commission, and paying all your own expenses as well. (It's a rare factory salesperson that even has to worry about his/her own business expenses, let alone meeting a payroll and paying the rent.) For all the preceding multitudinous reasons, many more factories should be using independent sales representatives than actually do ... and their CPAs would be the first to agree!

More Stupidity By now, any principal reading this should have an excellent idea of how to motivate representatives. Alternatively, besides destroying their sales motivation with reverse commissions (see earlier), the other way to do the same damage or worse is by cutting the commission percentage across the board! As one stupid sales manager actually said to one of our representative-clients: "What are you getting so excited about? We only cut your commission 1 percent - from 5 to 4 percent." (If there is any reader out there who is not - aware that this was a 20 percent cut in commissions, you do have some extra problems and should consult your CPA immediately!) Coupled with that commission cut, is this frequent comment: "Of course we don't expect you to reduce your sales force or cut your coverage in the territory." Now the representative has suffered a 20 percent cut in commission income and is faced with the prospect of not being able to cut expenses - at all! Representative firms are service businesses, and their primary variable expense is payroll (just like accounting firms). There is virtually nothing else in the way of significant expenses to cut. Remember, if the average representative nets 15-20 percent on the lines, and if you cut the commission rate 20%, there is no profit left in that line, unless be/she also cuts expenses! Something has to give. Whatever else happens, the sales motivation for that line just went into the toilet! Maybe the line gets dropped ... maybe the agent's salespersons are reshuffled ... maybe two are fired and one is hired ... but always, if the line is still kept, the sales efforts diminish, and the priority among the lines subtly changes. It's almost a self-fulfilling prophecy by the factory: they cut commissions because business is bad, and sure enough, business gets even worse than before! I wonder why?

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NAFEM • MAFSI Principles of Decision SALES TIP: I wonder how many principals, when times are bad, ever considered raising commissions just as a test. There might be some very surprised sales managers out there! While it's not an identical comparison, cutting commissions is a little like a client cutting way back on CPA fees and then ending up paying more in income taxes (and IRS audits). This key sales motivation technique could pull some struggling principals out of trouble. I really believe raising commissions will work in many cases and will increase sales and net profits for the principal far more than the additional commission cost. House accounts represent another serious mistake. In Southern California, the bad joke goes like this: "Well, they offered us this new line, which pays 7 percent, but they are keeping as house accounts Costco, Price Club, Fedco, Home Office, Office Depot, Staples and the Home Club." Of course, in this new day of mega "warehouse clubs" and mass merchandisers, making these customers house accounts simply cuts the heart out of the territory. There is a different result in this case. The top representatives in every field simply decline any lines that are offered on this "house account" basis. The result is that the principal almost invariably ends up with a lesser and hungry representative, who will take the line out of need (or desperation). That in turn results in mediocre marketing and sales in the rest of the territory. SALES TIP: Grabbing all the cream, as house accounts, destroys the sales motivation of the agent! In the old days, we used to say: "80 percent of the business comes from 20 percent of the customers." In these mega-marketing days, maybe: "90 percent of the business comes from 10 percent of the customers." Who indeed would want the remainder? One more time: sales agents are motivated to sell more when there is an opportunity to make more money. That opportunity and sales motivation are also destroyed by the principal grabbing the "cream" in the form of house accounts. This is bad thinking, bad psychology, bad motivation and bad marketing.

Conclusion In conclusion, if more principals would consult their CPAs about (variable) costs and how to compensate (and motivate) representatives, you would find many principals with increased sales and many representatives with increased commissions. Also, there would be far more manufacturers switching from direct salespersons to independent sales agents. Finally, how many principals have had the guts to increase the commission percentage for their sales representatives? I'll bet there are some startling tales and surprising sales increases to report! Reprinted from Financial Fax, Ltd., Copyright 1994. All rights reserved. Reproduction without permission is strictly prohibited

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COMMISSION OPTIONS AND ALTERNATIVES: HOW MANUFACTURERS PAY THEIR REPRESENTATIVES Ask any group of industry representatives in any territory about the critical issues affecting their business, and one hot button topic that seems to perch permanently atop their priority lists is commissions. More specifically, they cite reduced commissions; commission erosion; difficulty in tracking split commissions; the "house" takeover of major accounts as soon as they begin producing sizable sales; the expectation by start-up manufacturers that the representative will work for months to establish the newcomer in the marketplace before ever seeing significant commissions; and the dilemma of being expected to perform a variety of non-selling functions that do not generate sales commission income. In response to these often-sensitive situations, enterprising representatives and innovative manufacturers in growing numbers are developing alternatives to straight commission compensation plans. With both representatives and manufacturers initiating the proposals, they are looking in new and different ways at what representatives do and how they are paid. At the 1997 Electronics Representative Association National Conference, alternative compensation methods were explored in a breakout seminar presented by Dick Laurie, Manager of the Electronic Products Division of Littelfuse, Inc., and Bob Walsh, CPMR, Vice President of Coakley, Boyd & Abbett, Inc. They spoke from their own experience and from their knowledge of other representative-principal relationships. And what they had to say can serve as a guidepost for their peer's who may be seeking to establish more satisfactory compensation methods. First - build a strategic alliance Dick Laurie believes the underlying foundation of his firm's successful partnerships with representatives (including the ability to explore and create alternative commission programs) is its commitment to building strategic alliances. Although most strategic alliances are formed between manufacturers, Laurie feels representatives and their manufacturers should also think in terms of strategic alliances when forging their own agreements. “By definition,” Laurie explains, “strategic alliances are "pretty straightforward" relationships between separate organizations resulting in the mutual attainment of business objectives. The ideal alliance,” he adds, “has the goal of delivering the highest value products and services in the entire chain. That goal is achieved through the cooperation of an; interwoven group of, in this case, a manufacturer and its representatives. “ “Some of the changes required to establish an ideal alliance need to be addressed, and they can be difficult to undergo,” Laurie emphasizes. Chief among these is that "control and ownership must give way to cooperation and goal sharing. “That's a tough issue," Laurie insists, 'because we are all into control... we like it. But we have to try to give up. control when we outsource." When control has been a significant factor, he footnotes, relationships/alliances do not last for the long term. Another important component of good alliances is that expectations remain known to both parties. "You must constantly communicate what your expectations are," Laurie stresses. "You must remember that the expectations are always changing, so that's a prime reason that constant communication between alliance partners is vital." Why do strategic alliances fail? Laurie cites three primary reasons: •

Hidden agendas - "If you are not communicating what your true expectations are."

A lack of mutual dependence - "When one ally becomes too dependent on the other."

Egos - “They block creative thinking and paradigm discussion.”

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NAFEM • MAFSI Principles of Decision ”Other problems,” he says, “are ' inherent’ because strategic alliances cause paradigm shifts, such as when a factory begins outsourcing for the first time. They also demand that companies be sensitive to their core competencies and careful not to give up anything that maintains their competitive edge." And, Laurie adds, strategic alliances require a new bet of management skills. "We are all used to managing in a functional way. We have sales, marketing, quality and manufacturing responsibilities and so forth. It's all very structured. But in good strategic alliances, you must be able to manage those nonexistent organizations and processes that you do not have direct control over." In the ideal representative-manufacturer alliance, Laurie continues, the goals and objectives should be threefold: 1) Maximize the revenue base for the representative. 2) Maximize revenue and profits for the manufacturer. 3) Successfully execute the representative and manufacturers business strategies. Therefore, he concludes, within the framework of a representative-manufacturer strategic alliance, commissions and compensation are just tools. As such, they are linked to the added value processes in order to meet the sales objectives of a specific line for both parties. Describing his feelings about the present state of how representatives are compensated, Laurie says, "I do not believe that commission programs today have an incentive for excellence. I do not consider them challenging. It's obviously difficult to manage cross-regional and global activities, and key account coordination is tough. We are all dealing with an increased emphasis on outsourcing to contract manufacturing.... How do you track all that business? How do you adequately pay for the effort it takes to support that part of the sales process?" Then ... start from today In response to Laurie's obvious lack of enthusiasm for current compensation plans for representatives, Bob Walsh picks up the topic and summarizes "where we are today and where we'll be tomorrow." Walsh believes that "commission rates historically have had little meaning to the accounting departments and upper management of our factories. They had meaning only to representatives and sales managers. Otherwise, the figures were just these lump sums." Compared to how manufacturers tend to analyze in detail their cost of production, Walsh finds commissions are a relatively unknown and/or misunderstood factor for many manufacturers. "So I think it's up to representatives to be proactive," he adds, "to look for ways that we can be tracked and judged based on goals, tactics and objectives so we and the manufacturer know where our commissions and compensation are coming from." Why depart what may be a comfort zone in favor of change? Walsh feels strongly that manufacturers and representatives must find "better ways to compensate and motivate our sales forces." And the key word here, he emphasizes, is compensation vs. commission. "We need to show the value of what we are doing. And also of what we can be doing," he affirms. "We need to reduce some of the redundancies in manufacturing and the representative areas of activity, such as in sales management and customer service. Why are both of us taking orders, expediting and trying to manage a territory? Those are the types of things that we representatives can do to justify higher compensation rates. At the same time, we need to also be sure we stay competitive with other sales methods." Walsh speaks directly to his fellow representatives when he insists, "Representatives have significant advantages as far as knowledge of the customers and what is happening in the marketplace, but we do not sell it as effectively as we should. We need to find ways to track what is important to our manufacturers. Depending on where a manufacturer is in a product life cycle - in new products or emerging, mature or declining products - the needs are different, and I have seen incentive programs that are working to reward representatives for tracking those needs."

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NAFEM • MAFSI Principles of Decision For their part, manufacturers are specifically urged by Walsh to consider making changes in their existing compensation programs in terms of two key areas. He recommends: 1. Reinforcing special Promotions - "Salespeople need to know what they are being rewarded for," he reminds. "What gets measured gets done, so reinforcing promos is important. Let the representatives know continually if they are above or below the line in terms of the incentive program in place." 2. Compensating representatives based on mutually agreed upon goals - For instance, Walsh points out, goals can be tied to the new accounts a representative is bringing in or how well the representative firm and its salespeople know and work with the major distribution companies in the territory. What can and should representatives do? Walsh has ready answers. He encourages his peers to consider agreeing to special conditions, such as a 'home run' clause in contracts. But, he warns, ‘home runs' have some dangers. What about that $5 to $7 million customer that's at 5 percent commission? Are we really worth that 5 percent commission value to that customer? Are we staying within the competitive framework of what that principal can do? What I suggest is that, to earn that new business, you negotiate up front what the commission will be in the first year, second year and beyond, and what the rate will be for the first $1 million, the second million and so on." Next ... consider different programs As examples of specific commission and compensation programs that representatives and manufacturers can customize for their particular situations, Walsh offers the following concepts accompanied by his comments. He stresses that all of these programs are now successfully in use. 1) Annual incentive programs These are generally based on two formulas, according to Walsh, the first being agreed-upon forecast. Using one of his firm's principals as a model, he explains, "If we exceed the forecast, we get a 4 percent bonus on our commission dollars. This is a multimillion dollar line, so this is a significant figure. The second formula is tied to growth. If we grow the number over last year, we get another 4 percent. So that's 8 percent of total commission dollars for doing what we said we would do - meeting the forecast and growing the number." Walsh adds that the principal in question sends out monthly reports showing whether its representatives are above or below the line that has been established. Then, he notes, "Every week, our salespeople see a report so they know what part of the percentage bonus will be coming to each person. This program gets the attention of every salesperson. Other representatives who have this line agree that it is the ideal incentive package. It helps the manufacturer plan, because the firm knows that forecasts will be met, and it promotes consistent growth." 2) Paying commission/compensation on tooling and non-recurring engineering (NRE) charges This arrangement promotes more custom applications because it rewards the representative who spends significant time on such activities. "And," Walsh adds, "there is the argument that once you have won the order, that is really the (sales) win, so there should be some compensation for it." 3) New product introductions Introductory programs that Walsh has found to be effective are structured so that, in the first year, there are double commissions or extra commissions for new products, with results measured quarterly. "In our firm," he reports, "we give that extra commission to our salesperson. This is a quick way to get a product launched in a territory. Neither factory that Coakley, Boyd & Abbett has dealt with in this circumstance has specified that the incentive must go to the salesperson, but CBA does that." Walsh says these incentive programs can also help the representatives and principal develop application success stories. Sharing those ideas among all representatives can generate greater sales for the new product.

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4) Specific product promotions These programs allot extra commissions that are paid for a limited time. According to Walsh, these promotions are often used when a product life cycle is mature or in decline. “The drawback here,” he adds, “is that manufacturers do not always require or report results. If manufacturers are going to use these programs," he asks, "why not have monthly reports on who is participating and what they are doing? Otherwise, the manufacturer ends up giving away 'free money' that people in that (factory’s) firm are going to resent because they won't know what was received in return." 5) Over-Plan incentives This type of program is not a Walsh favorite. It involves a hike in commission rate, for example from 7 to 10 percent, after the representative has met the annual forecast. This method of incentive usually does not take effect until late in the year, and "if you've forecasted correctly, that should be the case," he says. "What's wrong with this program is that it does not specifically reward salespeople," but rather the representative firm as a whole. Some manufacturers also reward sales over book price, Walsh adds. But such incentives "defeat competitiveness because they soon or eventually have negative impacts because competitors can easily beat the book-plus price." 6) Multinational customer retainer This variety of program is bound to become more and more important and commonplace, Walsh believes. A multinational customer retainer is an agreed upon monthly fee for design-in work performed for the multinationals. At CBA, Walsh notes, "We file detailed reports with our manufacturers about what we are doing with the design engineers at a firm such as AT&T, and the manufacturers pay us a fee rather than trying to track where something is being built. "With some of the major contract manufacturers, this is an area to consider. We'll see more and more of this type of program in order to eliminate some of the huge expense of tracking products, especially commodity items, in terms of split commissions." 7) Pioneering lines This concept is for manufacturers trying to enter the marketplace. Walsh comments that his firm advises such manufacturers to hire a representative on retainer for a specified period of time so the representative is paid for his effort while "testing the waters" on the principal's behalf. Via monthly reports of those exploratory and initial selling activities, the representative provides the manufacturer with information about the potential cost of sales as well as the competition, pricing, etc., in a designated marketplace. That data then helps the manufacturer make the ultimate decision about whether or not to enter that marketplace. 8) Market research retainer This program is much like the pioneering lines retainer. It’s often used, says Walsh, by foreign manufacturers before they enter the U.S. marketplace. Representatives are hired on a retainer for a set period of time, and their primary task is to profile the market for the products of the manufacturer in terms of competition, pricing and product life cycle. For a comparatively low cost, the manufacturers gain market intelligence to guide their decisions about entering a particular market. On the basis of such research, Walsh has found that it is not unusual for manufacturers in other countries to back away from selling in the U.S. 9) Retainer plus commission Especially for large manufacturers, endorses Walsh, this is a program that can keep everyone happy. Representatives agree to a retainer for the business in the territory, and then the principal pays a reduced commission rate. This plan decreases the risk to the manufacturer of having to pay unanticipated commissions and yet still has incentives for the representatives to grow their business. Like all retainer programs, Walsh reminds, this plan should be reviewed yearly and the terms adjusted as needed. Now... prepare for the future - Dick Laurie picks up the discussion, he turns to the future and to the changes that manufacturers and representatives should be prepared to address in terms of their compensation plans. In addition to managing the "nonexistent organizations" he referred to in his description of strategic alliances, he feels his peers and their representatives must look beyond the cost of sales and pay greater attention to the cost of doing business. "That's a key difference," he points out. "And in analyzing the cost of doing business, we must understand the cost of time. With that understanding, we will be able to evaluate the value-added processes that can be tied to our commission programs."

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NAFEM • MAFSI Principles of Decision To begin, Laurie says, manufacturer and representative alliances that want to change their compensation programs should focus on these six activities, all of which are based on manufacturing concepts: 1. Understanding processes - Just like in a factory, processes should be changed only on the basis of cost of time and in order to save time. 2. Eliminating "excess time inventory" - Whether because of ineffectiveness or redundancy, excess time spent on any activity must be eliminated; whatever saves time saves money. 3. Developing pull-related philosophies - So that time is not spent on any activity until absolutely necessary. 4. Benchmarking theoretical time-paths - To be sure that every process is carried out with maximum effectiveness, it is necessary to understand how all personnel are spending their time. 5. Understanding resource utilization - To ensure that all resources are being used as efficiently and effectively as possible at all times. 6. Minimizing process variability - To continually improve in carrying out key processes and to maximize effectiveness, these time-costly variables must be significantly reduced: • Re-forecasting - which is often required because customer needs and/or wants were not accurately known; • Order processing - reentering orders that were entered incorrectly; • Repricing - often several times because of the control struggle between principal and representative and/or because the pricing scenario with the customer has not been adequately conveyed; • Revalidation - after the order is obtained, more time is spent on revalidating the price, sometimes repeatedly; • Reshipping - usually necessary because of mistakes that can be avoided; • Credits/adjustments - which are also necessitated because of errors; • Recall - again, sometimes necessary because of avoidable errors; • Inventories - which are often too large. Having "more inventory is a great way to coverall your sins," says Laurie, "because then you can always respond. If you want to know how effective a manufacturing organization is, go into the factory and look for inventory sitting around." His clear implication is, there shouldn't be any! To further emphasize the importance of manufacturer-representative alliances improving their time effectiveness, Laurie points out how costly various types of time losses can be. For instance, time spent on poor processes or unnecessary activities costs representatives opportunities to sell product for multiple manufacturers. And, any company lacking time effectiveness must invest to gain more time, which means hiring more people and/or adding other resources. There are also quality costs associated with time ineffectiveness, Laurie continues. "The longer the chain (in a process) and the more time spent, the greater probability there is of making an error. That means you're probably going to have to go through the entire chain again and maybe make the same error again." Perhaps most importantly, Laurie adds, time ineffectiveness results in lost market windows, a concern for every manufacturer. "Once you miss that order or miss that entry into a market," he warns, "you've lost that revenue, and you're never going to get it back." And finally... design a plan So ... what to do? Here are Laurie's suggestions for time-based value-added processes that could be integrated into a commission program. Most of these are "pretty well documented" and should be familiar to all representatives and manufacturers. Tasks that representatives could assume in order to earn added commissions include: • corporate agreements; • pricing; • marketing; • expedites; • order entry and order status; • credits and adjustments; • forecasting;

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sales management; invoicing; and distributor management.

These are the common areas that first come to mind when thinking about the performance of sales and marketing-related functions, Laurie notes. Speaking to representatives on behalf of his fellow manufacturers, he adds, "But it is important to look beyond these at the core competencies within your organization. If you feel you have a core competency that can help me conduct my business better and at lower cost, then you need to bring that idea to me. I may not even know about it." As an example, Laurie says that "One of the things I want to get out of is warehousing. This is not a core competency for us. If I could find somebody to handle warehousing and invoicing for us, I'd let a distributor or representative do that." Moving on to the specifics of creating a new commission plan, Laurie explains the factors that he would hope to incorporate into an alternative program. First, he stipulates, all representatives should be offered a choice between the traditional approach of being paid an estimated 8 percent commission and what Laurie calls the "push-pull approach. " The traditional payment program may be more appealing to newer or smaller representative firms that prefer the security of a well-established system, he predicts. But he feels most progressive representatives would opt for the "push-pull" system that would be based on the prior year's sales and accentuated with value-added services and predetermined splits. What does he mean by predetermined splits? Laurie relates that his firm makes many, many products, most of which are commodity parts. "Tracking those commodity parts to specific programs around the world, through contract manufacturing and multiple locations, is impossible," he admits. "If I said we could do it, I'd be kidding. So we would predetermine commission splits by salesperson for all the key major accounts that we have throughout the world. We would do that at the start of the year, and it would be based on total sales through OEMs, distribution and contract manufacturing, which is a key part of this." For instance, he continues, on an account such as AT&T, which has numerous locations, representative firm XYZ, which handles AT&T location ABC, would be told that the firm is worth 5 percent of the total business revenue from AT&T. Further explaining the philosophy behind this tactic, Laurie says that, in dealing with companies like AT&T, there are too many variables in the process of getting designed in, too many "gurus" or influencers in the company who must be dealt with and too many locations. So there is no simple way to award, say, a 2 percent design-in commission, even if all the activity could be tracked... which it cannot be. Also within the "push-pull approach," Laurie continues, Littelfuse would pay reduced commissions to contract manufacturing locations - unless the OEM is identified. "If you look at circumstances today," he says, "there is really no incentive for a representative handling a contract manufacturing location to reveal who the OEM is because, in essence, that representative could lose part of a split commission. So unless that information is revealed to us, the commission would be lower. This would we hope, incentivize the representatives working with contract manufacturers to bring that information to us. Then, as stated earlier, we'd negotiate that split commission on an annual basis." Laurie believes the rest of the "push-pull" approach would respond appropriately to Bob Walsh's dissatisfaction with programs that allot higher commissions only after the annual forecast is met; i.e., usually quite late in the year. Laurie agrees with Walsh that such programs offer high-incentive windows of opportunity that are too brief to be effective. The future plan Laurie is formulating could be structured as shown in the below. The effect of such a plan, as Laurie describes, would be that the representatives are "pulled" toward reaching their quotas and then can earn higher commissions for a longer time period. They are more motivated to "push" sales toward the principal. Plus, these commission rates would all be increased in return for the representatives providing value-added services. Laurie cites several examples of how he would place a dollar value on certain services, but he urges, "Don't remember these numbers." They will change as sales rise or fall and are used only to illustrate the concepts being presented.

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NAFEM • MAFSI Principles of Decision Sample Commission Program Annual Quota = 40 percent of previous year's sales Until representative reaches the quota, commission rate will be lower than the present norm, e.g., 5 percent. After quota is attained, commission rate will increase, e.g., to 7 or 8 percent. In this example, 40 percent is used arbitrarily to represent some lower percentage of the previous year's sales. (Commission rates are also for purposes of example only.) "In one area of our company," he explains, "there are 10 associates handling customer service, and it costs $644,000 per year to fulfill that function. At today's sales levels, that would translate to 1.1 percent in extra commission, or a 22 percent increase in commission revenue, if a particular representative could perform that function for us. "In the area of order entry, our firm employs two people costing $120,000 per year." Laurie projects that would be a 2 percent added commission rate for a representative willing to take on that task. Turning to the task of sales management, Laurie asserts that manufacturers need to ask themselves two questions: • What value is this function really bringing to the overall process? • Can this function be performed by the representatives themselves? In his example, he states that our company employs nine sales managers costing $702,000 per year. Representatives assuming that responsibility would gain a 1.3 percent extra commission. "If a representative firm would be willing and able to take on all three of these functions, they would be worth 4.4 percent in added commissions," Laurie states, "and the representatives could probably do all of these better than we do. The tricky part, though, is how to measure all this. We must come up with a way to measure the success of representatives picking up these additional functions." Epilogue The ideas that Dick Laurie and Bob Walsh presented to representatives and manufacturers attending the ERA National Conference a year ago remain valid and vital. Considering the present state of the industry, namely with manufacturers reducing commissions more and more frequently, Laurie says he still firmly believes in the potential of new and different compensation programs. In his firm's evaluations of representatives, he says he is looking for indications that progressive representative firms are positioning themselves to accept added responsibility in return for higher compensation. For most representatives, that means developing the systems capabilities required to carry out tasks such as order entry or customer service. Looking back at his recommendation to offer representatives a choice of traditional or nontraditional commission structures, Laurie projects that manufacturers may soon find it advantageous to maintain multiple compensation programs for their representatives and even "built-to- order" commission plans. Systems technology will soon make it relatively easy to operate multiple programs, he projects, and manufacturers may therefore be able to create specific compensation plans for each phase of their business or by geographic region or by customer account. Laurie also believes that improved systems capabilities will give manufacturers the option to change their compensation plans more frequently. "And why not," he asks. "Why not do whatever makes sense and brings value?" Reprinted from The Representor, Copyright 1998, Electronics Representatives Association, 444 N. Michigan Ave., Suite 1960 Chicago, IL 60611, (312)527-3050; Fax (312) 527-3783. All rights reserved. Reproduction without permission is strictly prohibited.

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COMPENSATING AGENCIES FOR NON-SALES WORK How Manufacturers Are Getting The Help They Need From Their Agencies by Jim Gibbons, MANA "We used to think that we had to limit our product development to one product at a time,” a manufacturer related recently, "But when we found that we could get really solid input from our manufacturers' agencies, we stepped up the program by a factor of three.“ This manufacturer said that he paid his agents well for their help. "We were accustomed to paying professional research firms to gather data for us, so we had no problems shifting that money to our agencies. After all, the agencies are closer to the market than just about anyone, and we valued their personal judgment as well as the random data they got us." A case study in enlightened management if there ever was one. But, as in everything, there are two sides to the equation. More than a few agents have complained bitterly about the work that their principals expect them to perform, either for nothing or for very little money. Many of these agencies have asked us if there are fixed rates that they should expect to be paid for non-selling services. Unfortunately, the answer is no. But there is a fortunate side to this story. To help agencies place a value on the time and effort necessary to perform non-selling jobs for their principals, we have reviewed the twelve areas in which most help is requested by principals. When agencies and manufacturers can work closely together, both will be maximally productive. The twelve non-selling activities that most agencies feel need attention are: 1. Pioneering new products 2. Product research and development 3. Market research 4. Service and installation 5. Training 6. Trade shows 7. Local advertising, promotion and public relations 8. Sales forecasting 9. Consulting 10. Telemarketing 11. Opening new markets 12. Running sales meetings You could, of course, argue that many of these non-selling activities are the regular responsibility of the agencies and that there should be no need for additional compensation. However, what we have found in talking with many agents and manufacturers is that it's really a matter of degree. One manufacturer who discussed this with us said: "We feel that it's the job of the agency to do whatever is required to move our product. In his territory, however, if we require any work of that agency that will benefit us beyond the sales that we expect, and that might benefit the other agencies as well, the agencies asked to do the work will be compensated for it. For example, we expect that the agents in the territories in which we have our trade shows to participate at their own expense. The business they get will benefit them directly and immediately. However, when we bring agents from other territories to man the booth, we not only pay their expenses, we pay them a fee that makes up for the loss of income for the days they aren't selling in their own territories.”

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NAFEM • MAFSI Principles of Decision This general view of compensating agencies for non-sales work seemed to predominate with the manufacturers and agencies with whom we discussed this issue. However, as we implied earlier, there are no hard and fast rules. To help you get a handle on the specifies of the major non-sales activities. Let's look at each area individually.

Pioneering New Products No one can argue that it's usually best to get a new product off the ground as quickly as possible. Manufacturers usually want to recover their investment in the product as quickly as possible, and want to make sure that the product is going to be around for the long haul. It doesn't make sense to dump good money after bad when you feel that a new product isn't going to make it. From the agency's point of view, a fast launch is also important. Time spent on new products is seldom as financially, rewarding as time spent on solid, accepted products. But time is money, and to meet the requirements of both, new product introduction usually requires a concentrated effort. A concentration of effort in all but the largest of multi-man agencies usually means that other work can slip a little. And when other work slips, income drops. You know the cycle. However, most manufacturers recognize this and do provide some form of help to their agencies in the product pioneering stage. Some provide consulting fees for the work. In a sense this really isn't consulting work, but it's probably the best way to describe the way manufacturers buy special time from their agencies. The question that most agents ask when this concept is discussed is: ''How much?" Many manufacturers approach their agencies with the idea of a consulting fee, but they also ask their agents for their ideas about the amount of the fees. It's as much of an enigma for the manufacturer as it is for the agencies in many cases. From those we talked with, it seems that the most equitable way to arrive at a fair fee is to base the amount on time spent and on an estimate of the income that would be missing when the agency takes on the special assignment. As we mentioned earlier, fixed fees for services that are fair to all agencies, are seldom practical. However, most agents can compute their hourly income from existing records. It's not uncommon for manufacturers to pay a higher commission during a specified period of new product introduction. However, it's important that the facts are spelled out clearly. Agents should be aware of just how much over the base commission the introductory commission will be. And they should be aware of the length of time that the commission will be offered. We heard of one manufacturer who had a plan that allocated his agencies to stay on the incentive commission longer than the specified period, depending on performance. "We added 2% to the commission we pay on standard products,� the sales manager said, "And this was to be paid for a period of six months. We also built in an order level for the agencies that allowed them to stay on the additional 2% for another six months if they maintained a certain volume in the new product." This is an interesting way to handle the incentive, and the manufacturer explained that he had set the level for each territory based on their sales projection figures and the level of sales in each territory. 'It wasn't fair to lay a big number on all of them,“ he said. "We have a few one-man agencies that wouldn't benefit - no matter how hard they worked - if we had a fixed figure." Fee and increased commissions are the most popular ways of compensating agencies for the work of introducing new products, but there are a few other approaches that are worth thinking about. For example, some manufacturers simply pay a cash bonus for specified levels of sale's of a pioneered product. A few agencies have told us that they were given travel allowances to compensate for the increased activity needed to pioneer the new products. Some manufacturers offer to pass along the incentive to the customers. That is, they offer their pioneering products at an introductory low price to increase volume, but still pay commissions to their agencies based on the price of the product after the introductory period is over. And some manufacturers provide non-financial incentives such as travel to resorts. However, with the tax situation the way it is - and the way it might be in the future this doesn't seem like the most practical way to compensate agencies for the work involved in pioneering new products.

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NAFEM • MAFSI Principles of Decision One agency reported that one of his principals pays commissions that are higher than industry standards on all products. "But this manufacturer expects some pretty heavy duty work for this. As far as we are concerned, it's worth it. It probably wouldn't work with every manufacturer, but with this multi-product line it works for us, and for them."

Product Research And Development More than a few new products spring from the ideas of manufacturers agents. "The customer knew exactly what he wanted,” an agent related to us. “But none of my principals made such a thing." “In fact, as far as I knew no one else made it either.” The agent was talking about a valve that could be left in the fine and opened to take pressure readings with a portable gauge. "We talked to one of our principals, and they designed the valve. It's now a standard product in the line." In this case, the agent merely reported a need to a principal and didn't have anything to do with the actual product development. In many cases, especially in technical and industrial products, agents have an active hand in product development. "I was an engineer before I became a sales manager and before I went into the agency business,” an agent said. "It was just as easy for me to work up designs for products that my prospects wanted as it was to try to talk them up with the principals' engineers." This engineer provided his first few ideas to his principals without charge, and in each case, the manufacturer did reward the agent with substantial payments when the concepts became products. But later, the manufacturer turned to the agent, on a fee basis, to help in the development of products that were conceived at headquarters or by other agents who lacked the engineering training to take them beyond the idea stage. "At one point,'' the agent laughed, "I thought of selling the agency and doing nothing but contract R and D.” But for this man, anyway, the mix of engineering with the excitement and financial rewards of selling provided the perfect combination. He's still selling and developing products - both successfully.” How should an agent be compensated for this work! Most agents and manufacturers agree that a fee should be the base. However, many feel that if the agent brings in the idea as well as helps develop the product, he or she should share in the long term rewards from the sale of the product. And here's where the water gets muddy. How much is a fair share? There are companies that specialize in doing nothing but bringing new product ideas to manufacturers and sharing in the profits when they are sold. But there is no formula that applies in all cases. "If both parties feel that it's worth their time and money, then you have a good deal,” is the way one person put it. He also warned on using profits as a basis for the split. “It's not too difficult to take a profitable company and not show a profit,“ he said. “Just buy a few new pieces of production machinery and some companies can go from black to red ink overnight. The company isn't going out of business, but if they are paying on the basis of profits, you're out in left field. This agent felt that it was best to make an arrangement based on net sales or unit volume. That way, there can be no surprises when the checks are written.

Market Research "When you're talking to your customers, just ask them a few questions.” The agent who said this was repeating the words of one of his principals, but he wasn't saying them with an awful lot of enthusiasm. "I said I would. But when he sent me the questions he wanted asked, it blew my mind. Some guy in their marketing department thought he had a good way to answer every question that ever crossed his mind. It just couldn't be done. And even if they had offered to pay for the whole thing, it was out of the question.” You probably spotted a few problems in this situation. First of all, the agent was taken in by a polite request. He had had similar requests from other principals, and the one or two questions he was requested to ask didn't take a lot of time, and didn't break his sales pace. Second, this principal was looking for a favor; he wasn't offering to pay for the effort. There is no reason why manufacturers and agencies can't work together to do a research job, however, both have to understand the needs of the other.

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NAFEM • MAFSI Principles of Decision In the professional market research field, it's quite common to pay field interviewers a flat fee for every interview they conduct. This is a thoroughly impractical approach when manufacturers' agents are asked to do the job. First, their time is worth a lot more than you would pay a field researcher. And second, doing any kind of market research cuts into effective selling time. This translates into a loss of income for the agents as well as for the principals the agents represent. It’s best to establish research compensation for each agency individually. The compensation should be based on an historical analysis of the commission earned by each agency that will be asked to perform the research for you. The compensation package should be designed not only to profit the agency, but to insure that the agency doesn't lose money because of lost commissions when the sales effort is reduced to handle the research project. If, for example, the average monthly commissions for the past year have been $2,000, the agency should be paid that amount if the research is expected to take a month. Obviously, the research should be geared to take no more time than the agency would spend in a month generating those commissions. Remember, when agencies are used to handle research projects there may be a short term loss in sales. There aren't very many agencies with enough people to continue a strong sales effort and to conduct a complex research project simultaneously. However, the brief loss of sales may be less costly than spending money to do the research another way, with an outside research firm, for example. When the curves cross, the only way to make a sound decision is to be sure you are on firm qualitative ground. If you feel that the agency people can do the job, and the cost is right, you're on the right track. In many cases, the tradeoff will be worth it because your agencies are closer to your markets than most professional researchers.

Service And Installation Some manufacturers include service and installation in the commissions they pay, and others pay their agencies a fee when the work is done. In the case of service and installation of capital equipment, many manufacturers say their agencies to supervise the work that is done by others. Generally speaking, agencies that carry lines that require service and installation are pretty specialized to begin with. That is, they might be staffed with technical professionals who can not only sell the products, but perform technical service as well. One manufacturer of large biochemical research equipment works mainly with agencies that have graduate microbiologists and chemical engineers on staff. These people not only sell the products, they are responsible for basic set up of such equipment as bench-scale fermentors and the preliminary training of the lab people in equipment use. In this particular case, the agency's commissions reflect this set up time. However, the salespeople are not expected to make service calls when there are equipment problems. The manufacturer maintains its own staff of service people to do the job. "Selling and training usually involve working with the same people,� the sales manager reasoned. "But service at the lab is usually left to our professional maintenance staff, and our agency salespeople should not have to handle these chores." It appears that the deciding factor is equipment complexity and how the manufacturer sees the time matrix being most productively used. Another sales manager, also selling to a high-tech market, said: "We expect our agencies to do only the selling. We feel that a person who services what he sells doesn't have the stature in a customer's eyes that he should have. Unfortunately, the image is of a service person who sells, rather than of a salesperson who services." As you can imagine, there are as many variations on the service theme as there are those who sell and service products. But in reviewing the comments we gathered on this subject, it becomes very clear that the decision should be made long before the product is taken to market. There are agencies that specialize in servicing, what they sell, and there are others selling similar products who won't pick up a tool. The critical factor is the impression given to the customer, and it's difficult to switch from one system to another. Customers become accustomed to having their products serviced one way, and any shift can reflect badly on the manufacturer.

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NAFEM • MAFSI Principles of Decision Compensating agencies for service work is a thorny problem. However, it would appear that more than a few manufacturers pay their agencies for service work in addition to commissions, rather than including the compensation for service in the commission. Those selling less expensive equipment that requires a minimum of service and installation seem to prefer to include installation fees in the commission. For equipment that requires extensive installation and service, it appears that the most equitable system is to pay a fee for each call based on time spent. Some service calls can be handled quickly and others may take a lot of time. The only fair system for the agency in this situation seems to be an hourly fee.

Training This is one of those areas where many readers will probably say, "That's part of the service.” This is true, but as we mentioned earlier, the variations must be taken into consideration. Think about the agency that sells basic office equipment. It might take only ten minutes to train someone to operate a calculator. But when an agency calls on distributors and has to spend a lot of time -much of it after hours -training distributor salespeople, this picture changes quite a bit. In a few cases, we've heard of manufacturers who feel that even extensive training, done by their agencies doesn't warrant additional compensation. They feel that training distributor salespeople will result in bigger sales, and the benefit will accrue to the agent as well as to the manufacturer. This may very well be true, but those manufacturers should never lose sight of the fact that the agent doing training isn't out selling. And while the distributor being trained may be more productive as a result of the training, the selling effort is slowed down by the number of hours - the agent spends running a training class. Most enlightened manufacturers have come to recognize this problem, and most of them either compensate their agencies directly for the time spent on training, or they add something to their commissions. Those who go the added commission route are those who usually have done little training in the past and want to encourage their agencies to pick up the ball. Those who pay their agencies, for time spent in training often base their payments on a standard for training in their industry. In the case of training distributor salespeople, where the training is usually done after hours, the figure represents not only the standard, but an added amount for the off-hours work. If you want to get an idea of the going rates, you can contact a few local training consultants and ask what they charge. Remember that training, to be most effective, requires more than one classroom presentation. In fact, one-shot training is usually not worth the effort. There should be a follow-up not only to reinforce what was learned, but to repeat the material that was forgotten. When you plan any training programs, be sure to remember that follow-up is necessary and that it will have to be paid for. Many manufacturers turn to their agencies to develop the training programs that they will use. "We worked with a professional training consultant,” a manufacturer told us. “But we wanted direct input for this consultant from the agencies. The guys in the field know what's needed, and the consultant knows how to develop the package to do the job." This manufacturer recruited about a quarter of his agencies for the program. He had his training consultant spend a day with the owners of each agency. The trainer was not only looking for ideas, but was using the agencies to sound out the thoughts he was developing in the process. The manufacturer who sponsored this program agreed to pay each agency owner a flat fee for the time, and the fee was based on one fifth of the weekly salary the agency owner paid himself - in other words, the equivalent of a day's pay.

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Trade Shows The enlightened manufacturer we introduced you to earlier in this article set the one for a practical way to compensate agency people who do booth duty. Just to repeat, agency people from the territory in which the show is being held are seldom paid anything more than their expenses. However, those asked to work the booth from other territories are usually compensated on the basis of some schedule related to their loss of income for taking part in the show. It's not uncommon for some manufacturers to try to combine a trade show with a national sales meeting and to try to set all agencies to attend the meeting-and to do booth duty. Fortunately, this forced labor system is almost a thing, of the past. Although when such an approach is combined with a system that compensates the agencies for time spent, it can be a good way to get everyone together productively. Not all trade shows are national, however, and more and more shows are being held regionally and locally. And the people being asked to run the shows are the agents in these territories. From those we talked with about this concept, it seems that most manufacturers are picking up all the costs related to the show - the exhibit, the space rental, etc. and they are paying the transportation and expenses of the agency in the territory to man the booth. "We are doing more and more local shows,” a manufacturer’s sales manager explained recently. “We have created a small booth that can be set up, knocked down and shipped very easily. And we made it with headers for each of our agencies. When the agent uses it, he just slips in the header with the agency name alongside ours, and he's in business. We pay for everything -shipping the booth, the additional literature, the samples - but we do ask the agent to make a firm commitment to handle the show for every hour the show is open. Usually this isn't a problem because most regional shows seldom last longer than two or three days. Oddly enough, we have had some of our agents say that they wish these local shows would last longer. They have found that they can really meet a concentrated group this way.” In-plant shows are also getting popular. We heard of one manufacturer who is outfitted a rather large van as a traveling plant-to-plant exhibit. The company has a full-time driver who moves the van from territory to territory. The agents in the territories prepare their customers for the visit of the van, and conduct meetings with key buyers during the visit. In this case, the manufacturer expects his agencies to bear only the direct show expenses. These only include the entertainment related to the exhibit and are usually not significant. Based on the description we had of the van and the traveling exhibit, we imagine that the firm's agents fight with each other to have the van in their territory.

Local Advertising And Promotion Here's a gray area, but one which should be thought through by both manufacturers and sales agencies. Manufacturers traditionally pay all the cost of national trade magazine advertising. And they pay the associated costs involved in qualifying the inquiries that the advertising generates. However, sales agencies are expected to pay for their own local advertising in their individual territories. “We feel it's just a cost of doing business, and we spend about $5,000 a year in local and regional magazines,” an agent told us. But he was also promoting individual products made by his principals. "Some of my principals help me with the cost of advertising that relates to their products, and some don't.” I don't push any of them,” he explained. "However, those who voluntarily contribute toward the advertising we do for their products seem to be the same companies that do other sales promotion work for their agencies, such as supplying trade show exhibits. This is only a small sample, but these companies seem to do better than the others on the overall. They don't throw money around by any means, but the do spend when they see that there will be a return." As you can see from this vignette, enlightened principals are helping their agencies by spending on local advertising. This isn't to say that those who don't help their agencies with local ads aren't enlightened. There are some who don't contribute to the space cost, but who do make available the services of their advertising departments or ad agencies for the creation of local agency advertising. "We had our agency develop several product application ads that could be keyed to our representatives,” a manufacturer's ad manager explained. "But we did expect the agencies to make use of this professional work regularly by advertising in the local publications that cover their market." While not quite compensating a sales agency for services other than selling, providing local advertising assistance is frequently considered a trade for something else - such as running the ads on an agreed to schedule. Page 93


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Sales Forecasting No matter how much experience you have, and no matter how much history you have with a particular line, doing the annual sales forecast is an exercise in frustration - unless you have sound input. "Trends are only part of the matrix,” a sales manager related. "You need more than history to project a year ahead in any business, and the information that's most helpful comes from the agency team. This sales manager asks his agencies to help him gather information for his projections six months before the new year begins. "Since I have to have my projections and budgets to management three months before the end of the year, I must begin three months before that time. Surprisingly, I am able to get some very good information from our agencies that far in advance. But this is due mainly to the fact that we have been doing this together for almost nine years. They know the drill and they work - it long before I start talking to them." "We ask—ask of our agents to tell us exactly what they would charge to do the work we need, ”a marketing VP said. "The forecasts vary from territory to territory, depending on market concentration, and each agency figures its time on a different basis. When they tell us, we either agree or negotiate a workable figure. However, it's been a long time since we had to quibble. We know what we want each year, and they are fair about apportioning their time to this work. Time, of course, is the prime expense. Many manufacturers who ask their agencies to help with sales forecasting will also pay for any expenses incurred during the development of the information. For example, one manufacturer felt it would be helpful for all its agencies to mail forms to their prospects and customers to help gather information. The manufacturer not only supplied the material to be mailed with the agency's name on it, they also picked up the postage. "It's only fair,” the manufacturer's sales manager explained. "We need the information, and we would pay for it if we went to someone else. Why not pay the agencies." Another manufacturer used a panel to help it with its sales forecasting. This company asked three of its agencies to take part in a two-day session to help them plan a sales forecast. The agencies were flown to corporate headquarters to arrive Thursday evening. The meetings took place on Friday and Saturday. On Sunday, corporate management and the agency spent the day socializing at a local club. Agency people returned on Monday to their agencies. The manufacturer, of course, paid all expenses and also paid consulting fees to the agents who participated in the sessions. This approach has the very real advantage of providing immediate feedback and allowing for a face-to-face discussion.

Consulting Now here's a big catch-all if there ever was one. In a sense, you could say that many of the advisory roles we have already discussed are consulting. But there is still a need to look at this category individually. Apart from very real and practical consulting services, it's not uncommon for manufacturers who want to reward an agency for something special to pay a consulting fee. The tax implications for both parties should be explored first, of course. And you should also be very careful to document that work was actually done for the payment. However, there are a number of situations where individuals from manufacturers' agencies provide real and very beneficial consulting services to their principals. An agent we met told us that he started his agency about ten years ago with his former employer as his first principal. Not an uncommon situation, but this case is rather interesting. The manufacturer was unable to replace this man, who had been sales manager, with the right person. Of course, the new agent couldn't take the time from his new agency to keep the principal's sales department running as a full-time consultant, but he could, and did, act as a search consultant. "We figured that no one knew the job better than Bob,” the president of the manufacturer said. "So we asked him to find his replacement and we paid him for the job. We were accustomed to using professional search consultants, and we simply paid Bob as we would have paid a search consultant. He did the job in a little less than three months, and we've been very pleased with the person he found for us."

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NAFEM • MAFSI Principles of Decision Another manufacturer related a story of one of his agencies that had on its staff two chemical engineers. These men had moved from engineering to sales in manufacturing jobs and then on to territory management jobs at the agency. "We were concerned with the direction our engineering department was going," the manufacturer said. “Our technical people were needed in the field at times to help with sales, but we wanted to make sure that there was a balance of time spent. In other words, we were concerned with how to keep them interested in engineering work once they had a taste of working with customers. We asked the owner of the agency if he would allow his two engineers to help with this project, and he agreed. He gave them a week's leave and we picked up their paycheck. We also threw in a few perks, such as a two-day stopover at a resort on their way back from the assignment. It was beneficial for all of us because the agency owner got a chance to see, through his two people, just what kind of problems can develop in such a situation."

Telemarketing If ever there has been an explosive area of marketing, it begins with the telephone handset. More than a few agencies tell us that they have installed very sophisticated telemarketing systems. "We not only have the equipment,” an agent explained, “but we have also spent close to ten thousand dollars to train our people to use it. Now we not only qualify leads more quickly, we can also get the actual sales call under way on the phone before the salesman makes an appearance.” Such a system is, admittedly, the business of the agency and should represent no cost to the principal. After all, most principals don't care how their products are sold just as long as the product and the company are not misrepresented or placed in any kind of an embarrassing situation. However, with the sophisticated systems that some agencies have, a few manufacturers have enlisted their services to do telemarketing in other areas. "We had a territory that wasn't covered by an agency at the time," we were told by a regional sales manager. "We contracted with one of our agencies that had a very sophisticated system to do the job. They not only dug up leads and warmed them up, they also included in the program a system to evaluate agency candidates for the territory. It was money well spent because we not only covered the prospects, we were also able to find the agency we wanted for the territory.” Telemarketing, other than just getting on the phone, requires fairly heavy investment in equipment and training. If any of your agencies have this capability, and find themselves not making maximum use of it, you might want to make arrangements with them to handle some aspect of your program. We have heard of a large agency that does all of the lead qualification for one of its principals - nationally. This agency qualifies the leads and forwards its reports to each of the appropriate agencies. The manufacturer pays on a cost per qualified lead basis and is very happy with the arrangement. So is the agency pleased with the arrangement.

Opening New Markets Opening new markets is somewhat akin to pioneering new products - but with a major difference. Frequently the new markets are markets that are not traditionally served by the agency. For example, consider the situation of an agency that sells electrical connectors to the OEM. The manufacturer of one of its lines decides that its connectors could be used effectively in the construction field. There may be a good fit here, but the fit for the agency may not be quite so good. In cases such, as this, manufacturers frequently turn, to a second team of agencies to cover specialized markets. However, when the existing agencies have thorough product knowledge and the experience of working with the principal for a number of years, it occasionally pays to have the in-place agencies take a crack at the new market. You may find that some of the agencies are interested in this type of expansion, and this evaluation should be respected. But when an agency is interested in opening new markets for a product with which he is already familiar, it does become a special service. Yes, if the effort is successful, the agency as well as the manufacturer benefit. But in the meantime, the burden is totally on the agency. The product is already in production and profitable in other markets. But the agency that is to pioneer the product in a new market must invest time and money. More than a few agencies that have gone this route with their principals have been given additional commissions on the products sold to the new market during their pioneering stages. If the ideal commission structure is set to provide a fair return for the agency, this is usually the best way to go.

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NAFEM • MAFSI Principles of Decision There are a number of other ways to play this tune, however. We've heard of manufacturers who have agreed to fees that are the equivalent of the salary of a new agency person for a year. A new person is usually recruited from the field to be opened and hired by the agency to be the product specialist in the new market. An interesting case we heard of involved the acquisition of another agency. "We talked with the agency about breaking into the market for us,� the owner of a small electronics firm related. "At first the agency people were reluctant. But it turned out that their hesitancy was due to the fact that they were looking to expand by buying an agency that was for sale in another territory. When we got down to details, it turned out that it was better for them to acquire an agency within their territory that had complementary lines - and experience in the market that we wanted to crack. This had the added benefit of giving the agency closer control over a branch. The out-of-territory agency they had been thinking of buying was nearly 500 miles away. It worked out well for both of us." It should be noted that the manufacturer helped its agency acquire the other agency by offering a low interest loan to cover a small portion of the payment that its agency couldn't make.

Running Sales Meetings Another gray area: "I expect my agencies to run sales meetings with their distributors, and I expect them to pick up all the cost," one sales manager said. Another, equally forceful about his convictions, told us that he not only, paid his agents for their time spent running sales meetings, he also picked up incidental costs such as meals and room rental when it was necessary. In this case, it usually boils down to a question of the job description given to the agency. If the job calls for a lot of sales meetings and the commissions are high enough to pay the agent fairly and to cover the cost of the meetings, then no additional fee is usually involved. However, when the commissions don't cover the cost of running the meetings, agencies should be compensated for the work they do in running them. "Our agencies call on distributors," we were told by a national sales manager. "They never call on the final customer. Therefore, their best efforts should be directed to getting distributor enthusiasm. We know how many meetings should be held to be effective, and we know how much it costs to run these meetings. The cost is built into the commissions we pay and all of our agents are aware of this." He was right. His commissions were noticeably higher than those paid by his competitors. These competitors expected their sales agencies to hold meetings, too, but they picked up the costs of each meeting. They paid their agents a flat fee for each meeting held and also paid for the basic expenses.

An Overview The take-the-product-to-the-field-and-sell-it days have been gone for many years. When that was all agencies had to do, just sell the goods, a commission was good enough. But the work, and especially marketing, is a lot more complex today. Agents are not only in the best position to sell products, they are frequently in good positions to do other things - and they should be paid for the work they do. As you can see from the variety of ways these services are paid for, there is very little consensus. However complex the arrangements, though, they will only work when agents and manufacturers both derive mutual benefit. Reprinted from Agency Sales Magazine, Copyright 1985, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited

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GUIDELINES FOR THE INTRODUCTION OF NEW OR IMPROVED PRODUCTS Market Analysis Manufacturers are encouraged to consult with their representative in the development or improvement of products. Subjects to consider are user's needs, market potential, competition, pricing, sales tools required and methods of introduction.

Sales Training Materials Written training materials specifically for the manufacturer's representatives are recommended. These provide both for the initial training as well as a future reference sources. Included in this training material should be product uses, features and benefits, selling strategies, list of competitors, competitors prices and a list of realistic competitive advantages and disadvantages. Representatives must be informed specifically when the new or improved product will be available for delivery. Experimental products must be clearly identified as such. Warranties should be clearly defined specifying how costs of repairs, parts, labor and travel will be administrated during the warranty period.

Sales Tools And Advertising Catalogs, specification sheets and price lists should be provided to representatives in sufficient quantities to serve their market areas. These sales tools should include all pertinent information including product features, benefits, dimensions, weights, electrical and mechanical requirements, underwriter and health authority approvals, installation instructions, and warranty information. Representatives should be provided with advertising schedules and reprints of advertisements and press releases to assist in merchandising national campaigns in their local markets.

Product Samples All representatives should be provided a sample of a new or improved product when it is reasonable to do so. Upon receipt, representatives should become proficient in the presentation of the product and expeditiously introduce it to all potential buyers. A limited number of additional samples should be made available upon request for customer testing. Terms and conditions for shipment of test samples should be announced to representatives at the time new products are introduced. Requests for test samples should be within the bounds of good business judgment relative to the cost of the sample and the sales potential based upon the success of the test.

Introductory Offers Representatives should make an extraordinary effort to present new or improved products to all potential buyers in the shortest possible time. Manufacturers should consider additional incentives for buyers and/or representatives during a prescribed introductory period.

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THE COST OF SELLING Putting a Person in the Field Is an Expensive and Serious Undertaking Although there is a lot of uncertainty in business today, one thing is certain - it costs more to make a sales call today than it did last year, and chances are that it will cost more next year. This is a factor of inflation, travel, geography and demand for sales talent. It's a factor that you should really develop relative to your own situation, rather than use some low average that may have absolutely nothing in common with what you do and where you do it. To help you get a picture of what should be an appropriate figure for your agency, this report will consider most of the relevant variables. Let's look first at the salesperson. Obviously, a novice will cost you less than an experienced salesperson. But unless the novice is especially talented or lucky -he or she will not bring you the level of business that a seasoned professional will. A pro costs more; a pro should bring you more business. Factor this into your equation first. Today, years-in-service is not the only variable to consider when you're looking at a professional's qualifications. In some high-tech fields, you must consider education. You'll pay more for someone with a Ph.D. than you will for a person with a baccalaureate only. You must decide whether education is important in your field, and if so, will advanced education -and higher compensation - result in a commensurately higher level of sales? Your sales costs are, in part, determined by the number of calls a salesperson can make per day. Again, depending on geography and product complexity, this can vary considerably. On average, though, a Dartnell report states that the typical salesperson makes 3.6 calls per day. In the same report, Dartnell experts stated that only 10 years ago the figure was six calls a day. The difference, they claim, is based on the fact that sales managers are stressing quality calls in lieu of extensive geographical coverage. Although this is an important distinction, you still must factor in your own numbers and generate your own equation. If you're selling commodity items in a densely packed industrial area, your people should be making a lot more daily calls than those selling highly sophisticated technology. And, of course, field sales costs vary dramatically along the same dimensions. Depending on territory and industrial concentration, your costs could be way off any published national averages. One agent we talked with about this said that she was reducing field expenses by doing a lot of the follow-up work electronically. Rather than make some perfunctory follow-up calls, she is using the fax and electronic mail. This is a good idea, but you must be careful that you don't fall into the trap of seeing this as an easy way out with all follow-up calls. The question of benefits is a thorny one. And until the new government administration gets at this question, it's going to be difficult to get a handle on what these costs might be for your employee salespeople. Some agency owners pay no benefits at all, others pay many. Generally speaking, those who pick up a large benefit package for their people tend to pay less at the salary and commission level. As we said, though, there may be some federally mandated benefits in the picture in the future. How often you pay incentives can have an effect on your cash position. For example if you're paying your people a weekly salary and paying incentives twice a year, you are probably going to be in a better cash position than someone who pays the benefits more frequently . . . all other things being equal. Holding on to the incentive money longer gives you an opportunity to enhance your bottom line with the earned interest. Paying it more frequently doesn't give you this advantage. This assumes, of course, that you are retaining the benefit money and not using it on something, like office rent. There may be some training costs to consider, too. And there are, of course, all the T & E expenses that never seem to get smaller. Depending on territory and customers, depending on principals and products, your compensation picture is going to be different than any other agents . . . even those competitors in your territory selling similar products to your customers. You must really do your homework carefully. Reprinted from Agency Sales Magazine, Copyright 1993, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited

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SQUEEZING THE REPS Foodservice has never been what you'd call easy. But lately you have to wonder just how much tougher it can get. Like the supermarket business, we're fast approaching the point at which we can move food from farm to consumer at 100% efficiency-meaning through the pipeline with no margin at all. The facilities/equipment side isn't far behind. And independent manufacturer reps are feeling it as much-or morethan anybody. You could sense the edginess in the air at the recent Manufacturers Agents for the Food Service Industry's 2001 annual meeting. Wallet pressure came up in several meeting sessions and numerous private conversations. Which is not just too bad for the reps. This is bad news for the whole industry. Whether you're an operator, a dealer or a consultant, you ought to be concerned about what's happening to the reps--because you really don't want to take on their functions. Foodservice equipment is not like Bic pens. It needs a lot of finagling and support Reps are your local liasions with the factory. You need product information; not everything's in a spec sheet. Want to call the factory? Nah, call the rep. Specifiying info? Call the rep. A demo? Advice for the installers? Training materials or assistance? Yes, you might get some or much of that from the dealers. But where will the dealers get it? Not to mention the pure selling function of reps and that value to the manufacturers. They make the deals go around. And even so, while everyone's been busy with their own margin pressures, in recent years reps have seen their revenues squeezed every which way. Everybody, frankly, figures they'll shave a couple bucks off the rep--much like cheap restaurant patrons ordering a nice meal and extra wine and then shaving a couple bucks off the server's tip to make it all work. First, the inadvertant or semi-vertent shaving: Factory mergers have created line conflicts that forced reps to give up Iines they'd had for years. Musical chairs in some cases, but lost business in others. Meanwhile, coming from the opposite direction, some notable big operators have initiated factory-direct deals that cut the rep out of the transaction--or left him holding responsibilities with reduced revenue to handle them. And it's not just the "special" deals that have eroded the rep business. Even the standard commission rates have been clipped. Over the past several years--five to 10, depending on who's citing what examples--many factories have pared their commission structures by 10%, 20%, 25% or more. And don't forget that a 25% reduction in commission rates means you have to sell 33% more merchandise to get the same commission check. So next time we--any of us-are looking again for somewhere to save a few bucks, let's not look at the reps. Who would fill their shoes? Brian Ward Editor-In-Chief e-mail bward@fermag.com

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CASE STUDIES ON HOW REDUCED COMMISSIONS AFFECT A SALES AGENCY Commission is the life blood of any manufacturers’ agents organization. Commission is the gross revenue received from the manufacturer to market their products in a specific territory. In an effort to better educate our members and manufacturers, we have asked some agencies to supply us with percentage information on how their GROSS REVENUE is dispersed within their organizations. Hopefully, we can all better appreciate how our gross revenue is used and understand that when our gross revenue is reduced disproportionally to the manufacturers we all lose.

Sales Agency Gross Revenue Breakdown Company Commissions & Wages Sales commissions (Independent Contractors) Telecommunications/Technology Travel Lodging /Meals/ Entertainment Healthcare and Car Insurance Retirement/Profit Sharing Depreciation Shows/Promotions Office/Postage Advertising/Promotion Auto Lease Expense Taxes (Payroll & Local) Rent Dues/Subscriptions/Legal/Professional Interest Expense Miscellaneous Expense Utilities Profit

30.2 26.4 5.0 4.1 4.1 4.0 3.3 3.1 3.0 3.0 2.4 2.5 2.2 1.5 1.5 1.3 .3 2.1

Example A $1000.00 sale to customer (full price) 10% commission line Gross Revenue to factory Gross Revenue to Agent Adjusted Gross Revenue to Factory*

$1000.00 $100.00 $900.00

Factory determines that to get above order it must reduce it's price by 5%. At this point, factory has agreed to reduce Gross Revenue to $950.00 for this particular sale. The FAIR reduction in commission to the agent should be as follows: Gross Revenue to Factory Gross Revenue to Agent Adjusted Gross Revenue to Factory*

$950.00 $95.00 $855.00

The factory has reduced its Gross Revenue by 5% ($900.00 to $855.00 = $45.00 or 5%). The agent has reduced his Gross Revenue by 5% ($100.00 to $95.00= $5.00 or 5%). Commission level doesn't change nor does the effort required in marketing the product. Both factory and agent have agreed to proportionally reduce their gross revenue to achieve the sale. *Factory Gross Revenue less Agent's Commission (AGR)

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Example B $1000.00 sale to customer (full price) 10% commission line Gross Revenue to factory Gross Revenue to Agent Adjusted Gross Revenue to Factory*

$1000.00 $100.00 $900.00

Factory decides that to get above order it must reduce its price by 5%. Factory has agreed to reduce its gross revenue to $950.00 for this particular order. Another approach, some factories use is to reduce the commission level proportionally to the gross revenue reduction the factory has agreed to in this case - 5% A 5% reduction in the agent's gross revenue (commission) for this particular sale would equal a commission rate of 9.5% (10% gross revenue (commission) less 5% reduction = 9.5%) commission rate. $950.00 x 9.5% = $90.25 Gross Revenue to Agent Gross Revenue to Factory Gross Revenue to Agent Adjusted Gross Revenue to Factory*

$950.00 $90.25 $859.75

In this method, the real % reduction for the factory from the original adjusted gross avenue figure of $900.00 is 4.47% The gross revenue reduction for the agent in this case would be 9.75% ($100.00 to $90.25). In effect, the agent has reduced his original gross revenue (commission) from $100.00 to $90.25, a reduction of $9.75 or 9.75% from the original $100.00 gross revenue (commission) amount. The factory has reduced adjusted gross revenue by 4.47%.

Example C $1000.00 sale to customer (full price) 10% commission line Gross Revenue to factory Gross Revenue to Agent Adjusted Gross Revenue to Factory*

$1000.00 $100.00 $900.00

Factory decides that to get above order it must reduce its price by 5%. Factory has agreed to reduce gross revenue to $950 for this particular order. Factory now tells agent that the 5% reduction will be handled as follows: 2 ½% to Factory 2 ½% to Agent Agent's Gross Revenue (commission) will be reduced from 10% to 7 1/2%—a reduction of 25% (NOT 2 ½%) Gross Revenue to Factory Gross Revenue to Agent Adjusted Gross Revenue to Factory

$950.00 $71.25 $878 .75

The AGR figure of $878.75 is $21.25 below the full price AGR figure of $900.00. The factory actually had a % reduction in AGR of 2.36% while the agent was asked to reduce his gross revenue (commission) from $100.00 to $71.25, an actual reduction of 28.75%.

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Conclusion In all three (3) examples, the gross revenue reduction to the agent has been handled differently. The factory went from a 5% reduction in their adjusted Gross Revenue figure to 2.36%. The agent went from 5% to 28.75%. The dramatic differences are the result of a simple 5% reduction in selling price. Can you imagine what happens when a factory discounts an order by 10% and asks the agent to reduce his gross revenue by 50%? The agent must be a business partner with his or her manufacturer. They must work together to obtain the desired business within each agent's territory. There must be an understanding of each others operations and the costs each has in running their respective businesses! When a manufacturer disproportionally reduces an agent's gross revenue, he sends a strong signal to the agent indicating: 1) He doesn't want to he a business partner with the agent; 2) His financial stability is far more important than the agents; 3) He has no understanding of what costs are really involved in running an agency. If a manufacturer reduces an agent's gross revenue by 50%, does that manufacturer expect a 50% reduction in the agents effort to market his products? Will the agent approach the sale of that manufacturer's products with the same enthusiasm and effort, knowing he will always be treated disproportionally if an additional discount is given? STANDARD (FULL)

EXAMPLE "A"

EXAMPLE "B"

EXAMPLE "C"

SALE PRICE (DOLLARS)

$1000.00

$950.00

$950.00

$950.00

GROSS REVENUE FACTORY (DOLLARS)

$1000.00

$950.00

$950.00

$950.00

GROSS REVENUE (COMMISSION) AGENT (DOLLARS)

$ 100.00

$95.00

$90.25

$71.25

ADJUSTED GROSS REVENUE FACTORY (DOLLARS LESS AGENT'S COMMISSION)

$900.00

$855.00

$859.75

$878.75

FACTORY REDUCTION IN ADJUSTED GROSS REVENUE

0%

5%

4.47%

2.36%

AGENT REDUCTION (%) IN GROSS REVENUE (COMMISSION)

0%

5%

9.75%

28.75%

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COMMISSION REDUCTION RAMIFICATIONS by Stephen K. Valentine, Jr., Attorney Editor’s note: Although the Manufacturers’ Agents National Association is opposed to commission reduction, we acknowledge that there are times when it must be done. However, unless the agent and the manufacturer agree that there is sufficient benefit in the act for both of them, it can become a source of serious disagreement. Attorney Stephen K. Valentine, who has written on legal subjects for Agency Sales addresses the issue in this article. A recurring question is the effect of a rep’s agreement to reduce commissions. A rep’s agreement to reduce commissions is an amendment to an agreement whether it be oral or written, express or implied. Most representatives at one time or another will be requested by a principal to reduce the commission. The reasons vary, but they are all economic. Sometimes the principal asks for an across-the-board reduction in commission for everything in the future or even retroactively. Other times a principal asks for a reduction in commission to get a specific job. And there are many other circumstances in which a reduction in commission is requested. Oftentimes the carrot that is offered to the representative includes an implied or express promise to continue or embark on a long-term relationship. In many instances, the principal does not request the representative to accept a reduction in commission, but rather institutes it without an express agreement from the representative to accept it. Whatever the circumstances, the representative should have a good understanding of the reason and total effect of the reduction in commission. This will entail either implied or express statements between both the principal and the representative as to what the quid pro quo is for a reduction in commission. A representative should not accept a unilateral reduction in commission without understanding that such a circumstance could be viewed as an amendment to an agreement even though a written agreement may have a specified method of amendment which is not specifically followed. When confronted with a reduction in commission proposal, the representative and/or principal should memorialize the circumstances of such a reduction and a full understanding as to what, why, for how long, and other specifics relating to such a reduction. Often, a quid pro quo is that the reduction is in return for a long-term relationship or to facilitate one; or that it applies only to a given piece of business; or that it is for a limited period of time, i.e., six months, or on a model year of other kind of basis. This should be indicated in a writing. Otherwise, a modification of the agreement such as a reduction across-the-board and without condition may be interpreted as an amendment. Remember that, in most instances, if there is a reduction in commission without qualification, and there are posttermination commissions that may become due, it is very possible that the reduced commission rate will be the ceiling for any post-termination obligations that the principal may have. That is why it is imperative to document the conditions upon which the representative might be willing to accept a reduction in commission. As another caveat, any writing which is interpreted as an amendment to a written agreement should be sure to reiterate the post-termination obligations. The advice of counsel should be sought. Reprinted from Agency Sales Magazine, Copyright 1995, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited

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PROVIDING AN INCENTIVE FOR THE SALES FORCE By Randall J. Gillary It is common for many principals to seek to have a graduated commission scale included in the agreement with their manufacturers’ representatives. Such a commission scale will often start out at a higher rate on lower volume sales and be gradually reduced to a smaller commission rate on higher volume sales: this is typically referred to as a graduated commission scale on a descending basis. Frankly, I have always been somewhat perplexed by this concept. Recently I attended a meeting between a client and the new owner of a principal. The principal wanted to meet with my client and me without his attorney present. He knew of me and respected my opinion. His original plan was to have a graduated commission scale on a descending basis. First of all I asked him what his principle objective was. He said that it was to motivate the salespeople to obtain as much new business as possible. I then asked him if that was the case, why would he want to provide a disincentive for his salespeople to go out and obtain large amounts of new business? The harder they work, the lower their commission rate would be. I advised him that if his real intention was to motivate his salespeople to obtain large amounts of new business, then the commission rate should be graduated on an ascending basis, meaning that the more business obtained, the higher the commission rate. If he really wanted to motivate his salespeople, this would be the way to do it. The principal agreed with my analysis and decided to rethink his commission plan. You will find that many salespeople who operate under agreements with commissions calculated on a descending scale will attempt to obtain a sufficient diversity of business from the various principals they represent in order to maintain commissions at the higher percentage rate for each principal. Frankly, I am not sure whether or not their principals recognize this is happening. The principals are probably wondering why sales and commissions have plateaued.

Ascending or Descending Scales? In my opinion, descending scale commission structures often are the result of the principal’s objectives being somewhat skewed. Often times the principal seems to be more concerned with the amount of commissions being paid to the manufacturers’ representative than with the total amount of the sale and overall profitability. Any manufacturers’ representative who makes more money than the sales manager he or she reports to knows that this can sometimes create some difficulty. In other cases, the reason for the descending scale commission plan is that the principal will grant price breaks to its customers on large volume orders. It often seems, however, that there is little or no correlation between the price break and the commission reduction. If the principal is truly interested in maximizing sales, then the best way to motivate its sales representatives to obtain larger sales volumes is to increase the commission rate on larger volume business. Presumably with larger volumes, the relative costs of the principal should be decreased and there should be more room in the margin for an increased commission. I very seldom, however, see this occurring. It is almost always the opposite. Most principals will find that they seem to need more manufacturers’ representatives if they use a descending scale commission plan. The incentive for the manufacturers’ representative is to increase his principal base to try to have as many principals as possible paying commissions at the higher commission rate, i.e., lower sales volume per principal. This is often a great benefit for the manufacturers’ representative because while he is attempting to maximize his commission rates, he is also diversifying his principal base. This makes his business less vulnerable to fluctuations in sales for an individual principal or industry. The net effect of this system for the principal, however, is to generally increase the overall commission expense. This is because the principal will be paying more manufacturers’ representatives at higher rates for smaller sales volumes. Accordingly, a system which the principal normally believes will reduce overall commission expense as sales increase, will often have the opposite effect.

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NAFEM • MAFSI Principles of Decision The next time you are faced with a situation where your principal is attempting to negotiate a graduated commission scale with a lower commission rate being applied as sales increase, you should probably have a heart*to-heart discussion with your principal. If his purpose is to demotivate you, then this will likely be successful. Too many times I have seen situations where the principal is seeking to have the manufacturers’ representative significantly increase sales but at the same time is decreasing the commission rate. In the event you do have the opportunity to discuss this issue with your principal and he happens to turn a deaf ear to your discussion of the de-motivating nature of the reduced commission rate on higher volume sales, I would not suggest that you push this. I would suggest that you let him continue to ponder in the future why sales seem to have plateaued. Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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COMMIISSION PROTECTION ACTS ARE NOT THE ONLY ANSWER By Gerald G. Salmen The CPAs vary in some details from state to state, but a common thread is that they provide certain rules for the payment of commissions after termination of the rep-principal relationship. Another similarity among the laws is that most of them state that the CPA is not the exclusive remedy available to a rep to recover unpaid commissions. For example, the Ohio CPA states that: “Nothing in this [CPA] invalidates or restricts any other or additional right or remedy available to a sales representative, or precludes a sales representative from seeking to recover in one action on all claims against the principal.”

The Limits of CPAs For the most part, commission protection acts state that the principal must pay the rep what is due under the contract within a certain amount of time after termination or expiration of the working relationship. (There are a few CPAs that provide the opportunity to allege recovery beyond the contract terms, but there are some specific facts and motives, which must be established by evidence.) In other words, the CPAs are meant to enforce the terms of the agreement between the parties and are not meant to provide for recovery of amounts to make it “fair” to the terminated rep regardless of contract language. (Of course, many CPAs provide for double or triple exemplary damages if the proper commissions are not paid, but such provisions are intended more as a penalty on the wrongfully acting principal than as a “fairness” payment to the rep.) Another limitation of the CPAs is that a number of them contain requirements that must be met before the CPA can be invoked as a remedy. Here is a non-exhaustive list of some of the requirements courts have addressed: •

The word “person” may appear in the CPA and may be interpreted to cover only natural human beings and not legal entities such as corporations or partnerships.

The word “wholesale” may be part of the CPA, leading to arguments about the nature of the sales upon which commissions are sought and whether the customer was an end-user or something else.

If the contract in question was effective before the effective date of the CPA, there will likely be arguments over whether the CPA can be applied retroactively to a contract signed before the enactment of the law.

Some CPAs only apply when the rep solicits orders in the state. For example, the California CPA appears to require solicitation of customers in California. A federal court in Pennsylvania has ruled that even if the parties stipulated that California law applied to their business relationship, that did not.

What to Do The point of this article is to remind readers that commission protection acts have limitations and do not necessarily apply to every situation in which a rep claims that the principal has wrongfully failed to pay commissions. Reps and principals, therefore, need to recognize that the CPAs are not an automatic claim that can be made without considering the facts and the language of the particular CPA involved. Indeed, many CPAs provide for the recovery of attorney fees and court costs by the principal if the rep makes a frivolous CPA claim. Accordingly, it is important for a rep and its counsel to carefully evaluate any potential CPA claim before alleging it in court papers. Second, as indicated at the beginning of this article, a CPA claim is not intended to be the only possible claim under law that a rep can make for wrongfully unpaid commissions or other acts. Reps should not focus only on a CPA claim or refuse to believe counsel if they determine a CPA claim is not warranted. There are alternative legal theories available for many different facts. Take the time to thoroughly explain the particular facts to counsel and be open to his or her evaluation.

Conclusion The CPAs are helpful laws, but they are not the only answer to commission payment problems. Many of the statutes explicitly acknowledge this fact, and knowledgeable reps, principals and their counsel should, too. Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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Specifier Identification System and Split Commissions

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USING THE SPECIFIER IDENTIFICATION DIRECTORY As part of the industry's on going strategy to provide you and your business with useful business tools, the Specifier Identification System (SIS) system was developed in cooperation by leaders from MAFSI, FCSI and NAFEM. The industry is getting behind the SIS system to help manufacturers and their representatives “connect” to the specifying office, so they can more efficiently resolve questions, deliver better customer service and assign automatic specification credits to the appropriate representatives. The SIS program sets forth an alpha-numeric system of matching each individually specified piece of equipment or model number with a corresponding specifier. Multiple specifier offices will have their own SIS. The SIS alphanumeric identifier enables specifiers to attach their identifier to every model number in their documents as a suffix, using an asterisk to separate the two numbers. For example on page 37 of the directory, the alpha-numeric code for Thomas Ricca, Englewood, Colorado is: T022. The alpha code is the first name of the specifier, not including the word "the." If Thomas Ricca, Englewood was specifying a Winston heated cabinet, the new model number will be: HA4522*TO22. This simple system will not burden the specification or confuse the product description. The system is open to all specifiers within the industry, including FCSI consultants, non-member consultants, architects, specifying dealers, chains, etc. Ultimately, the success of the SIS system relies on the specifier's use, but we need your help too: •

Understand it and Share it. The brief introduction section tells you and your colleagues everything you need to know about SIS. Copy parts of the directory for your colleagues or request additional copies from NAFEM.

Write a Letter. To all specifiers in your territory giving them their code, explaining why it is in their best interest of your relationship to use the SIS coding and giving them specific wording on how the system should be used internally at their location. The committee has developed this suggested language for your use:

Specifier Identification System: Each model number designated in this specification includes the code (use their code, ex., *T022) as a suffix to identify (your specifier company name, ex., Thomas Ricca Associates, Englewood, CO), as the specifying consultant on this project. This code is part of the international specifier identification system (SIS) used throughout the foodservice industry. Its purpose is to identify the specifier of equipment vendors and manufacturers in the event that requests for clarification or other such communication with (company, ex., Thomas Ricca Associates) is necessary during bid preparation and project execution. Submission of a bid on this project requires maintenance of this number on all project correspondence, including fax and email, when communicating with manufacturers and /or their representatives and is not to be removed from any documentation by the bidder. Upon bid acceptance the selected Kitchen Equipment Contractor agrees to maintain this code on all purchase orders generated for this project as a condition of the contract." •

Make Sure All Parties Are In the Know. Talk to your manufacturers to make sure consultants are using SIS; make sure dealers understand; educate and train your colleagues. Use your SIS number on all correspondence including faxes, e-mail, etc.

Help Us Build the Database. If you know of specifiers who are not in the directory, please contact NAFEM headquarters so they may be added to the database.

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SPECIFIER IDENTIFICATION SYSTEM Improving Service Through Communication How It Works This directory, listed by company name, includes a unique identification number for each known specifier. This is an alpha-numeric identifier. Example: S123 The alpha-numeric identifier should be used by all specifiers of foodservice equipment. Placement of this alpha-numeric identifier is as a suffix to all model numbers, with an asterisk to separate model number and the SIS number. Example: K4568*S123 In the example above • K4568 represents a manufacturer's model number • The asterisk represents a break between the model and SIS identifier • S123 represents the alpha-numeric identifier The identifier serves the following purposes: • Identifies the origin of the specifying office • Connects the specifying office with manufacturer • Connects the manufacturer's representative with the specifying office

Common Questions Who should have an SIS number? All companies that specify commercial equipment within the foodservice industry including consultants, specifying dealers, architects and multi-unit operators, worldwide. If my office is not listed, how do I apply? Write to: NAFEM Headquarters, 161 N. Clark, Ste. 2020, Chicago, IL 60601 - 312.527.6658 E-mail – info@nafem.org; World Wide Web - www.nafem.org Use or include company letterhead Cost? No charge to the specifier The number? An alpha-numeric identifier will be assigned to each industry specifier on a first-come basis. Multiple offices will each have their own SIS identifier. What does it mean? The letter code is the first name of your company, not including the word "The." The three numerical digits are the "next available." Company names that begin with the first name of an individual will be assigned an SIS identifier using the first letter of the first name. Those listings will be further cross referenced by the last name. How do I use it? Simply attach it to every model number in your specification as a suffix, using an asterisk to separate the two numbers. Example Item 102 - One Widget model K4568*S123 (or any other style you currently use) and then the description as usual.

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NAFEM • MAFSI Principles of Decision Approvals? NAFEM, MAFSI and FCSI. Under consideration by FEDA. Health departments nationwide are being advised of this system to create awareness. Why? The FCSI/NAFEM Liaison Committee in conjunction with MAFSl identified a long standing set of problems within our industry. • Manufacturers are often given a partial specification on which to quote, which does not identify the specifier, project or details. • No tie-in to the original specification writer is given. • Often, the specifying company has included special accessories or modifications that the manufacturer is aware of but must still match them to the correct project. • Manufacturers and dealers must respond to the owner when accessories or modifications are not included as expected, resulting in frustration and additional costs to many. • Manufacturers' representatives working with the specifying company are not identified with the sale and may lose earned income. • Historical data is unavailable to the manufacturers to understand client preferences and needs to improve products.

Other Important Information Name Changes The assigned SIS identifier will be permanent to the named company. When a company changes names due to new ownership, application must be made for a new SIS identifier. Each specifying office can hold only one SIS identifier. When a company ceases business, the number will not be reissued for a minimum of five years. NAFEM reserves the right to rule under any abnormal situations. Web Version This directory has been compiled and will be maintained by NAFEM. As additional suggestions are made for SIS numbers, they will be added to the NAFEM web site and be included in subsequent printed editions. The web version of the Directory should be considered the primary and most current edition. Refer to www.nafem.org. Liability Liability is assumed by NAFEM, FCSI or MAFSI with the issuance of the SIS identifier listing, reproduction or issuance, thereof. Sample "General Conditions" It is suggested that each specifier include a description of the SIS system in their General Conditions. A sample follows that can be modified as needed: Each model number includes the code *S123 (insert your own here) as a suffix. This code is known as the Specifier Identification System. It is not to be removed by the bidders. Its purpose is to identify the specifier to the vendors providing equipment in the event it is necessary to communicate questions, clarifications and comments, from prior to bid award through the final purchase. It is to be used on all correspondence including fax and e-mail when communicating with manufacturer representatives and factories. Sample:

Item #102

Quantity 2 each Manufacturer Name ModeIK4568*S123

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NAFEM • MAFSI Principles of Decision

Implementation All segments of the industry can implement this system. The boards of FCSI, NAFEM and MAFSI have endorsed the system. It was developed by the FCSI/NAFEM Liaison Committee with the cooperation of each of the three groups to address long-standing problems. NAFEM has agreed to underwrite the entire cost of implementing this program, including database development, directory creation, administration, printing and distribution. Health Department Examiners The SIS identifier is a suffix to NSF nationally recognized model numbers. It will be attached to the model number by an asterisk and then the identifier code. Sample using fictitious model number: K4568*S123, where K4568 represents the model number and S123 represents the SIS identifier. It does not modify the approved model number. Every principal contact of NAFEM and MAFSI member companies receives one copy of the directory free. Additional copies may be ordered by members for $20.00 each. If you would like to order a copy please contact NAFEM, 161 N. Clark, Ste. 2020, Chicago, IL 60601 - 312.527.6658 E-mail – info@nafem.org; World Wide Web - www.nafem.org

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SIS—YOUR SISTER OR A SYSTEM? By George Zawacki, FCSI/CFSP Could well be your sister. Or mine. But if it is, wouldn't you spell it "sis" or "Sis"? Maybe it is a system. One of those awful, dreaded acronyms. The kind you never remember. If you guessed system, you are right. And yes, it is a dreaded acronym. But why? Why do we need another acronym in our lives? Better yet, don't we have more than enough systems? We have enough numbers to remember right now. It is hard enough to remember your own phone number. Besides, how often do you call yourself? And how long did you remember the last PIN number you assigned to a phone credit card or bank account? Probably up until you needed it the first time. Let me explain why SIS was developed by the foodservice industry. Then maybe .... I will tell you what it stands for. It seems that we have a historical problem. Why when a foodservice installation is completed, is there a strong possibility that the owner, consultant or architect preparing a punch list is going to find a problem. Perhaps a costly one. But costly to who? And why did it happen? Do not each one of us consider ourselves a professional?

ACT ONE Who is the last link? Probably the dealer who worked diligently to deliver the project on time. Against all odds. A short delivery date, mud for a driveway, unloading during the middle of the night to gain access to the freight elevator, walls and floors not ready, the dealer and his installers work hard. They complete the job on time. Maybe turn a profit. Tough to do in this time of low margins. Sound familiar? Anybody? Now comes the punch list person who finds that some item or system is not correct. It does not meet the specification. Assuming the dealer is someone wanting to do things right the first time, he checks his PO to the manufacturer. Then he picks up his cell phone and tells the manufacturer or rep that "they made a mistake". Does any of part of this sound familiar. Let me go on. This begins a round of finger pointing involving dealer, rep, manufacturer, owner, owner's representatives, consultant, architect's rep maybe several service agents and frustrating service calls. Need I go on? Who amongst us, has not been there? Who wins? More importantly, who loses? The answer unfortunately is all of us who are involved? Everyone involved uses up precious time to begin with. But no one ever adds up the hours. The losses in time are never totaled. Let's get back to finger pointing. The dealer wants the manufacturer to replace the offending equipment. At no charge of course. And by the way, make sure it's here this week, by Friday! The dealer now wants the manufacturer to pick up and crate the offending items and pay the freight both ways. Right! And what is the manufacturer doing? Checking the PO and all his paperwork, shop tickets and reporting back that he built and shipped exactly what was ordered. Remember the owner? He is the person paying all the bills and expecting to get what he paid for. A clean job. But right now he is becoming frustrated and mad. How can this happen when everyone involved just wanted to do the job right to begin with?

ACT TWO The foodservice industry began discussing scenarios like this about five years ago. In liaison meetings, FCSI and NAFEM determined that the original specification source, the writer, was obscured or lost over time. By the time a project moves from the original specifier through the architect, general contractor, bidders, dealer, manufacturers rep and finally a PO arrives at the manufacturer, the identity of the original firm writing the specification is no longer known. Time and distance further complicate matters. Two or three years from the time a project is designed and specified is not uncommon. Sometimes longer. The design and specification was created in Chicago. The architect is in Kansas City. The GC who let the contract in Los Angeles. The successful bidder is from San Antonio. And oh yes, the installation is in Seattle. Small wonder, no one remembers who wrote the spec. From this all too familiar scenario, a solution was born. SIS. A method was envisioned that could provide a trail to the original writer of the specifications. A bright young lady, Kathleen Seelye, suggested to the liaison committee that

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NAFEM • MAFSI Principles of Decision they think about providing a unique ID for firms that specify. One that could be attached to a model number that would follow the specification from writer to the manufacturer. Then when a manufacturer had questions, he would have a method to readily identify who wrote the original specification. He could verify intent, question model number differences that did not match to line items on the PO. Perhaps match up a two or three year old special quote in their files or a design modification that might otherwise be missed by the order writer.

ACT THREE The Specifier Identification System (SIS) was born. The idea proved to be the easy part. Making it simple was the hard part. In the end, after four years of committee work, FCSI, NAFEM and MAFSI endorsed the Specifier Identification System. NAFEM has published a directory of those listed in the first issue. It is referred to as the SID. The Specifier Identification Directory. Copies are already in the hands of all NAFEM and MAFSI members. All those listed have been notified by mail of their own unique identifier. The identifier uses the first letter of the company name. Then three randomly assigned digits. A fictitious firm, Acme Consulting might look like this: A079. It would be attached as a suffix separated by an asterisk to a model number. A Super Dooper pot scrubber, model PS-5 would read: Model PS-5*AO79. Custom fabricated items without an available model number would read: Custom*A079. The SIS suffix stays with the model number from the time the specification is written until it reaches the manufacturer's order entry desk. It's useful life ends at this point. But at that point if the manufacturer, Super Dooper needs to ask questions, they consult their SID, the directory, or look it up on the NAFEM web site and can readily be in contact with Acme Consulting. Issues can be readily resolved because the Super Dooper Company was able to quickly identify the firm or writer of the original spec. The SIS suffix is not intended for nameplate use. Adding it to the nameplate serves no useful purpose and would jeopardize and confuse NSF listings within the health department community who may not recognize the significance of the suffix.

ACT FOUR SIS is an open system, managed by NAFEM. It is international in scope. Indeed, many of those in the original SID publication are from around the world. An open system means that it is open to any specifier of foodservice equipment. Any consultant, architect, end user or dealer organization that writes foodservice specifications is invited to apply for an SIS listing. USA, Europe, Asia, anywhere. No cost is involved. NAFEM believes so strongly in the merits of this system that it is underwriting all the costs of launching and maintaining it. A side benefit became apparent during the process. Manufacturers reps who are dependent on spec credit to be paid for their work would now have an easy method for factories to track orders coming in and where they originated. Extensive time by both factory and rep is automatically limited.

ACT FIVE Act five is the widespread use and acceptance and use by our entire industry. Who wins? We all do. Especially our client, the buyer and most importantly the end user.

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NAFEM • MAFSI Principles of Decision YOUR LOGO HERE ADDRESS CITY, STATE ZIP

SPECIFICATION CREDIT REGISTRATION

Firm Name: ________________________________ Project: ________________________________ Location: ________________________________ Specifier: ________________________________ Architect/Consultant/Dealer/Other

Date

___________________________________

Territory No. City, State: City, State: City, State:

___________________________________ ___________________________________ ___________________________________ ___________________________________

Specifier Identification Code __________________

PRODUCTS SPECIFIED Manufacturer

Model Number & Description

Quantity _______________________________

_______________________________

____________

_______________________________

_______________________________

____________

_______________________________

_______________________________

____________

_______________________________

_______________________________

____________

_______________________________

_______________________________

____________

_______________________________

_______________________________

____________

_______________________________

_______________________________

____________

Project Bid Date:

________________________________

Project Delivery Date:

________________________________

Sales Representative:

________________________________

Upon approval of this application, ___________________will return a copy to the applicant. Applications will be considered only in advance of purchase date. This specification will expire two (2) years from the date submitted, unless a sale has been made as a result of the specification. This specification will automatically renew for two years each time a sale is made as a result of the specification. Job Awarded To:

_______________________________

City, State:

_______________________________

Spec Credit Approved: Ž Spec Credit Denied:

Ž

Date:

_______________________________

By:

_______________________________

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BETTER REPPING SURVEY REPORTS - SPLIT COMMISSIONS For Representatives and Manufacturers - Designed to Improve Teamwork and Profits by Jack Berman

Survey Results - "Split Commissions" General Observations Several manufacturers and representatives urgently requested a current survey on this topic. It is easy to see why. While this is not yet a problem facing all Principals and Representatives, year by year growth in most industries is spreading the necessity for split commissions. It is a nagging problem that defies universal solutions. A few manufacturers have achieved answers, but many are struggling. Identifying, tracking, compensation, mediation, motivation, teamwork, paperwork, customer cooperation, are dilemmas of both the manufacturers and the representatives. "What are others doing?", was a question that appeared on many returns. Here are some answers:

Types of Customers Involved (in order of times mentioned): • • • • • •

Multi-location OEM's Contract Assemblers National Dealer Organizations Consultants (Engineering, Architects, etc.) White Goods - Appliances National Distributors

Representatives reported an average of 14% of their income was in split commissions - versus 17% of time spent. Representatives report that over 95% of Principals pay split commissions where justified. In two-way splits: 63% of Manufacturers pay: 50% to Design-in 50% to Buying Location 33% of Manufacturers pay: 60% to Design-in 40% to Buying Location In three-way splits: 42% of Manufacturers pay: 50% to Design-in 25% to Buying Location 25% to Assembly Point 16% of Manufacturers pay: 33% to Design-in 33% to Buying Location 33% to Assembly Point 11 % of Manufacturers pay: 60% to Design-in 30% to Buying Location 10% to Assembly Point

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NAFEM • MAFSI Principles of Decision 11 % of Manufacturers pay: 50% to Design-in 30% to Buying Location 20% to Assembly Point 20% of Manufacturers have various plans Four way splits: A limited number of Manufacturers have many various plans. In two-way splits on national retailers: 36% of Manufacturers pay: 50% to Central Purchasing 50% to Branches 29% of Manufacturers pay: 10% to 20% to Central Purchasing 80% to 90% to Branches 14% of Manufacturers pay: 0% to Central Purchasing 100% to Branches The Balance have various individual plans.

Problems for Representatives • • • • • • • • • • •

Difficulty in tracking when they don't know where the production is being done. Principals who don't track properly. Actually receiving the compensation to which they believe they are entitled. Foreign offices not notifying USA of buys. Documenting design-in to principal. Getting paid on splits promptly. Excessive paperwork in follow-up for payment. Business going out of territory to distribution. Factories without defined policies. Cooperation with other Representatives. What Representatives Think Should be Done to Correct Problems:

Representatives must: • Be more aggressive and professional in identifying claims. • Work together in harmony. • Try to get customers involved Principals should: • Assign a specific person to split commissions. • Train personnel to understand importance of tracking and paying split commissions. • Standardize industry procedures - with standard forms and tracking systems. • Set up equitable policies and see that they are carried out properly. • Learn what others are doing, if they don't already have split commission procedures • Code and send out all invoice copies promptly. • Make overseas agents accountable for their end of split commission transactions. • Take the lead in solving disputes between representatives.

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Specific Comments - Principals: "We have a split commission form. Representative fills out Sales manager approves, and split becomes effective. Tracked monthly through system by customer and part number." "We have successfully put the issue in front of the Representatives involved and asked them to come to agreement and make recommendation to company. We have assigned a design credit of 50 - 50. We have developed a form and ask Representatives to keep us informed when new ship-to assembly locations are anticipated." "Without a doubt, overseas manufacturing is the most challenging issue. In many cases we have lost business after the product is "out for bid" again once it reaches the overseas purchasing locations. Sometimes, we cannot compete with local suppliers of competitive products." "We must insure that the key decision makers i.e. engineering /purchasing are truly getting the major share of attention." "Our problems are still not solved. We try to keep track of the program name where the part is used, but once it goes through distribution as a standard part, tracking is difficult." "We continually poll our Representatives to find a "best" way and offer new ideas to them, but so far a truly equitable system has not been found." "Some Representatives feel that if customers ship our products into their territory, they should be paid commission. We have no way of tracking that." "One big problem is getting a local Representative to service a branch distributor on reduced commission, then he can get full commission by putting business through another distributor. I would be very interested in knowing if other manufacturers have forms for Representatives to fill out when calling on branch distributors." "One problem is with Point-of-purchase Representatives who feel their commission is being cut when we are trying to be fair to the design-in Representative." "Our biggest problem is Consulting Firms! A Representative may work with a consulting firm who suggests our product to their client. However, we do not consider a design-in complete until a part number is assigned. The company where we assign the part number may not be in the same territory." "We still track by hand, because I think it is best. I try to maintain a high level of communication with Representatives and try to arrive at a solution that proves equitable. The design-in Representative always gets compensated. If the purchasing location Representative isn't involved with servicing the business, he is not automatically paid. He must notify us in writing. We may notify him to service the account." "We have a form similar to the ERA standard. With Representative and Sales manager approval, it is effective 30 days after submitted." "Split commissions requests are initiated by Regional Managers. They must be signed by all Representatives and RSM's in the territories involved." "Our policy is to pay for design-in forever, but we are reviewing this with our Representative Council". "The splits are introduced to our system by our RM's. As Sales Manager, I approve them and assign control numbers. The split is then computerized for automatic payout."

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Specific Comments—Representatives "Design-in is the most difficult and time -consuming part of the selling process. Purchasing is next. Handling shipping location or assembly is a service function." "Representatives involved in splits should be discussing their activities with each other to assure getting the design- in and the orders." "We still have to push to get our split commissions, due to poor tracking and poor communications. Splits are not included in territory forecasts. Makes our territory look smaller than the effort required." "No commission should be paid on contract manufacturers, unless effort is shown by the Representative!" "Split commissions require costly administration for us. If Principals do not computerize them, fair compensation is jeopardized." "After design-in is complete, we have to rely on our principals to notify us when an order is placed outside our territory. Most principals cannot track orders placed with distribution." "Tracking components - resistors/capacitors/ diodes, etc. to contractors off-shore is virtually impossible. I have splits that get split again. Result: no one gets any real value." "Over the years, split commission problems have caused me a multitude of headaches. It caused early retirement for the founder of our company due to major loss of income and strained relationships with many principals.". "Splits depend on circumstances. If more work is needed for design, more should go to that representative. If it is a commodity, where buyers make decisions, more should go to that representative." "In general, I trust principals to make fair decisions and I am content with a contract that gives sole authority to principals to divide commissions as warranted by the situation." "Most of the representatives involved are in agreement but often the manufacturer fails to manage the program. Manufacturers should provide easily accessible data showing status of assigned as well as requested splits. Disagreements should be resolved openly." "We have never heard directly from another representative at the other end of split commissions. We have a form that we send to principals - and I now send a copy to the other representative involved." "We are losing from $150,000 to $200,000 in revenue due to splits. We need our principals help. It takes too much time to collect, and the representatives on the receiving end fight us. Our principal always takes the path of least resistance." "Customers and Principals must realize that Representatives must be paid fairly to get their attention." "We are paid on first orders, but many principals do not track subsequent orders. We all want to generate new business. it costs a lot to break into a new account. Clear procedures are needed. We cannot work where payback is not equitable." "Our largest line does not have a split commission policy. 100% goes to the purchasing location. They say it evens out in the end. This is not true." "Little information is available from accounts where the product goes to a store from the warehouse. Sales per store are hard to get." "Common sense is better than complex rules. The principal has to make the final decision, but the representatives should try to agree on a split first."

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NAFEM • MAFSI Principles of Decision "Even good principals lose data. We must track data to be sure we are paid properly. It is the design-in Representative's responsibility to provide data as evidence of the design-in." "Design-in Representatives should be paid forever. Representatives need incentives to keep active at the design-in location. Principals want to be designed in. When the customer moves to a new territory, the new Representatives should work on new designs which might replace designs the old Representative is getting paid for." "While Sales Management understands the value of fair compensation, some internal people treat it as if it were extra work and hope it will go away. Management must instill the right attitude in their inside personnel." "More and more principals want us to do training in local stores of national chains, without systems in place to properly compensate us." "We would like to see more principals conform to a good split commission policy. I hope that this survey helps direct manufacturers to adopting some form of standard guidelines." "Some Principals do not have split commission policies and need them badly. They claim it creates too much internal red tape. They do not realize how de-motivational this attitude is." "Some Representatives want more than their fair share. They try to get the customer involved. This affects all Representatives and is terrible for our image." "Our area is highly R & D. Most customers use contract manufacturers. This increases our work load in identifying and tracking buying locations. Our salespeople are not receiving commissions on a lot of the Design-ins." "You cannot represent a line and decide how much or how little you are going to do for them. Customers must be served properly. Representatives are all members of a world wide total sales organization. Our principals must treat us accordingly and find a way to compensate equitably. One problem is the politics within principals between International Sales Managers and Domestic Managers." "The Representative cannot track orders after they are placed. We have to communicate our efforts both with the manufacturer and the other Representatives involved. If we collectively contact the principal, we almost guarantee the allocation." "A prime factor is Representative Councils. Split commissions must be on the agenda and the chief Financial Officer should participate. The CFO has a major influence in making sure the Representatives are compensated. This is a complex issue. Thanks for asking us for our views." "Awareness of the need for a policy on split commissions is increasing as industry matures. It time now for industry cooperation by Principals and Representatives to establish guidelines." "Any design-in Representative who figures his part is the only one on the print is naive. if yours is not the first supplier listed, and the other Representative has not alerted you, you might never get a chance. No design-in effort is worth more than 50% of the commission. They are not usually sole-source items, so there is competition to face." "Contract manufacturing is here to stay. If we argue about splits and refuse to talk to the other Representative involved, competitors will get the business." "Distributors generally have no qualms about providing information. It is usually the principal who doesn't provide for processing it."

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“Frankly Speaking" By Jerry Frank Jerry S. Frank (B.S., M.B.A.)is President of IMA Inc., Management Consultants since 1958. He is co-author of "THRIVING WITH REPS", the authoritative bible of marketing through Representatives. (Published by MRERF in 1992) His clients include multi-billion dollar world wide firms, start-up companies, and numerous representatives. He can be reached at IMA 16244 Dorilee Lane, Encino, CA 91436 - Phone(818)783-4461 Fax(818)386-1945. It is obvious from reading the returns that "Split Commissions" does not present a clear cut problem with clear cut answers. Principals and Representatives develop mutually acceptable procedures. Standard procedures must be flexible and may have to be modified for special circumstances. In certain cases, the principal must bring the two or more Representatives into agreement with each other. Several manufacturers have minimized the problem through experience and hard work. I am sure that many of them would be glad to share their expertise with others, and I believe that Manufacturers and Representatives through their associations would profit from conducting a mutual Forum on this sticky topic. Representative Councils have produced excellent results. Proper tracking and teamwork between Representatives is vital. Products going overseas and through distribution present tracking problems. The answers lie in the cooperative thinking and interaction. The starting point is developing good guidelines to equitable compensation and motivation for Representatives to go the extra mile to reach the principals' goals. It appears that the need for split commissions is increasing Even at the present level of 14% of commissions, there seems to be enough friction to somewhat diminish the sales efforts and results in situations where splits are appropriate. The comments indicate Representatives are more concerned than principals. Manufacturers are saying, "We know this needs some attention, and we are doing our best"—while Representatives are saying , "This is urgent!" I believe Jack was correct in assuring Representatives that they would not be identified. It has given them freedom to express themselves more frankly than they could if they were communicating directly to their principals, or if they felt they could be identified when asserting strong statements. We recommend that manufacturers take a hard look at their split commission policies, and an even harder look at the way they compute, track, and pay split commissions. Our experience indicates that while a modest part of the whole package, split commissions are causing a relatively high level of discomfort on many Representatives involved in a split. The policy should be clearly defined, systematized, and fully explained to the Representatives. Representatives also must work together and listen to each other. Mutual understanding, and cooperation is necessary for Representatives to retain their value and professionalism in the eyes of the industry. Reprinted from Better Repping, Copyright 1995, Berman Publications, 11718 Barrington Court #341, Los Angeles, CA 90049-2930, (310) 472-4039; Fax (310) 472-4839. All rights reserved. Reproduction without permission is strictly prohibited

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SPLIT COMMISSIONS—WHEN THEY ARE USED ... WHY THEY ARE USED ...AND WHEN THEY ARE ABUSED Let’s be up front about it—nobody really likes to share a commission with someone else. But the realities of contemporary selling are such that split commissions are often practical, and they are often the result of sales activity by two or more agents in different territories that produce sales that might have been lost otherwise. What is more often disputed is not whether or not split commissions are appropriate in a given situation, but how the split is determined. Let’s be up front about it—nobody really likes to share a commission with someone else. But the realities of contemporary selling are such that split commissions are often practical, and they are often the result of sales activity by two or more agents in different territories that produce sales that might have been lost otherwise. What is more often disputed is not whether or not split commissions are appropriate in a given situation, but how the split is determined. How often do your commission statements come to you? 93% of the respondents said that their commission statements were sent to them monthly. 2% told us they came weekly. The other respondents all ticked in at less than 1%. They are: Daily (Yes, there was 1) Bi-weekly Bi-monthly Quarterly Annually After principal receives payment After order is placed Rarely (Yes, there were a few) What additional information would you like to see included on those statements? There was a widely ranging response to this question, so we rank-ordered the first five and listed the rest. The top five are: 1 – Customer information (name, address, order number, etc.) 2 – Invoice information (copies of invoices, date, number, amount, etc.) 3 – Shipping information (destination, date shipped, freight charges, shipment schedule, backlog, etc.) 4 – Commission amount 5 – Sales amount, value of the order And these are the other write-ins: Method for calculating commissions and splits Date customer paid invoice List of paid and unpaid invoices by customer Description of items ordered, part numbers Order date, date of sale Year-to-date commissions paid Commission percentage, rate Commission check Agent order number, reference Principal order number Progress payments Specials, promotional orders List of adjustments, credits, cancellations Historical information (prior year’s totals, sales, customer breakdown, etc.) Acknowledgment sent at time of order How would your principal react to your questioning their statement? 94% told us that their principals would not have a problem with their questioning a commission statement. The remaining 6% said, “They would not like it.”

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NAFEM • MAFSI Principles of Decision Please share your thoughts with us on what the ideal commission statement would include. Once again, we received a wide range of responses. And, again, we have rank-ordered the top responses. This time, however, there are 6. The others were well below the top six mentioned. Here are the top six: 1 – Customer information (name, address, order number, etc.) 2 – Invoice information (copies of invoices, date, number, amount, etc.) 3 – Commission amount 4 – Sales amount, value of order 5 – Commission percentage, rate 6 – Shipping information (destination, date shipped, freight charges, shipment schedule, backlog, etc.) And the other items suggested include: Date customer paid invoice Description of item ordered, part numbers List of paid or unpaid invoices by customer Order date, date of sale Agent reference, order number Principal reference, order number Commission period Commission check Year-to-date commission paid Year-to-date totals, orders Method of calculating commissions, splits List of adjustments, credits, cancellations Specials, promotional orders Progress payments Historical information (prior year’s totals/sales, customer breakdown) Acknowledgment sent at the time of the order An Analysis of the Data Let’s look at the points that seem to stand out. Most of the information our members supplied falls within ranges we might have expected. However, there are some points that do seem unusual, and worth looking at. First, it’s rather disappointing to see that only 68% of respondents’ contracts clearly specified how splits will be handled. However, as one agent pointed out when we discussed this report with him, “There are situations in which splits will never occur. This probably accounts for quite a few of those whose contracts don’t address the issue.” However, we do think that this is an important enough issue to flag. When asked what sacrifice they would be willing to make to get the order, the top response was that they would accept an identical sacrifice by the principal. Most principals will give the same response. On the surface, this seems practical and in the spirit of cooperation. However, we think it’s important for both parties to define their sacrifices much more clearly than simply stating a change in percentages. If an agent is getting a 5% commission and is willing to take a drop to 4%, he is, in fact, giving up 20% of his income on the sale. This may not be a problem, but we think it’s important for the manufacturer’s sacrifice to be at a similar level on the same order. Yes, this is a tough one to define, but we do think that it’s an issue which should be addressed when diminished commissions are being discussed. Although most respondents gave reasonable answers to what circumstances would lead them to say no to a split commission, 8% did say that they would never agree to one. We can’t help but wonder whether this stance is one based on something of a we-them attitude, or whether it’s based on an economically sound evaluation of each situation in which a split commission is discussed.

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NAFEM • MAFSI Principles of Decision The commission statement itself seems to be a major issue. Frankly, we were more than a little surprised to see how little information many manufacturers include on their commission statements. When more respondents say that they would like to see customer information on the statement than any other item, we can only envision a statement with only the amount owed on it. In all fairness, we have seen some very elaborate and complete commission statements, but we have also seen cases where the check is the statement! We’re sure that most thin statements are not done that way to hide anything. But they certainly can give that impression to those in other fields where commission payments are routinely made. We would like to leave this report with a request for our manufacturer members to try to give their agents information in their statements that match the top five they have listed and which we have reported. Reprinted from Agency Sales Magazine, Copyright 1995, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited

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Contracts Recommended Principal/Representative Agreement ............................................................................... 125 The Contract’s the Thing! .......................................................................................................................... 128 Guidelines for Negotiating Agreements Between Sales Representatives and Manufacturers................. 129 Guidelines for an Agreement to Warehouse Consigned Stock ................................................................ 135 Plain English or “Pain” English .................................................................................................................. 137 Better Repping Survey Reports - Contracts ............................................................................................ 139 Three Stages in the Life of a Manufacturers’ Representative Agreement ................................................ 146 How Much Can You Influence the Use of Sales Representatives ............................................................ 149 A Carefully Prepared Contract Can Not Only Save Time But Also Costly Litigation ................................ 151 Non-Competition Provision Not Enforceable Against Sales Representatives .......................................... 153 Indiana Takes the Lead in Protecting Against Opportunistic Terminations .............................................. 154 The ABC’s of Assumptions in Contracts (New) ........................................................................................ 155 The Importance of a Written Contract (New) ............................................................................................ 157 Tending to Your Commissions Before and After They Hatch (New) ........................................................ 160 Rep Definition Clarified by Wisconsin Supreme Court (New)................................................................... 161

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RECOMMENDED PRINCIPAL/REPRESENTATIVE AGREEMENT Name of Officer Name of Principal Address Address Dear Name of Officer: This letter confirms that Name of Principal (hereinafter "The Company"), and any of the Company's subsidiaries or related companies, engages Name of Manufacturers’ Representative Agency Company (hereinafter "The Representative") commencing Date under the following terms and conditions: 1. The Representative shall keep the Company informed as to the general conditions which pertain to or affect the sale of its products. 2. The Representative will serve as an independent contractor and be responsible for payment of all applicable social security, withholding and other employment taxes. The Representative will bear all expenses incurred in its sales endeavors except those which the Company agrees to pay for in writing. 3. The Representative will diligently promote the sale of the Company's products and act as the Company's exclusive sales representative for all accounts (recite territory) and will make no representations, warranties or commitments binding the Company without the Company's prior written consent. Additionally, there shall be no house accounts or non-commissionable accounts in the territory unless accounts have been thoroughly reviewed and mutually agreed upon by both parties. 4. The Company agrees to promptly pay the Representative, as compensation for his/her services a commission of (specify) on the gross invoice amount of sales shipped into the Representative's exclusive territory. Payments (including all payments due for sales representatives and road staff hired and supervised by the Representative) shall be sent immediately to the Representative on or before the ( th) day of the month following the month in which the goods are shipped (or payment is received directly by the Company). The commission rate specified in this paragraph cannot be changed unless mutually agreed upon in writing. 5. The Representative shall receive commission on all shipments into its exclusive territory. Commissions shall also be paid on all orders originating from customers within the Representative's exclusive territory, regardless whether said orders are sent by the Representative or received directly by the Company from customers over the telephone, through the mail, by FAX, or through other means without the Representative's assistance. The Representative will also receive a split commission in accordance with the Specifier Identification System (SIS) approved by FCSI, MAFSI and NAFEM. There will be no deductions or chargebacks from the Representative's commission for any reason without the express written consent of both parties and the Representative shall not be responsible for the payment or collection of delinquent accounts. 6. The Company shall provide the Representative without charge the necessary supplies, promotional materials, reprints of advertisements, and such other items as the Company may deem advisable for promotion of its business and will make available to the Representative those pamphlets, advertising, promotional and sales materials free of charge and in reasonable quantities. 7. The Company shall maintain an accurate set of books and records regarding commissions due and shall furnish the Representative with copies of all invoices within ( ) days. Commission statements containing accurate purchase order numbers, shipping dates, customer's names and address, invoice numbers and invoice dollars amounts.

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NAFEM • MAFSI Principles of Decision 8. The Company agrees to employ the Representative for a minimum period of (specify) from the effective date hereof through (specify). This Agreement cannot be shortened without the express written consent of both parties. In the event notice of termination is not sent by either party via certified mail, return receipt requested at least (3) months prior to the effective termination date, this Agreement shall be automatically renewed, under the same terms and conditions, for an additional (specify) period. 9. At the termination of this Agreement, a final accounting shall be made between the parties, The Company shall maintain an accurate set of books and records regarding commissions due the Representative following the termination of this Agreement and the Representative shall be paid full commission on all accepted orders in-house (optional: re-orders) at the date of termination which are shipped after the termination date. In the event the Company terminates this Agreement after it has been in effect for at least One (1) year, the Company agrees to pay the Representative a termination fee in an amount equal to One (1) month's average commissions, based on the twelve (12) calendar months preceding the month of the effective termination date, multiplied by the number of years this Agreement was in effect on the date of such termination; and said termination fee shall be paid within two (2) weeks after the termination of this Agreement. 10. During the term of this Agreement and for a period of One (1) year thereafter, neither party will hire or otherwise utilize the services of any employee or sales associate of the other. Both parties agree that the loss of such employee or sales representative would result in irreparable harm and grants to the other the right to seek damages and an injunction in a court of equity or other competent jurisdiction to enforce its rights hereunder. Arbitration Clause: Any case or controversy arising among or between the parties hereto, this Agreement or the subject matter herein, shall be settled by arbitration in the State of (specify) under the then prevailing rules of the American Arbitration Association. The decision of the arbitrators shall be final and binding and the prevailing party shall be entitled to recover all reasonable attorney fees and costs. 11. The Company shall provide the Representative with the names of all persons and companies within its exclusive territory requesting information on the Company's products, together with general correspondence, quotes, supply, price and timely delivery information. 12. The Company agrees to indemnify and hold the Representative harmless against any and all losses, legal fees, court costs and reasonable expenses arising from or in connection with claims for the infringement of any patent rights, property damage or personal injury arising from the products manufactured by the Company or sold by the Company pursuant to this Agreement. 13. This Agreement forms the entire understanding between the parties. It cancels and supersedes all prior agreements and understandings. There shall be no change or modification of any of the terms in this Agreement unless it is reduced to writing and signed by both parties. 14. This Agreement shall be binding upon each of the parties hereto, their heirs, successors, assigns and successors in interest. 15. If any term or provision of this Agreement shall to any extent be invalid or unenforceable, the remainder of the Agreement shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 16. Any failure by either party to enforce this Agreement at any time or to exercise any option provided for herein will not constitute a waiver of any provisions of this Agreement. 17. All notices called for under this Agreement must be in writing and will be deemed given when mailed, certified mail, return receipt requested, to a party at its address written above or at such other address as a party may hereafter designate in writing to the other party.

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NAFEM • MAFSI Principles of Decision Name of Officer, we look forward to working with you on this matter. In that regard, please sign this original Agreement in the spaces below where indicated and return it promptly to our office; you should keep the copy for your files. Very truly yours, Name of Agency Company By:_____________________________ ____________________________ Name of Officer

Title

__________________________ Date

Accepted and Agreed to: Name of Company By:_____________________________ ____________________________ Name of Officer

Title

__________________________ Date

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THE CONTRACT’S THE THING! There are still some in this industry who go back in time to when the only contract you needed between manufacturer and representative was a handshake. In today's business world, with the changes taking place as rapidly as they are, when the manager of today is gone off to another company tomorrow, those companies that have not bound their businesses to the clear definitions of a written contract between them may find themselves deep in controversy and litigation that will take months or years to unravel. We are faced with these realities in our modern business world:

Manufacturing firms are merging: The company we started out doing business with five years ago can be an entirely different one today. And the difference could very well not be in our favor.

People change faster than companies: Name the company you represent that hasn't had a change in sales or marketing management (from district on up to headquarters) in the last five years.

We all have short memories: What we started out promising to do and being promised would be done for us become hazy and complex with each passing year. We have a tendency to forget (without reference to something in writing) what our original intent was when we first talked about our mutual responsibilities.

Our needs change: Our outlook changes. The business gets more and more complicated. We're both not the same as we used to be. And, as a result, our relationship fluctuates over the years.

Unlike many years ago, most representative firms today have become business entities: Representative firms operate on a long-term basis and provide their principals with continuity of management. These contracts insure that continuity.

We constantly have government looking over our shoulders: Demanding that we put everything into contract language to protect ourselves from future problems in any kind of litigation. Every so-called "Sales Representatives Protection Act" legislation has as its recurrent theme: "Put it in writing,"

What to say in the contract? What to cover? The contract on the previous pages was not developed on a one-sided or biased basis. It provides recommendations and suggestions for contract language that will positively reinforce the best type of agreement.

How to start? After the interview and the agreement by both sides that there is a healthy "mix" between the two of you, the manufacturer and the representative should sit down with this contract format and review each area in detail, making notes as to changes, additions, deletions. Following this preliminary approach, each party should then review the contract to see if there are any items not included that they require as part of their agreement. Then call in counsel to make the necessary arrangements for further strengthening the agreement, get it into proper language and get it typed and signed into effect. This detailed, painstaking process is more traumatic than a handshake. But it's a more businesslike approach that can add lasting value to your relationship.

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GUIDELINES* FOR NEGOTIATING AGREEMENTS BETWEEN SALES REPRESENTATIVES AND MANUFACTURERS 1. Appointment and Acceptance: Manufacturer appoints Representative as its exclusive selling representative to sell products (enumerated in Provision No. 3 hereof) in the territory (defined in Provision No. 2 hereof); and Representative accepts the appointment and agrees to sell and promote the sale of the Manufacturer's products.

2. Territory: Representative's territory shall consist of the following: The territory can be designated as specific states, counties, cities, or in any other way which clearly delineates the area. If the territory is not a specific area, and is limited only to specific customers, the customers should be named. If there are any customers or "house accounts" to be excluded from the territory, they should be clearly listed by name and location.

3. Products: The products of the Manufacturer to be sold by the Representative are: The agreement should cover all products and services of the manufacturer unless the representative is to handle only specific products or services. If the representative is not handling all of the products of services the agreement should list the product lines, products or services the representative is handling. It is preferable not to list products by model or catalog numbers as these may change from time to time. The agreement should also indicate if new products or services developed or added by the manufacturer are to be included.

4. Amount of Compensation: Representative's compensation for services performed hereunder shall be _____% of the "net invoice price" of the Manufacturer's product shipped into Representative's territory. However, when engineering, execution of the order, or shipment involves different territories, the Manufacturer will split the full commission among the Representatives whose territories are involved. The Manufacturer will make this determination using the SIS determined by FCSI, MAFSI and NAFEM and advise the interested Representatives at the time the order is submitted to the Manufacturer. The sum of the split commission shall add up to a full commission and no Representative whose territory is involved shall receive less than _____% of the full commission. The blanks should be completed with the amount of commission agreed upon. There are many different arrangements that can be worked out between a representative and a manufacturer. If a representative is expected to develop a new market, he should consider requesting a higher commission rate than ordinarily paid by the manufacturer, or for some monetary subsidy during the period of time necessary to develop the market. If the representative is asked to handle a product line for a new manufacturer and the representatives' activities could result in a significant contribution to the success of the company, the representative could request an opportunity for an equity position in the manufacturers company. In either or both of these situations, the representative could also consider a more favorable severance clause than that ordinarily negotiated with other manufacturers. The representative should consider negotiating for any one or a combination of the following forms of compensation: a) A commission based on the "net invoice price" of the manufacturer's products shipped into the representative's territory and a split of commissions when engineering, execution of the order, or shipment involves different territories (i.e., 50% to the representative in whose territory the product is engineered or specifications are prepared; 25% to the representative into whose territory the product is shipped; and 25% to representative in whose territory the order is executed), b) A monthly retainer fee or draw against commissions actually earned-with reconciliation of any amount due or overpaid to the representative within (30) thirty days after the end of each calendar quarter, or after the end of any period agreed upon. (Any amount due upon reconciliation to be paid by the 10th of the month following reconciliation and any overpayment to be deducted from the next commission check due the representative.) c) A retainer fee to be paid in addition to commissions on sales.

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NAFEM • MAFSI Principles of Decision d) An accelerated commission rate to be paid on sales which exceed certain volume levels. A quota could be established each year, based on the previous year's sales, and an increased commission rate paid on sales in excess of that quota. e) The establishment of a Representative's Fund in which the manufacturer would deposit a percentage of the commissions earned by the representative each month (in addition to commissions earned and paid the representative). And if the manufacturer terminates the representative without cause, the fund would be paid to the representative. However, if the representative terminates the contract, or if it is terminated by the manufacturer for cause, the manufacturer would retain the Representative's Fund. f) The opportunity to use a portion of the monies earned by the representative to purchase stock of the manufacturer. If the representative is effective in establishing customer relationships and developing market acceptance for the manufacturer's product line, the manufacturer's stock could appreciate considerably. The representative may want the opportunity to participate in the growth of the manufacturer and the appreciation of the manufacturer's stock by acquiring a stock position. The procedure for purchasing the stock and the price to be paid for the stock should be carefully negotiated.

5. Computation and Payment of Commission: a) Commissions are due and payable on or before the _____day of the month following the month in which the customer is invoiced; and if not paid when due, the amount not paid will accrue interest at _____% per annum from the date due until paid. b) Manufacturer will send Representative copies of all invoices electronically or by other means at the time Manufacturer invoices customer, and each invoice shall indicate the amount of commission due Representative. c) At the time of payment of commissions to Representative, Manufacturer will send Representative a commission statement showing: 1. the computation of all commissions earned during the (90) ninety day period prior to its issuance (listing all invoices covered by the statement), and 2. commissions paid during that period (listing the invoices on which commissions are being paid), and 3. commissions due and owing Representative. d) "Net invoice price" shall mean the total price at which an order is invoiced to the customer, including any increase or decrease in the total amount of the order (even though such increase or decrease takes place after the effective date of termination), but excluding shipping and mailing costs; taxes; insurance; and any allowances or discounts granted to the customer by the Manufacturer. e) "Order" shall mean any commitment to purchase Manufacturer's products which calls for shipment in to Representative's territory or which is subject to split commission in accordance with Provision No. 4 hereof. The blanks should be completed with the day of the month on which commissions are to be paid, and the amount of the interest to be charged on commissions due and not paid. The representative might consider: a) Requesting that payment of commissions be made on or before the day of the month following the month in which: 1. the order is dated, or 2. the order is received by the manufacturer, or 3. the order is accepted by the manufacturer, or 4. the order is invoiced, or 5. shipment is made. b) Negotiating for the payment of commissions on lease agreements and the manner in which commissions will be computed (i.e., to have commissions on lease agreements payable in full at the time of the initial lease payment to the manufacturer). c) The possibility of the payment of commissions on distributor sales to the representative covering the territory in which the distributor makes the sale to its customer. It may also be possible to work out some split commission arrangement between the representative who covers the territory in which the distributor is located and the representative covering the territory in which the distributor's customer is located. d) Providing for the payment of _____% interest per annum on commissions not paid when due accruing from the date, or providing for the execution and delivery of a promissory note by the manufacturer (with an appropriate rate of interest) when the manufacturer is delinquent in the payment of commissions due. e) Obligating the manufacturer to pay attorney fees and collection costs when it is necessary for the representative to sue the manufacturer to recover monies due and owing him.

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6. Acceptance of Orders: All orders are subject to acceptance or rejection by an authorized officer of Manufacturer at its home office and to the approval of the Manufacturer's credit department. Manufacturer shall be responsible for all credit risks and collections. If Manufacturer notifies customer of its acceptance or rejection of an order, a copy of any written notification shall be transmitted to the Representative. At least once every month, Manufacturer shall supply Representative with copies of all orders received directly by the Manufacturer, copies of all shipping notices, and copies of all correspondence and quotations made to the customers in the territory.

7. Terms of Sale: All sales shall be at prices and upon terms established by the Manufacturer and it shall have the right, after detailed discussion with their representative, from time to time, to establish, change, alter or amend prices and other terms and conditions of sale. Representative shall not accept orders in the Manufacturer's name, make price quotations or delivery promises without the Manufacturer's prior approval.

8. Representative's Relationship and Conduct of Business: a) Representative shall maintain sales office in the territory and shall use its best efforts and devote such time as may be reasonably necessary to sell and promote the sale of Manufacturer's products within the territory. b) Representative will conduct all of its business in its own name and in such manner as it may see fit. Representative will pay all expenses whatever of its office and activities and be responsible for the acts and expenses of its employees. c) Nothing in this agreement shall be construed to constitute Representative as the employee of the Manufacturer, nor shall either party have any authority to bind the other in any respect, it being intended that each shall remain an independent contractor responsible only for its own actions. d) Representative shall not, without Manufacturer's prior written approval, enlarge, or limit orders, make representations or guarantees concerning Manufacturer's product or accept the return of, or make any allowance for such products. e) Representative shall furnish to Manufacturer's credit department any information which it may have from time to time relative to the credit standing of any of its customers. f) Representative shall abide by Manufacturer's policies and communicate same to Manufacturer's customers. g) Manufacturer shall be solely responsible for the design, development, supply, production and performance of its products and the protection of its trade names. Manufacturer agrees to indemnify and hold representative harmless from and against and to pay all losses, costs, damages or expenses whatsoever, including reasonable attorney's fees, which Representative may sustain or incur on account of infringement or alleged infringement of patents, trademarks, or trade names, or breach of warranty or claimed breach of warranty in any way resulting from the sale of Manufacturer's products. Manufacturer will indemnify Representative from and hold it harmless from and against all liabilities, losses, damages, costs or expenses, including reasonable attorney's fees, which it may at any time suffer, incur, or be required to pay by reason of injury or death to any person or damage to property or both caused or allegedly caused by any products sold by Manufacturer. h) Manufacturer shall furnish Representative, at no expense to Representative, samples, catalogs, literature and any other material necessary for the proper promotion and sale of its products in the territory. Any literature which is not used or samples or other equipment belonging to the Manufacturer shall be returned to the Manufacturer at its request. Whenever Representative, at Manufacturer's request, takes possession of Manufacturer's products for the purpose of delivering such products to customers for any other purpose, the risk of loss or damage to or destruction of such products shall be borne by the Manufacturer, and Manufacturer shall indemnify and hold representative harmless against any claims, debts, liabilities or causes of action resulting from any such loss, damage or destruction.

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NAFEM • MAFSI Principles of Decision The Representative could consider negotiating with the Manufacturer for: a) Payment of transportation and all other expenses relating to the representative's personnel attending a sales meeting or training seminar at the specific request of the manufacturer. b) For a "most favored nations clause" (i.e., 'Any rights, payments or other benefits provided in any other agreement between the manufacturer and a sales representative [in effect during the term of the agreement] which are not provided in this agreement or which are more favorable than those provided in this agreement, shall be deemed to be incorporated into this agreement as though they were set forth herein verbatim'). In this connection, the representative should ask the manufacturer for the opportunity to review other agreements with representatives so that the representative will be aware of the provisions and arrangements which are different from those suggested by the manufacturer for the agreement being negotiated.

9. Term of Agreement and Termination: This agreement shall be effective on the day of _____ 19_____, and shall continue for _____year(s) until the _____day of 19_____ It shall be automatically renewed from year to year thereafter unless terminated by either party upon _____days notice to the other by registered mail or certified mail prior to the end of the initial term of this agreement, or any renewal term. The date on which this agreement is to become effective, the term and the expiration date should be filled in. The term of the agreement may be for a specific period of time, or for a period of time which will automatically continue if the agreement is not terminated by written notice from one party to the other. The number of days required for written notice of termination should be negotiated. The representative might also consider negotiating for a contract that will not permit cancellation for one (1) year (or more) unless there is a mutual agreement to terminate, there is bankruptcy involving one of the parties, or the business of one of the parties is discontinued. The termination provision could also include any one or more of the following: a) By either party upon ninety (90) days written notice to the other in the event of unreasonable or repeated failure to perform as agreed. b) By mutual agreement. c) By either party in the event that the other shall file or has filed against a petition of bankruptcy (which is not dismissed within thirty (30) days after it is filed), or makes an assignment for the benefit of creditors.

10. Rights Upon Termination: Upon termination of this agreement for any reason, Representative shall be entitled to: a) Commissions on all orders calling for shipment into Representative's territory which are dated or communicated to Manufacturer prior to the effective date of termination, regardless of when such orders are shipped; and b) Its share of split commissions on orders dated or communicated to Manufacturer prior to the effective date of termination, regardless of when such orders are shipped. c) Commissions referred to in this Provision No. 10 shall be paid on or before the day of the month in which the Manufacturer receives payment for the orders. In addition, representative may be entitled to, and should consider the addition of, the following: "In the event of termination, manufacturer shall make its customer orders and shipping records available to the representative, or the representative's duly authorized agent, for inspection at the manufacturer's place of business" In addition to the commissions referred to in this Provision No. 10, there are a number of ways to reward representatives for services or tenure, some of which are as follows: a) The representative shall be paid full commissions when due on all orders dated during the ninety (90) day period immediately following the effective date of termination. In addition, the representative will be paid one-half commission when due on all orders dated during the +0-day period commencing on the 91st day and concluding on the 150th day following the effective date of termination. (The number of days can be changed to fit the circumstances.)

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NAFEM • MAFSI Principles of Decision b) By establishing a program of "severance payments" For example: One month's severance pay for each 2 full years as the representative of the manufacturer, with a maximum number of months of severance pay which can be earned (i.e., 12 months). Severance payments shall be paid monthly commencing with the 10th day of the month after the effective date of termination. Each payment shall be 1/12th of the total commissions payable to the representative in the 12 full calendar months preceding the effective date of such termination. The number of monthly "severance payments" might be: (The following are examples of severance arrangements which may be negotiated. If representative has been involved in substantial market developments, he should consider an arrangement which provides for more substantial severance payments.) No. of Consecutive Years as a Representative for the Manufacturer No. of Monthly Severance Payments More than 2 years/less than 4 years More than 4 years/less than 6 years More than 6 years/less than 8 years More than 8 years/less than 10 years More than 10 years/less than 12 years More than 12 years/less than 14 years More than 14 years/less than 16 years More than 16 years/less than 18 years More than 18 years/less than 20 years More than 20 years/less than 22 years More than 22 years/less than 24 years More than 24 years/less than 26 years

1 2 3 4 5 6 7 8 9 10 11 12

c) By payment of a portion of future commissions for a period of time after termination, depending upon the number of years of service (i.e., if the representative has served the manufacturer 10 years, one-half of commissions that would have been earned by the representative if the contract had continued in force during the three-year period following the date of termination). d) In the event of the termination of the representative for any reason, the manufacturer agrees to be fair and reasonable in compensating the representative for the representative's efforts in developing customers in the territory which place orders or can reasonably be expected to place orders after the effective date of termination. e) Provide for greater severance payments in the event of termination when a manufacturer intends to service the territory through a direct factory salesman or a former employee of the manufacturer who is or intends to become a sales representative.

11. General: This agreement contains the entire understanding of the parties, shall supersede any other oral or written agreements, and shall be binding upon, or inure to the benefit of, the parties' successors assigns. It may not be modified in any way without the written consent of both parties. Representative shall not have the right to assign this agreement in whole or in part without Manufacturer's written consent. The representative might also consider the establishment of a manufacturer-sales representatives council (made up of company delegates and a delegate from each for selected) sales representative firm(s) of the manufacturer) to discuss and exchange ideas of mutual benefit to the manufacturer and the representative. Sales representative, and manufacturers can benefit by the exchange of ideas, and the sales representative may be very helpful to the manufacturer in product and market development and planning. Manufacturer should pay transportation and other expenses relating to the representative's attendance at meetings of the council.

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NAFEM • MAFSI Principles of Decision a) This agreement shall be construed according to the laws of the State of _____________. b) The parties agree that any disputes or questions arising hereunder including the construction or application of this agreement shall be settled by arbitration in accordance with the rules of the American Arbitration Association then in force, and that the arbitration hearings shall be held in the city in which the principal office of the party requesting arbitration (with the American Arbitration Association) is located. If the parties cannot agree upon an arbitrator within ten (10) days after the demand by either of them, either or both parties may request the American Arbitration Association to name a panel of five (5) arbitrators. The Manufacturer shall strike the names of two (2) on this list, the Representative shall then strike two (2) names, and the remaining name shall be the arbitrator. The decision of the arbitrator shall be final and binding upon the parties both as to law and to fact, and shall not be appealable to any court in any jurisdiction. The expenses of the arbitrator shall be shared equally by the parties, unless the arbitrator determines that the expenses shall be otherwise assessed. '*The format and considerations do not cover all possible situations and alternatives, and is presented only as a guide to point out some of the matters to be considered in negotiations. This should not be construed as recommendations, as every relationship between representative and manufacturer differs and cannot be covered by a standard agreement. Each agreement should be individually negotiated and prepared, and an attorney should be consulted concerning negotiation problems and the formalization of an agreement.

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GUIDELINES FOR AN AGREEMENT TO WAREHOUSE CONSIGNED STOCK This Agreement, made this ______ day of ______, 19 ____, by and between ____________________________, a corporation incorporated under the laws of the State of _______________, having its principal office at _______________________, hereinafter referred to as “Manufacturer” and/or “you, your,” and _____________________________, a corporation incorporated under the laws of the State of __________________, having its principal office at _______________________, hereinafter referred to as “Representative” and/or “we, us,” as follows: This Agreement is for the warehousing and shipment of products* on consignment basis by ______________________ (Manufacturer). It is not a sales representation agreement, and it is separate ad exclusive from any such agreement. (* Products shall be deemed to include any and all products received by us on your behalf.) Warehouse refers to our facilities located at ___________________________ (insert complete address) ____________. Manufacturer will ship to us, from time to time, _______________________ products on “consignment.” You will properly mark and pack all consigned products for shipment and pay the cost to deliver those products to us. Upon delivery, we are to visually inspect each shipment and note any damage on the carrier´s receipt. We are not responsible for any damage in transit if we promptly inform _______________________ (Manufacturer) of the damage and promptly forward a signed inspection report describing the damage, or evidence of waiver if the carrier waives inspection. After inspection, the consigned stock is to be stored _______________ (specify location, indoors or outdoors) at our above referenced location in an area clearly marked to identify the consigned products as belonging to _______________________ (Manufacturer). If state law requires that you file a statement of consignment, our signature is required on that statement. These procedures are required to protect your property against claims of any of our creditors by informing such creditors that the consigned stock is not owned by us. We must keep these products free from any lien, security interest or encumbrance. When a buyer is located and if you decide to sell from stock consigned to us, you will notify us to ship specific products to the buyer. We then must remove the products from storage and arrange for delivery to the buyer. You shall pay the cost of shipment. Title to all consigned products shall remain with _______________________ (Manufacturer) until the products have been placed on carriers for shipment to the buyer. * Note: These are FOB shipping point terms. They should be changed as necessary, i.e., FOB Destination: title would not transfer until delivered to customer. We are to confirm each shipment daily by written, telephone or electronic communication. After the end of each month, you will total the purchase price of all sales to buyers from the products consigned to us and pay us a warehousing fee at our then published rate, which currently is _______________. *Note: This should be completed with the fee agreed upon. There are many different arrangements that can be negotiated, such as flat fee per cubic foot per month, a percentage of sales from consigned inventory, etc. You may inspect your consigned products during our regular business hours. Upon your request, we are to complete an actual physical inventory of your consigned products and to report the results on forms you will supply. You may witness the inventory and review our records relating to your consigned products. Adjustments will be made using the current published distribution price. If we are required to take more than two inventories annually, you will pay the cost of all additional inventories. We shall store and handle your consigned products with due care and diligence, but you shall be responsible for damage or loss of consigned products arising from acts of God, acts of Government, inadequate packaging or other cause beyond our control. Your insurance company, if any, will waive the right of subrogation in regard to one consigned stock.

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NAFEM • MAFSI Principles of Decision The risk of loss or damage to or destruction of such products shall be borne by you and you shall indemnify and hold Representative harmless against any claims, debts, liabilities or causes of action resulting from any such loss, damage or destruction. You will file all returns and pay all taxes resulting from this storage arrangement provided we promptly communicate to _______________________ (Manufacturer) all governmental notices. You shall be solely responsible for the design, development, supply, production and performance of your products and the protection of your trade names. You agree to indemnify and hold us harmless from and against and to pay all losses, costs, damages or expenses whatsoever, including reasonable attorney’s fees, which we may sustain or incur on account of infringement or alleged infringement of patents, trademarks or trade names, or breach of warranty or claimed breach of warranty in any way resulting from the sale of your products. You will indemnify us from and hold us harmless from and against all liabilities, losses, damages, costs or expenses, including reasonable attorney’s fees, which we may at any time suffer, ensue or be required to pay by reason of injury or death to any person or damage to property or both caused or allegedly caused by any products sold by _______________________ (Manufacturer). This warehouse arrangement may be terminated by either of us upon thirty (30) days advance written notice. Upon termination, you may come on to our property to remove all your products consigned to us. Prior to removal, however, any and all financial obligations and/or indebtedness to us must be paid in full. Upon termination, removal will be at your expense. If you do not supervise or inventory the final removal or if you direct us to ship the inventory to another location, we shall conduct a final inventory which shall be binding. We shall have no further responsibility for the inventory once it leaves our premises. No waiver of any provision in this arrangement shall operate to waive future occurrences. Any modification of this storage arrangement must be in writing and signed by both of us. However, from time to time, we will announce procedures to implement the above storage arrangement, which do not require your signature. We may amend such procedures with ten (10) days advance notice. This Agreement contains the entire understanding of the parties, shall supersede any oral or written agreements, and shall be binding upon, or inure to the benefit of the parties’ successors assigns. It may not be modified in any way without the written consent of both parties. We shall not have the right to assign this Agreement in whole or in part without your written consent. (a) This Agreement shall be construed and enforced according to the laws of the State of ______________________ (Warehouse location) regardless of where it is entered into or performed. (b) The parties agree that any disputes or questions arising hereunder, including the construction or application of this Agreement, shall be settled by arbitration in accordance with the rules of the American Arbitration Association then in force, and that the arbitration hearings shall be held in the city in which the principal office of the party requesting arbitration (with the American Arbitration Association) is located. If the parties cannot agree upon an arbitrator within ten (10) days after the demand by either of them, either or both parties may request the American Arbitration Association to name a panel of five (5) arbitrators. The Manufacturer shall strike the names of two (2) on this list, the Representative shall then strike two (2) names, and the remaining name shall be the arbitrator. The decision of the arbitrator shall be final and binding upon the parties both as to law and to fact, and shall not be appealable to any court in any jurisdiction. The expenses of the arbitrator shall be shared equally by the parties, unless the arbitrator determines that the expenses shall be otherwise assessed. IN WITNESS THEREOF, the parties have executed this agreement this _______ day of _______, 19 ___, written in multiple counterparts, each of which shall be considered an original. Manufacturer: By: Title:

____________________________________________________ ____________________________________________________ ____________________________________________________

Representative: By: Title:

____________________________________________________ ____________________________________________________ ____________________________________________________

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Plan English or "Pain" English By Gerald G. Salmen “Say what you mean and mean what you say." We've all heard that phrase. When I was in law school, a required course was Legal Writing. I quickly learned that in my school there was a concerted effort to train prospective attorneys to write in "plain English." The goal was to purge from legal documents convoluted phrases, such as "party of the first part" and "party of the second part," and replace them with clear, concise and accurate words, such as (imagine!) the actual names of the parties. My professor had no use for the legalese of "herewith" and "notwithstanding anything to the contrary hereinabove" and similar tortured phrases. I found this startling because almost all the language in the guidebooks that students - and lawyers - consult occasionally contained these and many other official sounding words in abundance. My professor told our class to forget salting our legal writing with legalisms and to write plainly. He did caution that some phrases had acquired a special and widely understood meaning over time. We would learn how and when to use them in our law school training. But we would be more effective for our future clients if we took the time and exercised courage to write in "plain English" rather than legalese or "pain" English. Plain English for Reps and Principals Reps and principals should use plain English in their Communications and documents. In reviewing proposed contracts, I often find unclear writing. When I ask my client to explain certain language in the agreement, my client usually says, "You know, I wondered about that, too." Or as we discuss the words, we find them susceptible to various meanings. Or I'm told that some other lawyer drafted the language so it must mean something. What it means is that the contract still needs work. The parties must clarify their understandings and translate those concepts into plain English. Sometimes this is hard work because it is human nature to assume that the other person comprehends and agrees with our own understanding. Think about how many times in everyday conversation someone states a position, follows it up with "You know what I mean?" and quickly moves on to the next point without really determining if there was understanding. Here's another example. If I ask you to think of a tree, you wilt do so. But you may be picturing an oak tree, while I am picturing a pine tree. We are both right, however, the specifics of our concepts do not match up. Similarly, the words in a rep-principal contract may be "plain" such as in our tree example, but the specific meaning attached to the word may be very different for each party. Consider the word "orders" as in the phrase "commissions will be paid on all orders." The rep probably thinks it means every kind of order, including blanket orders, regardless when releases occur. The principal usually thinks it means only specific requested releases. Big difference. Suppose we add a word: "Commissions will be paid on all solicited orders." Does that help? No way. The rep will argue that he/she solicited the blanket order, and the principal will contend that it means she had to solicit the specific releases. Plain English Beyond Contracts "Pain" English problems can occur in communications between reps and principals other than in their contrats. Let's say that to meet a tough customer's demands, the rep and the principal agree over the telephone to reduce the commission for the "initial order." They document their agreement in a letter that says that the commission to be paid per the written contract is "reduced for the initial order only." What is the "initial order" Is it only the first commissionable production order that may be a small quantity or is it the entire production under the purchase order? Again, big difference.

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NAFEM • MAFSI Principles of Decision Plain English = No Assumptions, Common Sense and Work A productive way to get to plain English is to not assume things about words and documents. Do not assume that because a lawyer prepared the document that he must have accurately and clearly translated your agreements into words. Question language you do not understand or that seems vague to you. See if you are both thinking of the same kind of tree. Do not assume that you can write plain English automatically. Consider having someone unfamiliar with your position read what you have written and seek (and listen to) an honest evaluation of your language in the critical areas of the document. Do not assume that your lawyer has a basic form contract or other document chat simply requires filling in the blanks. Every business relationship has its unique aspects. You must be willing to take the time to get it right in the writing. If you, as the party of the first part, follow the advice hereinabove proffered, with all parties of the second part hereinafter contracted, communicated or otherwise conjoined, you will avoid, diminish or rectify convoluted word compositions. In other words, make efforts to use plain English and common sense to avoid "pain" English. About the Author: Gerald (Jerry) G. Salmen, formerly a partner in the Cincinnati law Jim of Wood & Lamping recently formed his own practice, The Law Offices of Gerald G. Salmen. A graduate of the University of Cincinnati College of Law, Jerry has practiced law for over 20 years- He has represented both manufacturers and agents in contractual matters and in the resolution of disputes. He is counseling attorney for MANA as well as for the Manufacturers' Agents of Cincinnati and has written articles and spoken to many groups, including MANA's educational symposiums, regarding the principal-agent relationship. Jerry has extensive experience in product liability concerns of those involved in product distribution. Reprinted from Agency Sales Magazine, Copyright 2001, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited

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BETTER REPPING SURVEY REPORTS—CONTRACTS For Representatives and Manufacturers - Designed to Improve Teamwork and Profits by Jack Berman

Survey Results - "Contracts" General Observations There was more controversy expressed in this survey than I had expected. It gave both Manufacturers and Representatives an opportunity to express their strong feelings, as well as to present their reasons for action and emotions. Particularly look at the Representatives' viewpoints on waiting to receive commissions until the customer pays, and the Manufacturers explanations on the fairness of 30 day termination clauses. We are all striving for better relationships resulting in more profitable business. Here are the results: 65% of the Manufacturers believe Contracts should be identical for all of their Representatives, while 62% of the Representatives believe they don't have to be the same. Reasons for Identical Contracts - Most Principals and some Representatives agree: • Representatives must be treated equally. "Deals" with some Representatives and not others is unfair. • Lack of uniformity creates too many interrelationship problems between representatives. • Administration is too complicated Reasons for Differences in Contracts - Most Representatives and some Principals agree: • Differences in market conditions. • Differences in territories. • Extra effort to build up a territory. • Specifics applying to national accounts. Quotes from MANUFACTURERS who believe in Identical Contracts: "A Manufacturer makes a multitude of decisions daily in dealing with Representatives If there are different contracts, each must be -checked every a time a change is made. Special situations of a temporary nature should be addressed with an addendum to the contract. These are flexible and easier to review, but there should be few of them." "In a large organization it would be difficult to inform key people of deviations.'' "Contracts cover the basics of the agreement, not the spirit of the relationship. Basics should be the same for all Representatives." "I wouldn't want to keep track of the varying situations. With the number of good representatives available in any territory, someone will agree to our standard terms. If not, I should review my terms overall." Quotes from REPRESENTATIVES who believe in Identical Contracts: "How can you have a Representative Council when Representatives are not treated equally?" "Split commissions could create problems if contract differences existed." "I would hate to represent a company for a long time and find out another representative had a better deal. I realize that each territory has its problems and I think each representative has the right to the best deal he can get, but I feel that all representatives should be treated the same.''

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NAFEM • MAFSI Principles of Decision Quotes from Manufacturers who believe all contracts DON'T have to be identical: "Specific issues on distributor and end-user locations are possible exceptions." "Different market areas may require different responsibilities." "Four factors are considered: 1. Longevity; 2. Needs; 3. 0bjectives; 4. Account size." "Representatives, markets, and motivations vary." Quotes from Representatives who feel that Contracts DON'T have to have identical: "Contract terms should be negotiated for a "win-win" agreement. Territories and customers vary, and the contract should accommodate these differences." "Most Representatives in my industry do not negotiate Contracts. This is a mistake. Representatives and Principals would all be better off if the Principals were open to listening about some provisions we feel are not fair." "If some Representatives do not negotiate clauses they consider unfair, the Representatives who do, cannot be successful." "Consideration should be given to a large territory with increased costs such as travel, time, and communications." "Representatives, like employees, have different value. Manufacturers do not pay all employees the same wages. Contracts should be based on the value the Representative brings. Is a 10 or 20 person organization with strong inside sales support the same as a 1 or 2 person organization? Representatives are different, so contracts should be different." "There are many variables today in types of customers, differences in territories, contract manufacturing, off shore opportunities. These must be considered" "A territory with a large backlog is different than a virgin territory. Similarly, a Representative may want to have different contract terms based on sales volume. Pioneering is costly, so extended termination might motivate the Representative to make more investment." 80% of Principals pay Commissions on Invoice; 20% pay when customer pays. 89% of Representatives feel it is unfair to them to wait until the customer pays. 11% feel It Is unfair to be paid late. Quotes from the Manufacturers who pay based on Invoice: "We pay after invoicing. We used to pay after the customer paid, but it was difficult, and the Representatives didn't like it." "The credit decision is made by the manufacturer, not the Representative." "The Representative is an independent business man and needs cash flow to operate effectively. If he waits until the customer pays, it could be 90 days after the invoice." "It is our job to collect. We ask the Representative to assist only when Purchasing is involved. We decide on credit, so the Representative should be paid when we ship to the customer, or when the distributor ships to the customer."

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NAFEM • MAFSI Principles of Decision Quotes from the 20% of Manufacturers who pay after customers pay: "It costs time and money to collect from a slow-pay customer. Waiting until the customer pays gives the Representative incentive to help the Manufacturer collect." "We all share the risk when, we pay after we are paid. It seems we are better off." "I would need to hear strong reasons why the Representative should be paid before we are." "It is standard practice. If we change independently it would impact Our costs." "Representatives hate being delayed and shorted on commission. I hate poor-paying customers. They hurt our ability to grow and support our Representatives. We need his help." "The manufacturer is not a bank." Quotes from Representatives: "Commissions should be paid on acceptance of order. The manufacturer is responsible for what happens after that." "We cannot wait until the customer pays. We have already spent money and time to get the order. If deliveries are running 2-3 months, it is already too long a wait for the Representative. Add 30-45 days for the customer to pay and another month for our payment, we could be waiting 4-6 months to be paid." "Our problem is a Principal who holds commissions during his cash flow problem." 74% of Manufacturers have a termination notice of 30 days; 13% give three months; the others vary, some considering length of service. 80% of Representatives feel 30 day notice is unfair Quotes from Manufacturers: "The contract works both ways. I've seen Representatives resign lines with no warning. If relationships are not good, neither will be surprised with a 30 day warning." "Once the relationship is severed, everyone looks after their own interests. It is best to admit that up front. We pay for all backlog but when it's over- its over." "No Representative or Manufacturer should be surprised by a termination if it is the result of poor performance. The termination should be the last step in a longer chain of communications to resolve the issues." "Lame duck tenure should be short." "Thirty days is a powerful motivator. However if a Manufacturer terminates a Representative who is truly not aware of why, then the Manufacturer has not performed due diligence and is at fault. But once the decision is made, and made correctly, action must be swift." Representatives' Quotes on Termination Notice: "Unfair are terminations without any warning or a chance to correct a problem. If a termination is to go direct, the period should be from 6 months to a year." "The 30 day termination notice is a two-edged sword. It limits your stability, but allows you to take on better opportunities." "30 days is fair. A longer termination notice goes two ways. If a Representative wants to pick up a competing line, he would be hamstrung with a long termination period."

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NAFEM • MAFSI Principles of Decision How Manufacturers pay commissions on termination: 57% pay on all orders on hand when shipped. 21% pay on shipments for 90 days 7% pay for six months 7% pay for one month 3% pay for two months 3% pay a lump sum for all orders 91% of Representatives feel that payment for any fixed period is unfair - that payment should be for all orders on hand. Quotes from Manufacturers: "Fair is Fair. Pay on all orders received while the Representative was representing you" "30 days is fair. Hopefully there were orders on the books when they were signed. At some point, you must pay the new Representative." "The Representative booked them and, should be paid. It should not be a lump sum. That would be like a bonus at termination." "The Representative should be compensated for orders received for current shipment through the 30 day notice period, plus shipments of orders in the house and due for shipment in 90 days. Substantial follow up is often required prior to shipment and the terminated Representative cannot be expected to do this. We feel the successor Representative earns the commission in view of follow up work and the demo start-up of our equipment." "With us, 90% of customer requirements are shipped within 90 days. A lump sum is a cleaner method" 91% of Representatives negotiate when they feel some Contract Provisions are unfair. However, 84% of Manufacturers state they seldom have ever had a request to make changes; and 16% state they have never had a request. 62% of Manufacturers state they have made changes; 38% have not. Contract provisions Representatives feel are most unfair: (in order of times mentioned) • House Accounts Low Commission Rates • Non-exclusive Territory Payment after customer pays • Non-payment on full backlog at termination • Descending commission rate on increasing volume • Non-compete clause on termination • Sole right of Manufacturer to change contract and commission rates • New company with 30 day termination • Plus many others Change requests from Representatives that Manufacturers feel are most unfair: 61% did not report any unfair requests 39% reported the following: • Longer termination periods • Reduction in Quotas • Increased commission rates • Payment on booking instead of shipment or payment from customer • Unfair share of split commissions • Asking for more territory

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NAFEM • MAFSI Principles of Decision Quotes from Manufacturers: "Most common concern is with requests for lower quotas. Mutually setting quotas reduces this issue significantly." "I don't consider anything unfair - I admire when Representatives ask, because I know they'll be just as tenacious in getting top dollar for our products!" "Sometimes they ask for increased commission rates. If they want to increase commission, they should increase sales." "It is unfair to ask for change unless the Representative offers something in exchange." "A good hardworking Representative should not fear termination." "Longer termination handcuffs us and eliminates one of the benefits of using a Representative sales force instead of direct." "Representatives not disclosing all lines is unfair. I can live with certain situations if I am aware of them." Representative Comments on Unfair clauses: "A truly unfair contract indicates a firm that is basically unfair, and no amount of negotiation will change their attitude. So why bother. Go with the good guys and let the bad guys suffer as your competitors." "We walked from two companies that want a hybrid setup - house accounts to I or 2 direct people. We would get distributors and small accounts. This doesn't fit us." "After 21 years, our number one line changed their contract with very unfair clauses. We were told the contract was nonnegotiable, and to sign it or they would find a Representative who would. They take total control of our line acquisitions. All lines are considered competing because they are competing for our time. They can refuse our taking on any new line and demand that we drop any current line. Also we had to agree to binding arbitration giving up all rights to sue them in court. This line accounts for 86% of our income and they know it!" "I have a contract on my desk. It will require pioneering, but has promise. It has a 30 day clause on payment on open orders. I will not take it on unless they agree to payment on backlog." "Non-compete clause for one year if terminated is unethical. They shouldn't be able stop a person from making a living." "The Representative doesn't have an account until he takes the order, and no commission when an order comes in direct." "National accounts not included." "I can't remember the time when a principal wanted us and nobody else. When we procure a line we always discuss unfair contract provisions but cannot push so hard that we might lose the line. However, we cannot tolerate house accounts; not getting our complete territory, or inclusion of areas we do not normally cover." "Our largest principal wanted us to promote a new product at a reduced commission rate. We declined and they finally agreed to standard commission." "I turned down a line twice when they insisted on exclusive rights to make any customer a house account. A lesser Representative took the line and lost several big accounts plus major revenues. He resigned."

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NAFEM • MAFSI Principles of Decision General Comments by Manufacturers: "We have made allowances for additional financial support for new representatives. This was a temporary addendum with a specified expiration date. We also have written an enhanced contract for established representatives who meet certain criteria.â€? “It was written in response to representative requests, but the factory decides who qualifies and how to enhance the standard contract." "Contracts are good things! They should be the guide in disputes. Involve representatives in creating a good contract. Representative Councils can help put together a contract that is effective for both representatives and manufacturers." "We are just about to end our 5th year. Our sales will be in excess of $40 million. We are also very profitable. We think our great success is due to our great sales force and our Representative partnerships. Every decision has an element of building increased share of mind - and it is vital to our success. It sure seems to be working!" "Our representatives are the foundation of our selling effort. We provide strong engineering and inside sales support to help close business. Reporting is minimal, so more time can be spent in the field. We believe contracts are not of great importance. Sign it and put it in the drawer. If representatives could sell as well as they interview a handshake would suffice." "Jack, this is an interesting topic and I am looking forward to the results. If you want a copy of our contract, let me know." "Contracts should be shorter and clearer, without the "legalese", and should be agreed to by both parties. Manufacturers should be willing to negotiate contract terms because the more comfortable the representative is with the contract, the greater will be the push for the manufacturer's line." "We only make changes due to extreme circumstance. We typically do a lot to help our representatives as a normal course of business. I try to help them understand us a little better and try to work with them in some other way rather changing the contract." "We have good Representatives who are fair and honest business people." "You have to be open-minded because the way companies do business is rapidly changing. This is affecting the way representatives have to sell, and if there are points in their contract that are hindering them, they should be able to approach you without fearing your wrath or the loss of the line." "I am willing to listen, but try to discourage changes. If a Representative is unhappy, they should consider dropping us, as an unhappy representative does neither party any good." "Our representative contract was developed in close cooperation with the Representative Council. So many questions never arise. I feel the contract we have is very fair, as my representatives agree, so I don't negotiate."

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“Frankly Speaking" By Jerry Frank Jerry S. Frank (B.S., M.B.A.)is President of IMA Inc., Management Consultants since 1958. He is co-author of "THRIVING WITH REPS", the authoritative bible of marketing through Representatives. (Published by MRERF in 1992) His clients include multi-billion dollar world wide firms, start-up companies, and numerous representatives. He can be reached at IMA 16244 Dorilee Lane, Encino, CA 91436 - Phone(818)783-4461 Fax(818)386-1945. I was fascinated as I read through the returns from Manufacturers and Representatives expressing their feelings about some of the common provisions of Contracts. The majority of Manufacturers and Representatives seem to agree, but there cases where they are at loggerheads. Both would like contracts that are fair for all Representatives. They may not always be exactly identical, but in some cases may contain some slight differences beneficial to both the Representative and the Principal. Payment is one area where I believe Manufacturers who pay commissions after they collect from the customer might reexamine their system. The Manufacturer's credit department makes the decision on granting open account terms. When they go with customers who are slow pay, it places a severe cash flow burden on the Representative. It is also de-motivating if the Representative salespeople have to wait for their compensation. On the other hand, Representatives should recognize that extended termination notices handcuff Manufacturers. If the Manufacturer pays commission on the backlog, it clears the boards and answers one of the Representative's most serious complaints. There are exceptions, of course, such as the Manufacturer who tells us that a lot of work in installing equipment and training customers is needed by the new Representative. Also, if the manufacturer is asking the Representative to make substantial investment by adding people, longer protection could be called for. I like the idea of those Principals who use Rep Councils to help refine Contracts so they are of the maximum benefit to both. I have no quick answers on the subject of house accounts. It might be difficult for a manufacturer to obtain a top notch Rep with house accounts or the right to establish house accounts. The accounts are usually the customers where the Rep is spending most of his time. He will still be calling on them for his other lines, and he needs the income from them to pay for the high cost of calling on smaller accounts. It is often de-motivating and remains a large problem. Many trade associations have sample Contracts which have been developed by industry committees of Manufacturers and Representatives. Usually these have a lot of options which prove helpful to a manufacturer. It was interesting to read between the lines. Many Representatives will accept contracts without trying to negotiate provisions they feel are unfair. They fear starting off on the wrong foot, and risk losing a line they really want. The manufacturer does not hear their feelings. In fact, he might even agree with them. He surely would not want anything standing in the way of enthusiastic support by the new Rep. The Rep, on the other hand, never gets to hear the reasons for clauses he doesn't like. If he did listen to the Manufacturer, he might understand why they are necessary. By talking frankly, and listening to each other with open minds, much can be accomplished. No relationship can blossom properly by holding back from each other. The most successful Manufacturer/Representative relationship results from a completely open and honest exchange of opinions on all key issues. Reprinted from Better Repping, Copyright 1995, Berman Publications, 11718 Barrington Court #341, Los Angeles, CA 90049-2930, (310) 472-4039; Fax (310) 472-4839. All rights reserved. Reproduction without permission is strictly prohibited

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THREE STAGES IN THE LIFE OF A MANUFACTURERS’ REPRESENTATIVE AGREEMENT by Randall J. Gillary, Attorney Editor’s Note: MANA member Randall Gillary is an attorney who represents a number of agents who sell to the automotive industry. In his practice, he sees many situations where agents are either poorly protected in terms of a contractual agreement, or they have no contract with their principals at all. In this article, he explores a process by which agents can move step-by-step to having an agreement which not only outlines the rights and responsibilities of both parties, but which protects the agent when faced with a termination issue. We do want to point out that many attorneys use the MANA contractual guidelines as they create agreements for their clients. As Mr. Gillary points out, by identifying the three stages of an agent-manufacturer relationship, you can create an agreement that clearly spells out the relationship. There are three key states in the life of an agreement between a manufacturers’ sales agent, or representative, and his principal. I refer to these as the Negotiation Stage, the Administration Stage, and the Termination Stage. All three of these stages are important to the manufacturers’ sales agent.

Negotiation Stage The Negotiation Stage is where the manufacturers’ sales agency and its principal first begin to discuss the possibility of entering into a relationship. It is important for you to remember that when having these initial discussions with a prospective principal where you are attempting to convince the principal to hire your agency, you must also negotiate a good agreement for yourself. I have seen on too many occasions where manufacturers’ sales agents have given their principals an economic incentive to terminate them when the agents have become successful. This is of particular concern in the automotive industry. A salesperson may procure a purchase order for a part which may be in production on an automotive assembly line for 4 to 7 years. If your contract contains a provision that the principal may terminate you in 30 days and pay you commissions for 30, 60, 90 days or even one year, then in most cases you will be selling yourself short. Most automotive sales representatives are working on obtaining business which will not even be in production for 2 to 3 years. If you obtain a $10 million order and the parts are not going to be in production for 2 years, in some cases it is possible for your principal to terminate you and pay all of the post-termination commissions under your agreement before production begins on your big order. This is obviously not a very advantageous position for a salesperson to be in. You should be sure that all termination payouts begin from the start of production with regard to any orders you obtain. The length of the payout depends upon the particular industry. In the automotive industry you should always strive for the life of the part. As indicated above, it is important for the manufacturers’ sales agent to remember that in addition to being an effective advocate for your principal, you must also be an effective advocate for yourself. This means that you should consider having a discussion regarding termination during the negotiation process with your principal. Obviously, this is not always an easy subject for a principal and an agent to address. In part, this is due to the fact that in order to be an effective salesperson you must accentuate the positive at all times. Discussing termination deals with the more negative aspects of the relationship, i.e., the end of the relationship. This can be uncomfortable but it generally should be addressed. There are exceptions, however, which are discussed below. During the Negotiation Stage, it is important to remember that it is not always necessary for you to have a formal written contract drafted by a lawyer. I would say that a formal written contract which contains a good posttermination commission payout is the most ideal situation for the manufacturers’ sales agent to be in. Most principals will not agree to this, however. I would be the first to admit that lawyers have a tendency to screw up deals almost as often as they help to consummate them. It is not always advisable during your initial discussions with a prospective principal for your agency to openly get the lawyers involved. In some cases, I will advise my clients to merely have a letter agreement which may be signed by both parties. In other cases, a letter written by the sales representative confirming the terms and conditions of the representation is sufficient.

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NAFEM • MAFSI Principles of Decision It is important for you as a manufacturers’ sales agent to have a close relationship with an attorney who understands the manufacturers’ representative business. Unfortunately, many lawyers who receive a license to practice law feel that they can handle any legal problem which happens to come their way. This is just not the case. It is important for your attorney to understand your business, the manufacturers’ representative business. I would definitely recommend that you make it a point to know an attorney who spends a significant amount of his practice in representing manufacturers’ sales agents. During the negotiation stage with your principal, it is important for you to have close communication with your lawyer. In almost all states there are statutory provisions which mandate written contracts between agents and their principals.

Administration Stage The second stage in the life of a manufacturers’ representative agreement is the administration stage. This occurs after the contract has been executed and you begin representing your principal. There are several matters which should be kept in mind by the manufacturers’ sales agent during this stage. First of all, it is important for you to be aware of the status of your relationship with your principal. Is the principal satisfied with your performance? Do you believe that he is planning on terminating you, appropriating your accounts, and going direct? There are few things more devastating to the manufacturers’ sales agent then to work for several years in building up sales for your principal only to have the principal terminate the relationship. This is one reason why it is important to have a liberal post-termination commission payout because this may discourage the principal from terminating you when you become successful. If you have a good relationship with your principal then you should be able to notice any changes which may be foretelling a significant alteration of your relationship. Typically, I am quite suspicious of the following: 1. Detailed reports so your principal knows exactly who your contacts are. 2. The hiring of a sales manager who is there to “help you.” I am especially concerned when the sales manager begins going on sales calls with the agent and I am even more concerned when the sales manager begins making sales calls without the agent. 3. When the principal begins hiring direct salespeople in other territories even though they may be assuring you that it will never happen in your territory. 4. A merger with another manufacturer who has an existing in-house sales force. In many cases, it is the commission money to be saved by terminating the salespeople which makes such a merger profitable. 5. Unilateral commission reductions. 6. Appropriation of accounts by the principal. If you find that it is necessary for you to either agree to a temporary commission reduction or to the appropriation of an account, it is important that you document that agreement in writing. You should confirm that the commission reduction is temporary until sales improve or that the appropriation of the account is a modification to your agreement but only as to that account. It is most important at all times during the negotiation and administration stages of your relationship to control the record. You must send confirming letters regarding major meetings dealing with your relationship as well as confirming letters relating to any modifications of your agreement. Whoever controls the record has the advantage in the event the matter ever reaches the litigation stage. Controlling the record does not only relate to modifications of your agreement. It is also important for you to document your successes. If you secure a large order, don’t just put the order in an envelope and mail it to your principal. Send a cover letter which may be something like the sample on the opposite page, bottom left. Hopefully you get the idea that you should remember you are not only a salesperson to your customer but you must also be a salesperson to your principal. You should always be selling.

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Termination Stage Hopefully you have been able to see the writing on the wall and the termination is not something which hits you like a ton of bricks. Once you start having suspicions that your principal wants to terminate you, you should seek legal advice immediately. The correspondence and communication which occurs toward the end of a relationship is extremely important. There should not be any letter which goes back and forth between you and your principal during this time which is not carefully reviewed by your attorney. In some cases, you may feel that your principal is trying to force you to quit. You may wonder if you should quit rather than wait to be terminated. In general, my opinion is that you have a stronger commission claim if you are terminated rather than if you quit. I would generally suggest that you resist the urge to quit even though your principal may be trying to make life very difficult for you. If you are notified that your relationship is terminated there are three key rules which you should keep in mind at all time: 1. Don’t agree to anything without talking to your lawyer. 2. Don’t cash any checks which contain restrictive endorsements on the checks. If the check says, “In full and final payment or settlement of all claims”, this is a restrictive endorsement and you should not cash the check. If the check contains any language that purports to limit your rights in the event you cash the check, take it directly to your lawyer. 3. See your lawyer ASAP. Many states, if not all, now have Commission Acts which provide for penalties including attorney fees in the event the principal does not pay commissions which are owed to the agent in the event of a termination. Accordingly, you should never attempt to negotiate any kind of a buyout or settlement without having the matter reviewed by a lawyer.

Final Thoughts The most important thing for you to realize as a manufacturers’ sales agent is that you must be a salesperson at all times and you must not ever sell yourself short. I have seen salespeople who have been able to obtain purchase orders for millions of dollars but cannot have a heart to heart discussion with their principal about termination. Additionally, it is important at all stages of the relationship with your principal to control the record. Be sure that you document the following in writing throughout the course of your relationship: 1. Key provisions of your agreement. 2. Significant meetings and discussions with your principal. 3. Your successes. Finally, if you get terminated, hopefully you have already been in contact with your lawyer. If you have not, see your lawyer immediately and don’t sign anything and don’t agree to anything without legal advice. Reprinted from Agency Sales Magazine, Copyright 1995, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited

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HOW MUCH CAN YOU INFLUENCE THE USE OF SALES REPS? The case of Wal-Mart or other dominant buyers telling its vendors that it would not do business through independent sales representatives has received a lot of attention from time to time. Manufacturers' representatives have maintained that the practice is illegal, but little has been printed in the national media how it is illegal, or why legal action is not more prevalent. This article outlines the legal issues, as they apply to the contractual relationship between vendor and its sales representatives, and the potential legal consequences of a customer's trying to influence that relationship. While we may not always assert our legal rights, it is wise to understand what your legal rights (and risks) are. If a third party (such as a customer or dominant buyer) influences the manufacturer's decision to terminate the independent sales representative, that third party may have unlawfully interfered with a business relationship. An agreement or combination to induce a party not to deal with a sales representative is an actionable wrong. Under state court decisions, a person who induces another not to enter into or continue a business relationship may be liable for harm caused and the damages incurred. The law recognizes the right to take legal action for both interference with contractual relationships and for interference with prospective economic advantage. The third party may also be subject to punitive damages. If that person "intentionally and maliciously" interfered with the representative's relationship with a manufacturer, a court may also award punitive damages. Involvement of a third person may create antitrust problems, too. Some actions by buyers in dealing with no-representative policy in dealing with manufacturers can be legally dangerous. While there is no legal prohibition against direct selling, there are legal prohibitions against interference with the right of contract, unlawful price discrimination and concerted refusals to deal in order to stifle competition The manufacturer does have the right to select whom it will or won't do business with. Even if the manufacturer has a contractual right to terminate, though, and there are no statutory impediments to a termination, that does not end the inquiry. One must next determine whether or not the termination violates antitrust laws. The use of monopolistic buying power to induce a manufacturer not to deal with a particular sales representative is within the prohibitions of the Sherman Act. When a purchaser exercises its coercive economic pressure to bring about a concerted refusal to deal which results in harm to the sales representatives business, all the parties involved in such concerted action may be held legally responsible. Liability for wrongful termination under the antitrust laws can be substantial. A terminated sales representative harmed by concerted action to remove it from access to a particular market or by conduct interfering with contractual relationships can recover three times its actual money damages, plus attorneys' fees and costs of litigation. Although the sales representative is acting as an agent of the manufacturer and the manufacturer can basically deal with the agent as it would an employee, there are limitations to this principle. The representative cannot be used to perform tasks that the manufacturer itself would not be allowed to perform under law. For instance, a part of a sales representative's commission cannot be passed on to the buyer. Such payments are prohibited by law because they represent a means by which a manufacturer could grant to a buyer a concealed discriminatory price. The law permits the payment of compensation by a manufacturer to its agent for services rendered. It does not permit payments by the sales representative, directly or indirectly, to the buyer. Such an act is unlawful price discrimination. Although the constraints on the use of sales representatives may be somewhat less than those on distributors, a manufacturer still must use care. As the representative is asked to take on more of the functions of a distributor, the distinction between the two diminishes, and the treatment of the relationship by a court tends to become more strict. if the representative has made an investment in inventory, physical facilities, goodwill, or uses the manufacturer's logo on its business cards, the ability to terminate the representative maybe restricted.

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NAFEM • MAFSI Principles of Decision The best solution to termination by either party is a commercial one. Under a commercial contract, the two parties either can agree to termination conditions or salvage the relationship without legal action or arbitration. In a successful manufacturer-sales representative relationship, the parties should be able to resolve these matters reasonably, free of outside influence. As third parties, customers must always be careful about the ways in which they might be construed as outside influences.

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A CAREFULLY PREPARED CONTRACT CAN NOT ONLY SAVE TIME BUT ALSO COSTLY LITIGATION A carefully prepared contract between a representative and manufacturer not only informs both of each other’s involvement in the relationship, but can also reduce potential disputes with regard to compensation, product/liability indemnification, evaluation and other issues. Here are several examples which may go a long way in helping you avoid the "trouble spots" when it comes to developing these contracts.

Compensation Contracts need to outline, in specific detail, the baseline compensation, as well as the "above and beyond" compensation provided for extra services. That can be spelled out in language as such: Principal agrees to compensate representative on all gross sales shipped net of trade promotions and allowances by principal in the territory as indicated (catalogs, product samples, price lists, promotional material, etc.). Such compensation shall be computed on the price of the merchandise or products sold before discounts and allowances are figured regardless of the actual items shipped by the principal or received by the customer. Compensation shall be paid promptly within 15 days after the end of the each month by electronic funds transfer (EFT) with simultaneous electronic confirmation send directly to the representative. A delinquency charge of 1.5 percent per month (but not in excess of the lawful maximum) may be added on any amount past due. Principal also agrees to compensate representative for incentives and special services as indicated.... These services may include: • • • • • • • • • • •

local marketing programs/special events category management services special end user work or coverage introduction of new products invoicing sales of consigned stock trade shows test marketing demonstrations and start-ups extra services or extra reports free goods or special allowances assisting product recall

Keep in mind that some contracts call for compensation on a project-per-account fee, an hourly basis or on a per item basis for selected value-added services.

Diverting Representatives need to prepare themselves for diverting. This occurs when a product is sold by your principal to a customer in a market who, in turn, then transfers the product to a different customer and/or marketing area. Both parties agree to abide by the principal/representative policy of diverting product as described. if representative orders any product proven to be knowingly distributed into another territory, all commission will be forfeited and representative will be responsible for breach of contract. If principal diverts product into representative's territory, principal will be responsible for all commissions to representative and will be deemed to be in breach of contract for all associated fees.

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Product Liability Indemnification This establishes the liability of principal for any damage claims relating to product while under representation from the sales representative. Principal agrees to defend, hold harmless and indemnify representative from any and all loss or damage, costs and expenses, including legal fees, incurred by representative from any claim or action made or filed against representative claiming loss or injury of any nature whatsoever, resulting from any defect in any merchandise, or the purchase or use of any product manufactured, produced, or distributed by principal. Principal shall furnish representative with a certificate of insurance listing representative as an additional insured within 30 days of execution of this agreement.

Evaluation of Performance This statement establishes the schedule for any formal evaluation processes. The criteria are used to evaluate both representatives and principals. An example of criteria is: sales vs. quota. The performance of each party of terms of this agreement shall be evaluated every 12 months or sooner as to assure all responsibilities and objectives are being upheld. Within 10 days of every evaluation, each party should notify the other in writing of their concerns.

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NON-COMPETITION PROVISION NOT ENFORCEABLE AGAINST SALES REPRESENTATIVES By Brad Parcells, with legal assistance from Steven Mitchell Sack and Gerald Newman Manufacturer/representative agreements usually provide that the sales representative is an "independent contractor." Although "independent," some manufacturer/representative agreements contain non-competition provisions that prohibit the representative, after termination, from representing other principals in the same line of business as the former principal or from selling to the former principal's customers for a set period of time after termination, such as six months or one year. Are such non-competition provisions enforceable? The Florida court in the case of Amedas, Inc., vs. Brown concluded that because a terminated sales representative was an independent contractor, the non-competition provision was not enforceable against the representative. In Amedas, the principal, Amedas, Inc., and the representative, Brown, entered into a sales representative agreement that provided that Brown was an independent contractor. The agreement also contained a non-competition clause that, among other things, stated: "Representative further agrees that for a period of one year after the termination of this agreement, whether with or without cause, he, will not for himself or on behalf of anyone engage, in a similar line of business, directly or indirectly, or solicit business from any customer of Amedas..." After his termination and within the one-year period, Brown solicited a customer of Amedas. The principal sued the representative, seeking to enforce the non-competition agreement. The court held that because the representative was an independent contractor and not an employee, the noncompetition covenant was a restraint of trade in violation of public policy and, therefore, unenforceable. The critical issue was whether the sales representative was acting as an employee or an independent contractor, as previous rulings had established that non-competition provisions were enforceable against employees. The court stated that the main consideration in determining whether a person is working as an independent contractor or as an employee is the right to control the method of doing the work. If a person is subject to the control or direction of another as to the result only, then that person is an independent contractor. In this case, the sales representative set his own schedule, contacted prospects of his own choosing, could not bind the principal to any contracts or orders, was financially accountable for inventory and product literature to the principal, was paid commissions and not a salary, and did not have Social Security or federal taxes withheld from commissions received. Accordingly, the representative was found to be an independent contractor, and the noncompetition covenant was unenforceable. Properly drafted non-competition covenants may be enforceable, but such covenants are not favored because they are considered restraints of trade. They are given close scrutiny by the courts and must be reasonable in time and geographical scope. Even so, non-competition clauses may be unenforceable if the sales representative can be terminated at will and without cause, or as the court in Amedas held, if the sales representative is an independent contractor. There is no universal rule regarding the validity of covenants not to compete, and the law in each state must be examined to determine the enforceability of a non-competition covenant against a sales representative. Nevertheless, as the court's ruling in Amedas makes clear, the fact that the representative voluntarily signed an agreement containing a non-competition provision does not mean ' that it is valid and enforceable against the representative.' (Please note.- Representative agencies with independent contractor contracts of their own also fall into this ruling.)

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INDIANA TAKES THE LEAD IN PROTECTING AGAINST OPPORTUNISTIC TERMINATIONS By Brad Parcells, with legal assistance from Steven Mitchell Sack and Gerald Newman When a representative agreement terminates and the parties sort out what went wrong, the representative frequently ends up charging the principal with opportunistic behavior. This means that, in the representative's eyes, the principal has unfairly taken advantage of the representative's work in developing the territory. just when the large orders begin coming in, the principal may reduce the commission rate, designate the major customers as house accounts, or terminate the agreement completely. As the representative sees it, the principal took these steps to deprive the representative of the post-termination commissions that were earned through the representative's pre-termination sales efforts. The principal, of course, is likely to view the situation differently. In order to meet a competitive bid, the principal may cut the commission rate, or principal may feel that the representative has not serviced the customers adequately, or is being overpaid because of the magnitude of the orders. Because of their fundamental disagreement over who did what and why, the parties may well end up in a lawsuit. Although the major of states have passed laws to protect sales representatives' commission claims after termination of a contract, only a few states have statues that specifically define parties' rights in the event of an opportunistic termination. Recently, a federal court judge explained how the Indiana statute applies when a sales representative alleges that the principal terminated the representative in order to deprive the representative of commissions. The case was a suit by an Indiana sales representative against a Wisconsin principal. The representative proved that it had procured two multi-year contracts from the principal's (and his) customer, and the principal had terminated the representative because the principal did want to pay commission on the sales that would flow from those contracts. The representative sued for just under $4 million. The representative agreement specified that it was to be governed by Indiana law. Although the exact wording of the Indiana statute is rather technical, it provides that when a principal has terminated a representative in order to deprive the representative of future sales commissions, the representative is still entitled to recover commission on any written orders that the principal had accepted prior to the termination. This would still be the case even if the parties' contract stated otherwise. The principal moved for summary judgment, contenting that the statute was only intended to apply when the parties had made an agreement under an arrangement known as a "unilateral contract," which rarely arises in the sales representative/principal situation. The court disagreed and held that the sales representative was entitled to protection under the statute. It explained the legislative purpose with the following language: 'Furthermore, the obvious purpose of the statute is to prohibit a manufacturer from avoiding the payment of commissions under circumstances where a sales representative has fully performed and obtained an order which would otherwise entitle it to the payment of a commission. The statute is designed to prevent opportunistic behavior by the principal which would allow it to obtain the services of the agent without payment. Certainly, the relationship in this case might permit such behavior and is covered by the language and intent of the statute.' Following this ruling and based on the court's guidance, the parties were able to settle their difference at an agreeable figure. This may be the first case that describes opportunism by name and holds that a sales representative protection law is intended to prevent opportunistic behavior by principals. It is also the first case decided under Indiana sales representative law. We highlight this case because it explains the "obvious purpose" behind the Indiana statute. We consider the Indiana sales representative protection law to be one of the better laws designed to protect sales representatives, and we believe that legislators of other states would be well advised to review this case and the Indiana statute in order to consider whether a similar law should be passed in their own state.

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THE ABC’S OF ASSUMPTIONS IN CONTRACTS by Gerald G. Salmen In our daily lives, we all make and rely on assumptions. We assume our car will start, our computer will work and so on. Assumptions make our lives easier in many ways. But we also know that we cannot assume that our cars and computers will always work when we need them. So we practice preventive maintenance and have some ideas of alternatives in case of failure. Unfortunately, many reps make assumptions about issues in their contracts with principals. Reps tend to be optimistic and, like most of us in our everyday lives, willing to make and rely on assumptions. But when it comes to contracts, remember your ABC’s: Assumptions Are Almost Always Bad and Costly. Here are some bad and costly assumptions I have found reps making: I must be the exclusive rep because I have a territory or assigned accounts. Bad assumption. Just because the principal assigns a particular territory or accounts to you does not mean that you are and will be the only one who can make the sales calls. If the contract does not describe you as the “exclusive” rep in the territory or for the accounts, the principal likely has the legal right to assign other reps for the same territory or accounts. While multiple reps may confuse or antagonize the customers, it has happened when some principals want to foster a survival of the fittest competition. Moreover, you cannot always assume that even the word “exclusive” means that you as the “exclusive rep” are the only one permitted to solicit the customers. Under the law of many states, the designation as “exclusive rep” only means that the principal cannot appoint another rep for the customers assigned to you. It does not mean that the principal itself cannot directly solicit the assigned customers. In other words, you may find yourself in competition with the principal. Indeed, the contract may provide in the commission payment section that you are not entitled to commissions on orders from assigned customers that result from customer contacts directly with the principal. Or you may find that the principal has the discretion to determine if you get a commission in such circumstances. You should review the entire contract and determine if the language as a whole makes it clear that you are in fact the “exclusive” rep and that you are entitled to commissions from assigned customer in all circumstances. Some contracts state the rep is the exclusive rep and has the “exclusive right to solicit orders even to the exclusion of the principal.” Some contracts state clearly that the rep will be paid a commission on all business from the customers. There are many ways to deal with this issue, but do not make bad and costly assumptions about it. My contract is for two years and either party can terminate the contract on 30 days’ notice, so I have a two-year contract that requires at least 30 days’ notice that it will not be renewed. Wrong assumption. If your contract states that either party can terminate the business relationship at any time (often “without cause”) on 30 days’ (or whatever) notice, you have a 30-day contract. You cannot assume that any stated term of a particular amount of years will be observed. Courts have repeatedly reviewed claims from terminated reps arguing that a stated term of time means that the contract must last for that time despite a clause that gives either party the right to terminate the contract at any time. Almost without exception, courts have determined that the notice of termination clause “trumps” the contract length clause and have permitted a termination before the end of the stated contract period. What can you do about this issue? Plenty. First, try to negotiate and include in the contract a fair post termination payment of commission clause so that the end of the contract does not mean the end of the money for the fruits of your efforts. Second, consider seeking a longer notice of termination period before the termination of the contract is effective. However, recognize that a longer notice period is not necessarily better for you in all circumstances. If your principal turns out to be a highquoter, a no-quoter or suffers from poor delivery or quality problems, you may want a shorter notice of termination period so that you can quickly move on to a more competitive principal. You may want to try to eliminate a “without cause” termination clause and only permit a termination “with cause.” Again, there are many ways to deal with this issue. The point is not to assume unwarranted conclusions about contract language or that there is one best and bullet-proof way to address this problem. Page 155


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If I build business for the principal, either I won’t be fired or the courts will recognize my efforts and protect me, so I’m not really concerned about what the contract says. This is one of the most costly and incorrect assumptions you can make. Courts tend to start with the contract between the parties and see what it says. Courts are reluctant to “read between the lines” in a contract or to determine what is “fair.” The reasoning is that if courts are free to go beyond the plain words of the contract to reach conclusions, what good is a contract if it can be rewritten through hindsight arguments about fairness? Here is what one court said about this issue: “Parties to contracts are entitled to seek, and retain, personal advantage; striving for that advantage is the source of much economic progress. Contract law does not require parties to be fair, or kind, or reasonable, or to share gains or losses equitably.... A deal’s a deal.” This quote should be strong enough medicine to dissuade you from the assumption that courts will protect you in all circumstances from what you believe is an unfair termination or an unfair contract clause. Certainly, there are often legal theories that, supported by the appropriate facts, permit you to make legal claims for unjust terminations and/or unpaid commissions. But you should never assume that the courts will ignore contract language or reinterpret it to treat you fairly. Be fair to yourself first and try to include protective clauses before you sign the deal or walk away from the relationship if it cannot be structured fairly at the outset. Remember your contract ABC’s: Assumptions Are Almost Always Bad and Costly. If you consider and negotiate and document reasonable clauses before you sign the contract, the schoolhouse will help keep you out of the courthouse. Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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THE IMPORTANCE OF A WRITTEN CONTRACT There are a number of important lessons to take away from a recent lawsuit between a rep and principal which settled for $l.1 million late last year, not the least of which is the importance of a rep obtaining a written contract that protects both commissions and territory. But, to fully understand what the rep went through, let’s follow his experience from start to finish. The rep in this case worked in his profession for 23 years. Specifically, he represented European manufacturers of kitchen cabinets and hinges. The involved principal is a multi-national organization, with a U.S.-based subsidiary in North Carolina. The customer in question is located in California, as is the rep. According to Chad Biggins, the Los Angeles, California- based attorney who represented the sales rep, “the case spun on the principal’s attempt to cut out the sales rep and keep his commissions. The rep, who pioneered the territory for the manufacturer by spending his own time, money and effort, was opportunistically terminated just when his years of hard work were going to pay off.” The relationship began in 1995, Biggins explains, when the principal learned of the rep and his abilities. At that time, the principal was an unknown company in America and had no idea how to market its products here. The rep agreed to represent the manufacturer’s products because he felt confident in his abilities and believed the products were well suited for the American market. He also trusted the manufacturer’s president and his promises.

A Childhood Story Before agreeing to the collaboration, according to Biggins, the rep told the president of the company a story that his father told him as a child. The story goes something like this: “God told a man that he will give him anything he wants. The man replied, ‘Anything I want?’ God said ‘Yes, anything you want. But anything I give you, I will give your neighbor twice as much.’ The man thought for a moment and realized if he asked God for $1 million, God would give his neighbor $2 million. Then the man said: ‘God, pluck out one of my eyes.’ “As the rep explained to the president, the moral of his father’s story is not to look at what others receive, but to focus on what you get out of a deal. Looking at what others receive just creates jealousy, envy and greed. Although the president understood at the time, eventually he not only became concerned over the rep’s commissions, the whole organization became so obsessed that the manufacturer plucked out one of its eyes and attempted to pluck out both of the rep’s.” Biggins continues that “The collaboration began with tremendous success, but eventually, in 1998, the contract between principal and rep expired. After it expired, the manufacturer expressed its interest in continuing the relationship, but a new written contract was not provided. The rep continued to perform even in the absence of the protection of a written contract because he trusted the president and felt confident the new contract was only a formality that should not stand in the way of business. Meanwhile, the rep continued with his primary objective ó closing deals and procuring programs. Months went by and the contract never materialized. All the while, the manufacturer reassured the rep that it would come and there was no need to worry. “By mid-1999, the rep was close to setting up a large-scale program with an important account when he realized that his commissions were unprotected. Because of the scale of the program and the price discounts required to make the deal happen, the manufacturer was attempting to dictate a commission percentage much lower than what was originally promised. The rep attempted to explain the economies of scale and other factors that negated the impact of the price reductions, but all his reasoning fell on deaf ears. “Thereafter, and upon request by the principal, the rep sent the president his full proposal on his program, including a request for confirmation of his commission and a renewed request for a written contract for himself. At that point, all support was withdrawn from the rep and the manufacturer gave him the ‘run around’ on his proposal.

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NAFEM • MAFSI Principles of Decision “Within a matter of weeks, the rep received a stunning termination letter which told him to refrain from contacting any of his accounts, that they were all now house accounts. Moreover, the letter directed the rep to contact the principal’s attorney if he had any questions. Not knowing where else to turn, and knowing he had been cheated and treated unfairly and unethically, the rep sought legal advice.” Biggins explains that the manufacturer denied that it owed any commissions to the rep. The manufacturer claimed that it terminated him for cause and had no continuing obligation to pay commissions. “The manufacturer’s position from the beginning was that with or without a written contract, the rep was not entitled to post-termination commissions, or if he was, the custom and his expired contract dictated his entitlement was only for 30 days.” The rep was then forced to sue the principal to protect his rights and right this wrong, continues Biggins. Through litigation, Biggins uncovered the fact that not only did the manufacturer move the customer to house-account status, he discovered records which revealed the principal’s “precise strategy” to remove the rep at zero cost. The process of discovery was no easy task, explains Biggins. “They fought us every step of the way; we had to file motions and do everything to uncover the truth. When we did, all our efforts were justified by what we found.” What they found was that the principal went about implementing its “precise strategy” with the customer’s knowledge and consent and with the understanding the customer would realize a better price assuming there was “no rep involvement,” explains Biggins. Once the principal and the customer reached a handshake agreement on their strategy, it was then that the rep was sent his termination letter, notes the attorney. Upon learning of this, Biggins continues, he “hauled the customer into litigation and requested a ruling from the court that the principal violated California law. The litigation strategy paid off. The judge agreed and declared that the manufacturer violated the law by failing to give the rep a written contract. At that point, the only thing left was a trial on the amount of commissions owed to the rep. The rep’s position was that he should receive commissions for the life of the program, while the manufacturer’s position remained, at most, he was entitled to 30 days.” According to the attorney, the customer soon threatened to terminate the ongoing relationship if the manufacturer didn’t get it out of the messy lawsuit. This would have devastated the principal, so the principal was forced to either pay the commission it fought so hard not to, or else lose the account. Wisely, the principal agreed to pay the commission, and then some, to the rep ó the one who earned it. Along the course of the proceedings, Biggins explains that several important points surfaced that reps and manufacturers ought to keep in mind when considering their business relationships. Manufacturers who are inclined to rid themselves of reps because it seems like a good idea at the time, had better think about that philosophy. “From a legal and a financial perspective, it may not pay,” explains Biggins. “Regardless if the rep actually closes the deal, if he’s done all the front end work, he may be entitled to his full commission. And, if the termination is done to avoid paying commissions, they may wind up paying many times more than if they paid commissions in the normal course of business.” Biggins adds that since the rep’s termination, all the accounts in the territory are now handled by a direct sales employee. “Since his termination, no new business has been developed in the territory.” In citing the latter point, Biggins offers the view that “independent representatives will often generate more business than direct employees. Reps are generally more inclined and motivated to make sales calls and provide more service ó the more they do, the more they earn.” “Reps and manufacturers should do all they can to avoid legal and court proceedings in their relationships, “ Biggins says. “That’s why written contracts are so important. If a contract exists and is lived up to by both parties, they won’t be calling us (lawyers) and that’s all right with me. Yet, both reps and principals can benefit immensely by having an attorney who is experienced with independent rep matters review their contracts before signing them or even help with the negotiations. The risk is that you may not really know what you are signing, even if you know what is fair.”

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NAFEM • MAFSI Principles of Decision Biggins notes that his reason for working with Agency Sales Magazine on this article is that “For a long time MANA has provided a wonderful communications tool for its membership ó both reps and manufacturers. I think it’s important to get the word out to both sides on issues such as this and to alert all parties to the risks for both reps and principals of engaging in unethical conduct. Not only is it unethical, but in many cases it is illegal for the principal and the customer to work in concert to establish a house account to the detriment of the rep who has done all the work. And, if something is illegal or unethical, chances are you’re going to pay the price in the long run.” “Reps who feel they have been cheated are usually right. My true desire is to make a difference and to help reps understand that they have to fight, and while this case resorted to litigation, many cases can be resolved, and the relationship can be salvaged as well. Reps should know there are steps they can take to protect themselves, and they must be willing to stand up for themselves, for the sake of all reps.”

The Rep’s View From his perspective, the rep in this case also came away with a number of important lessons learned. “I think one important aspect that other reps should realize,” he explains, “is that as reps we do have legal recourse in these situations. It was interesting that during the proceedings when I was talking to one of the opposing party’s experts, I asked him what he would have done in a similar situation. His answer was ‘nothing,’ because he believed he could have accomplished nothing. I knew it would cost me something to gain justification in this case ó but I felt it was worth it.” He adds, however, a big help in pursuing the matter came when he discovered two important things. “First, there are competent and talented attorneys to consult in these matters,” he notes. “Second, there is legislation in many states, including, thankfully, California, that protects the commission that the independent manufacturers’ representative has earned. I always felt there had to be some type of protection, but I never knew it existed in law until I began this process,” he explains. Then there are the lessons learned in the areas of ethics and morality, according to the manufacturers’ representative. “The way I was terminated was certainly in my view immoral, unethical and illegal,” he maintains. “But just as important, the principal’s entire strategy worked to his disadvantage and to the disadvantage of the customer. What they did affected their reputations and they both lost additional business ó business that my efforts could have brought to both of them. In addition, if I had stayed on the account, the customer would have received much better service than he could have received directly from the manufacturer.” The rep expresses his appreciation for the fact that a settlement was reached with the principal prior to going to court, but he adds, “I would have never reached a settlement if I didn’t show a willingness to go all the way ó regardless of the effort and cost. Several times along the way, we made suggestions that we were interested in a settlement, but they never agreed until the very end.” The rep stresses another important point from his experience. “The existence of a contract with your principal is very important. The law clearly states that if a manufacturer engages a rep to solicit business on his behalf, he is obliged to give that rep a contract. This is something that reps and principals alike must be aware of.” Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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TENDING TO YOUR COMMISSIONS—BEFORE AND AFTER THEY HATCH By Victoria A. Valentine By the time most reps reach an attorney’s doorstep, it is too late to advise them on how to present their strongest case to the court. Most of a rep’s ammunition is abandoned during the course of the relationship because efforts, issues and events (big and small) are taken for granted and not tracked. This article is meant to show the rep the value of documenting efforts so that he or she can be prepared to present a solid case for earned commissions, whether it is in negotiations with a principal or in court if a lawsuit is necessary. Generally speaking, the doctrine of procuring cause indicates that a sales agent may be entitled to commissions on customers or orders it was involved in procuring. The difference between an order and a customer is significant and must be recognized. In most cases, the courts have determined that a representative is usually not a procuring cause of a customer because the evidence does not support such a finding. Rather the agreement between the rep and principal is more commonly found to be for the procurement of business resulting in orders arising from the rep’s efforts. If you intend to get paid post-termination commissions on all business to a customer, even if that business is developed after termination, you should document that understanding. It is important that independent reps implement a system to document and track the efforts made to secure customers and/or orders. A rep should document important phone calls, meeting times, entertainment and other specific expenses used to develop business on behalf of the principal and memo the principal on the status of developing business. Although this task may seem daunting, it can be the ammunition that wins wars. For example, some rep firms choose to set up a file containing a running log of action taken regarding each part, product line, program, order and customer. Other reps may prefer to document by identifying efforts in a yearly calendar. Follow-up letters to customers and the principal relating to a rep’s efforts are also very useful. Remember to date all documents and save all confirmation of delivery if sent by fax or e-mail, etc. Also, when the relationship with the principal ends, even if it is on good terms, do not immediately dispose of the records relating to your efforts. Documentation should be kept for a minimum of seven years after the relationship ends if there is a prospect of issues relating to unpaid commission. A rep can never know if a situation may arise in the future that requires past documentation review to refresh a memory or prove involvement in procuring business. Whatever a rep does, first and foremost he should account for his efforts. When it comes down to a battle, the side with the best weapons wins, and thorough record keeping is a tremendous weapon. Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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REP DEFINITION CLARIFIED BY WISCONSIN SUPREME COURT Legal efforts by manufacturers’ representatives in Wisconsin were rewarded earlier this year when that state’s Supreme Court issued a ruling affirming the fact that the existing Wisconsin Sales Representative Act protects corporate sales agencies as well as individuals. The Wisconsin statute is similar to laws in more than 30 other states, often referred to as “Commission Protection Acts.” The fact that this ruling was handed down was very gratifying for several reasons, “ says Carole Bluem, executive director of the Wisconsin Association of Manufacturers’ Agents (WAMA). “For us there are a couple of reasons to be happy. First, it was primarily our members who worked to get that law into effect in 1998. Second, it lets us know that we didn’t drop the ball in regards to the question of a person vs. a corporation when the law was written. And finally, the decision in the case was written in such a manner that we don’t expect this challenge to come up again in the future. Everyone involved in this case deserves a pat on the back.” It is a great decision benefiting all reps. Bluem cited the financial support provided by WAMA members and by MANA as being instrumental in the successful outcome of the case.

Court Cites Reasoning As outlined in a letter written by WAMA legal counsel David Edquist of vonBriesen & Roper, S.C., the Supreme Court gave three reasons for its decision: “First, the Supreme Court looked at the plain meaning of the term “person” in the Wisconsin Sales Representative Act. The court noted that it has historically interpreted the term ‘person’ to include corporations. “Second, the Supreme Court adopted the argument that we had advanced on behalf of WAMA concerning the definition of the term ‘person’ in Section 990.01(26) of the Wisconsin Statutes. Section 990.01 supplies a number of definitions that are to be used elsewhere in the Wisconsin Statutes unless that definition is inconsistent with the ‘manifest intent of the legislature.’ We argued that Section 990.01 created a presumption in favor of including corporations within the definition of ‘person’ under the Act.” The attorney continued that the Supreme Court agreed, and held that the principal in the case failed to overcome the presumption (“it is neither ‘clearly apparent’ nor ‘obvious’ that the legislature intended corporations not to be included within the definition of ‘independent sales representative.‘“). Finally, the Supreme Court agreed with the argument that the principal’s interpretation “would lead to an absurd result.” Under the principal’s approach, “a sales representative could only take advantage of the Act’s protections if it gave up the protections of operating in a corporate form. The Supreme Court properly concluded that the legislature never intended to force sales representatives to choose between the two.” The attorney concludes with the view “We are pleased that the Supreme Court ruled as it did.” That’s a view shared by the associations and manufacturers’ representatives who were involved in the case. A final advantage of the Wisconsin Supreme Court ruling is that agents and manufacturers all over the United States may be able to rely on the court’s interpretation when questions arise in cases in other states. MANA’s president, Joe Miller, commented that this was a classic example of the positive results that can be achieved when national and local trade associations cooperate for the benefit of the profession. Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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Sales Management Time and Territory Management............................................................................................................... 163 Line Profitability Analysis .......................................................................................................................... 177 An Alternate Approach to Line Profitability Analysis ................................................................................. 185 Employee Performance Reviews .............................................................................................................. 190 Working with Independent Sales Representatives: Who They Are, What Motivates Them and What They Do .................................................................................................................................... 201 Better Repping Survey Reports - Share of Time - Share of Mind ............................................................ 203 Better Repping Survey Reports - Evaluation of Principals and Representatives ..................................... 211 Better Repping Survey Reports - Time in the Field .................................................................................. 215 Better Repping Survey Reports - Getting to the End-User ....................................................................... 219 How Manufacturers Can Gain the Rep’s Mind-Share (New) .................................................................... 227 Improving Sales Partnerships with Technology (New) ............................................................................. 230 Measuring the Manufacturer/Rep Relationship (New).............................................................................. 232 The Perfect Forecast in the Eyes of the Rep (New) ................................................................................. 236

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TIME AND TERRITORY MANAGEMENT By Raymond M. Cusato Basic Concepts There are several basic rules of being a good time manager: • • • •

Learn to write things down, i.e., don't rely on your memory; Never repeat an activity, i.e., do things only once; Do two things at one time; Learn to say no, i.e., set priorities.

Your primary time objective as a manufacturers' representative should be to schedule your calls to secure maximum business. To accomplish this goal, you can take five specific action steps: 1. Determine how far you are from closing each account that is included in your plan for making quota. 2. Establish definite priorities regarding which prospects to call on and when; 3. Identify alternative calls you can make in the event of canceled or abbreviated calls. 4. Allow yourself enough time to accomplish your objectives on each call. 5. Put your call plan in writing. The more careful your planning, the more efficient your itinerary will be. Think through what you must accomplish in a sales call and estimate how much time it will take. If you do so, you won't have to rush through a call or be late for the next appointment. To meet your ultimate objective - the sale - you should define immediate objectives for each sales call. To determine exactly what you must or want to accomplish during a call, analyze the information available to you, e.g., what information you and the prospect will have to exchange; what the best solution is to fit the prospect's needs as you see them.

General Time Planning Suggestions More efficient, more productive time and territory management will not and cannot be achieved without concerted, consistent effort. Following is a collection of ideas for becoming a better time and territory manager that have been used by manufacturers' representative salespeople and other sales personnel throughout the nation in a wide variety of industries. •

Before you leave home or your office, know exactly where you are going and why.

Do your planning and paperwork before and after the prime selling hours of the day and on weekends. Save the prime hours for face-to-face customer contacts and important telephone calls.

Schedule your time ... monthly, weekly and daily. Invest in a good calendar and time management system that will work for you and improve your effectiveness.

Determine the best time to interview certain buyers. Schedule calls and appointments for these times and then build your other calls around these priorities.

Your primary objective should be to increase your selling time. Don't fall into traps or bad habits about when you can and cannot call on buyers. Your challenge is to extend your selling day by finding times to call on your prospects. Know when your customers are available to see you.

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Fill in your schedule with warm prospecting calls. However, prioritize your call activity. Always ask yourself, '"What is the best use of my time right now?"

Keep office routines to a minimum. Don't let them keep you from making that first early morning call each day.

Screen prospects. Call on those who are most likely to become steady, repeat customers.

Base frequency of calls on potential rather than convenience. Give more attention to your accounts with higher profit and higher sales potential.

Keep in regular contact with your office to get word of changes or developments that might affect your schedule, save a wasted trip, etc.

Firm up the next day's schedule as you go along (confirming arrangements, new appointments etc.).

If waiting is inevitable, catch up on your planning, record keeping and reading of product literature.

Be flexible enough to absorb changes and cancellations. Be ready with substitutions or back-ups.

Study each day's performance. Where could it be improved? Take steps to make those improvements.

Travel Time •

Reduce your travel time by routing your daily calls to minimize (or avoid) backtracking and crisscrossing and to insure that no high priority calls will be left outstanding at the end of the day.

Plan each day's calls to concentrate your effort in areas that take a minimum of travel time.

If needed, use a map to lay out your accounts and your call schedule. Construct a good route plan that takes into account congested traffic in certain areas at certain times of day. You'll find that the most efficient route plans are based on a straight line, circle, concentric circler, or a cloverleaf.

Plan your travel, meals, breaks and telephone calls when your customers are not available to see you.

Personal Time •

Watch the coffee breaks, the long meal times, the slow starts in the morning, and the early quits in the afternoon.

Avoid the impulse to goof off after a good sale or good interview, or after a string of unprofitable ones.

Don't succumb to bad weather blues. Keep making calls.

Don't put it off. The job, project or telephone call that is put off for no good reason seldom gets better or even done at all.

Page 164


NAFEM • MAFSI Principles of Decision WEEKLY REMINDER ____/ ____/ ____ thru ____/ ____/ ____

MONDAY 1

( )

_________________________________________________________________________________

2

( )

_________________________________________________________________________________

3

( )

_________________________________________________________________________________

TUESDAY 1

( )

_________________________________________________________________________________

2

( )

_________________________________________________________________________________

3

( )

_________________________________________________________________________________

WEDNESDAY 1

( )

_________________________________________________________________________________

2

( )

_________________________________________________________________________________

3

( )

_________________________________________________________________________________

THURSDAY 1

( )

_________________________________________________________________________________

2

( )

_________________________________________________________________________________

3

( )

_________________________________________________________________________________

FRIDAY 1

( )

_________________________________________________________________________________

2

( )

_________________________________________________________________________________

3

( )

_________________________________________________________________________________

SATURDAY 1

( )

_________________________________________________________________________________

2

( )

_________________________________________________________________________________

3

( )

_________________________________________________________________________________

SUNDAY 1

( )

_________________________________________________________________________________

2

( )

_________________________________________________________________________________

3

( )

_________________________________________________________________________________

Page 165


NAFEM • MAFSI Principles of Decision

CALL ORGANIZER CUSTOMER

Objectives

DATE

Results

Page 166


NAFEM • MAFSI Principles of Decision

SALES CALL REPORT Date ___________________________________________ Sales Call __________________________________ _______________________________ Address ___________________________________ _________________ City _______________________________________ ____________________________________ State / ZIP _________________________________ ________________________________________ Product Line _______________________________ _______________________ Territory No ________________________________

Branch/Region/Zone Reporting Period: From __________ to Date Submitted Report No. Page ___________________ of

SUMMARY Sales Call Via

Sales Call Was

( ) Phone ( ) In Person ( ) Other ___________

( ) Cold Call

__________________________________________

( ) Follow-up from call made on _______________

__________________________________________

( ) Other _________________________________

Mailing List Action

( ) Lead from _________________

Mailing List Addition/Drop

( ) Add to mailing list.

Name

( ) Drop from mailing list.

Title

( ) Send literature __________________________

Company _________________________________

__________________________________________

Address ___________________________________

( ) Other __________________________________

City _______________________________________

__________________________________________

State/ZIP __________________________________

Firm Is

Firm Is

( ) Regular customer.

( ) Excellent prospect for

( ) Previous customer.

__________________________________________

( ) Inactive customer.

( ) Potential prospect for

( ) Unhappy customer.

__________________________________________

( ) Other __________________________________

( ) Not a prospect.

__________________________________________

( ) Other _________________________________

Page 167


NAFEM • MAFSI Principles of Decision

Contacts within company:

Rank _________

_________________________________ Title _____________________ Phone

_________

________________

_________

_________________________________ Title _____________________ Phone ________________ _________________________________ Title _____________________ Phone ________________ Signature __________________________________

Follow-up Date _________________________________

Page 168


NAFEM • MAFSI Principles of Decision

MONTHLY SALES PROJECTIONS Salesperson or Department _________________________________________ Date _____________________

NEW BUSINESS

Goal

Actual

REORDERS

Var.

Goal

JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER

YEAR COMMENTS

Page 169

Actual

TOTAL.

Var.

Goal

Actual

Var.


NAFEM • MAFSI Principles of Decision

SALESPERSON’S ANALYSIS ______________________________

Date

Salesperson _______________________________________ Territory ______________________

FORECAST SALES & PROFIT Gross Sales Gross Profit % Gross Profit to Gross Sales Net Profit % Net Profit to Gross Sales SELLING COST Salary Commission Expense:

Auto Travel Telephone Entertainment Other

ACTIVITY Total Days Worked Number of Calls Made Avg. No. of Calls per Day ACCOUNT INFORMATION No. of New Accounts No. of Accounts Lost No. of Accounts at Qtr. End No. of Potential Accounts

Page 170

ACTUAL


NAFEM • MAFSI Principles of Decision

TERRITORY POTENTIAL SHEET

Territory ______________________________________________ Date ___________________________

PRESENT

C U S

TOTAL MARKET

T O M

COMPANY SALES

E R S

SHARE

P R O

TOTAL MARKET

S P E

COMPANY SALES

C T S

SHARE

O T

TOTAL MARKET

H E R

COMPANY SALES

SHARE

COMMENTS

Page 171

FORECAST


NAFEM • MAFSI Principles of Decision

Sales Time Management Worksheet Hours Spent During Prime Selling Time Weekly

ESTIMATE

ACTIVITY

Travel Waiting Telephoning Client Relations Complaints Prospecting and Pre-Approach Talking with People Other than Buyer Meeting with Manager Planning and Study Entertainment Reports and Paperwork Meetings Other (List)

TOTALS

Page 172

ACTUAL

VARIANCE


NAFEM • MAFSI Principles of Decision

Daily Objectives / Things to Do

Date: _________________

__________________________________________________________________________________________ THINGS TO DO TELEPHONE CALLS APPOINTMENTS __________________________________________________________________________________________ __________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________

__________________________

_____________________________

__________________________________________________________________________________________ __________________________________________________________________________________________ NOTES

EXPENSES Mileage (Start) __________________________ Mileage Driven __________________________ Auto Expenses: Gas $ ________________________________ Parking ________________________________ Business Expenses: ______________________________________ ______________________________________ ______________________________________ ______________________________________ Telephone: _____________________________ ______________________________________

Page 173


NAFEM • MAFSI Principles of Decision

Time Analysis TOTAL WORKING HOURS: Working days per year (5-day week) Less:

5 x 52 = 261 days

Vacation

(_____ days)

Holidays

(_____ days)

Total

(_____ days)

Sales Meetings

(_____ days)

Your company and principals

Personal days off

(_____ days)

Travel days

(_____ days)

For illness, industry social events, personal business, workshops, etc. For trade shows, conventions, sales meetings, etc.

Trade shows

(_____ days)

Total:

(_____ days)

subtracted from 261 =

_____ days (A)

subtracted from (A) = _____ days (B)

__________________________________________________________________________________________ Working hours per day -- Consider 11 hours available - 6:30 a.m.-7:30 p.m. Multiply (B)

x

11

=

_____ TOTAL HOURS AVAILABLE PER YEAR (C).

__________________________________________________________________________________________ Daily time usage:

Hours

Planning

_____

Personal time

_____

Administrative

_____

Lunch, coffee

_____

Telephone

_____

Other

_____

Total

_____ Hours per day

x

(B)

=

_____ Hours per year

Travel time: Average business miles driven per year _____ at _____ MPH (including parking time, walking, freeway and city driving) TOTAL NON-SELLING TIME (D):

=

_____ Hours per year

_____ Hours per year (D)

__________________________________________________________________________________________ TOTAL AVAILABLE HOURS PER YEAR (C)

_____ minus

TOTAL NON-SELLING TIME (D)

_____

TOTAL AVAILABLE SELLING HOURS

_____ Hours per yr. divided by 12 ______ Hours per month

Page 174


NAFEM • MAFSI Principles of Decision Account Analysis (1) The ACCOUNT ANALYSIS (1) below is a simple way of looking at an individual account within a territory and comparing its actual volume to planned volume and real potential. This can best be done on a simple computer program for the entire company. However, a salesperson can do it manually on a regular basis. Account Analysis (1) How is my sales volume obtained? Repeat accounts or new accounts? Repeat Accounts New Accounts Service Accounts Totals

Number Percent Volume Percent ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______

______ ______ ______ ______

If any portion of your business is from REPEAT ACCOUNTS, list them by DOLLAR VOLUME (starting with the highest, using either year-to-date or your "budgeted" figure. Do not consider potential at this time. NOTE: Your figures for "Volume" and "Potential Volume" should cover the same time period.

Rank

Account

Volume

Potential Volume

Performance Percentage

Potential

Class

1

___________________

________

________

_________

________

______

2

___________________

________

________

_________

________

______

3

___________________

________

________

_________

________

______

4

___________________

________

________

_________

________

______

5

___________________

________

________

_________

________

______

6

___________________

________

________

_________

________

______

7

___________________

________

________

_________

________

______

8

___________________

________

________

_________

________

______

9

___________________

________

________

_________

________

______

10

___________________

________

________

_________

________

______

11

___________________

________

________

_________

________

______

12

___________________

________

________

_________

________

______

13

___________________

________

________

_________

________

______

14

___________________

________

________

_________

________

______

15

___________________

________

________

_________

________

______

16

___________________

________

________

_________

________

______

17

___________________

________

________

_________

________

______

18

___________________

________

________

_________

________

______

19

___________________

________

________

_________

________

______

20

___________________

________

________

_________

________

______

Page 175


NAFEM • MAFSI Principles of Decision Account Analysis (2) The ACCOUNT ANALYSIS (2) form below is for territory analysis to determine how many hours the accounts in the territory require on a monthly basis. Key, important and regular accounts probably require one or more calls per month. Minor accounts generally require less than one call per month. For prospecting, assume one prospecting call per day and that it consumes one hour. From this analysis, conducted during many sales seminars for manufacturers' representatives, it's been determined that most salespeople feel they need more hours to cover the accounts and prospects than the TIME ANALYSIS (1) showed that they had available. Salespeople say that two things happen as a result: first, there is less prospecting; second, the quality time with key and important accounts is reduced. Account Analysis (2)

Call Freq. Code *

Account Class Key Accounts

____

No. of Accts. _____

Total Calls Per Month (**) ________

Total Hours Per Month (***) ________

Important Accounts

____

_____

________

________

Regular Accounts

____

_____

________

________

Minor Accounts

____

_____

________

________

Minor Accounts

____

_____

________

________

Prospecting

____

_____

________

________

Total hours per month required for account coverage ________ Total hours available from Time Analysis (1)

________

Difference (required hours minus available hours)

________

*

For accounts with less than one call per month, use a fraction in this column, i.e., 1/2 = every two months, 1/3 = every three months, etc.

**

Round off to the nearest whole number.

*** Start counting from the time you enter the door until you leave the building. Do not count parking and walking to the building.

Page 176

traveling,


NAFEM • MAFSI Principles of Decision

LINE PROFITABILITY ANALYSIS By Gene Foster, Scott Lindberg, CPMR, and Bob Parsons Regardless of the size of your representative firm, knowing and understanding each line's profitability is a must. Without this knowledge, you may be focusing your company's efforts in the wrong direction. Any method of analysis can be used, separately or together with others, but some measure should be used and used proactively. Having a better understanding of what lines are profitable is essential to the success and growth of any representative firm and should become a part of the culture of your firm. The analysis should be conducted on an annual basis at the minimum and on a quarterly basis if possible. The knowledge you gain from a profitability analysis can do nothing but increase your awareness of what each line represents to your firm and how a line's relative importance changes from year to year. From the analysis, you should be able to determine: if you are truly making a profit on an individual line; which lines are paying the bills; if you are spending too much time on a particular line; if the amount of time spent on a line is an asset or detriment to your firm; which lines are slipping in terms of commission; and which lines are "high pain and high maintenance." A better understanding of line profitability will also help improve your relationships with principals. Your awareness of bow important they are to your firm will be beneficial to all. In addition, you can use the analysis to focus your salespeople on selling what is profitable for them and the company. Profitability can be measured many ways, to one degree of accuracy or another. In the final analysis, however, you can relate a line's profitability to bow much time the line demands per dollar earned and how well it fits with the rest of your line list. Lines can be categorized into three distinct groups: majors; rock solid regulars; and fillers. Most representatives have all three, and each serves a purpose in the overall profit picture. A look at all three types of lines is appropriate in this overview of line profitability.

The Fillers A survey of representatives determined that up to 65 percent of their income came from their top three lines. This doesn't leave much for the rest of a representative's line structure to produce. Yet, fillers help pay the bills. Most representatives have two or three of these lines and seldom think about what it costs them to carry the lines because they demand so little attention. Probably the reason the filler remains on a line card is benign lack of attention, i.e., most of the representative's attention and activity are focused on the top few lines that generate the bulk of the firm's income. On the surface, there would seem to be little, if any, harm in carrying these lines. In reality, they can cost a representative access to larger, better-established principals who sell the same or very nearly the same products. A competitor to one of your fillers does not know that the line is a filler and often assumes that you would not consider giving up an established line. There is another kind of filler, not usually carried on a representative's line card, i.e., "hip pocket" lines. They have a very narrow customer base of usually only one or two, and the representative firm owner often has a close advocate at the customer level. These can be very profitable, but they are hardly the stuff upon which companies are built. Once in a while, a filler is really a "comer." We] I- established representative firms of all sizes tend to shy away from pioneering lines, but occasionally one comes along that you just cannot resist. Be careful when considering these lines. They are the most costly to represent, demand the most time and planning, and the rewards (once you take the line on) are at least 18 months away. Be particularly careful to be honest when one turns out well. The line gods have blessed you. Don't push it.

Page 177


NAFEM • MAFSI Principles of Decision

The Rock Solid Regulars These lines may be third or fourth on a representative's earnings "totem pole." They are often easy to work with, and their demands are as reasonable as are their people. They are almost "transparent" as far as your profitability analysis goes and relatively easy to forecast. The temptation with these regulars is to service them to the limit, but wise representatives know that these lines also need aggressive selling attention. A representative's future often lies with this group. These "secondary" lines can become leaders with aggressive development. Remember that the nature of the representative business demands that you be constantly prepared for change (e.g., lines gaining or losing strength, new technology giving competitors an edge, principals going direct or moving to a larger representative firm). If your firm is to grow, you must be alert and ready to accept change. You must be certain that every line you are carrying is contributing to your planned growth. Sometimes, these secondary lines are on the way down. For whatever reason, their market share is declining. Part of the alertness mentioned above is to know when and if one should resign such a line. Good lines don't stay down forever and can come back with a vengeance. Without aggressive selling, rock solid regulars can become former lines. Such principals only remain rock solid when they receive the sales attention they deserve. In fact, they can be the most subject to trouble of all the lines a representative carries. Your profitability analysis should quickly tell you how well these lines perform. Don't be surprised if you start paying a lot more attention to these companies solely as a result of your newfound awareness of how profitable they really are!

The Majors Relative progress as a representative can be measured by the stature of a firm's major lines. They usually supply the bulk of any given representative's income, i.e., as much as 20 percent or more. Because of the dominance of a major line as an income producer, however, the representative often fails to review the line's cost of operation. It is just assumed that the line is profitable. In fact, large lines can be very costly to maintain. Support people are in the territory more frequently than others, and because of the line's activity, they dominate their representative's planning time. Further, odds are that the larger lines are more commodity in nature, selling product into a larger share of the available customer base in the territory. This can expose the representative to off-shore manufacturing and/or outsourcing to turn-key assembly operation. At best, the representative faces a split or shared credit (commission) with another representative. At worst, he loses track of the business completely. A line profitability analysis, such as the ones included in this section, will go a long way toward determining bow much time and effort a major line is consuming versus how much commission revenue is being produced. Often, a representative must weigh: 1) the value of keeping a large, highly productive line that demands too much attention against 2) the effort necessary to replace the income from that line via other existing or newly acquired lines.

Synergism Finally, consider synergism. A filler can be elevated to the status of a regular line if it is synergistic with one or two or three majors on your line card. Large representative firms often have completely synergistic line structures. Smaller firms may have two or even three "pockets of synergism." Any more should be cause for concern. The profitability of a representative's top line is improved when all the other lines "tag along" in synergistic single file. And in turn, each of the tag along lines becomes more profitable.

Basic Premises There are several basic premises or assumptions underlying this overview of line profitability analysis, i.e.: it is necessary to know whether a given line is profitable; the commission income on each line is known; time (sales personnel, secretarial, customer service, management) is one of the most valuable (if not most valuable) assets of a representative firm; expenses are usually directly proportionate to the time expended on behalf of each line. Page 178


NAFEM • MAFSI Principles of Decision

The "Spur of the Moment" Process A very simple form of evaluation is what many managers describe as "gut feeling." As accurate as this evaluation may be at times, it is virtually useless in discussing line profitability with a principal. The following pages describe a relatively accurate method that is based upon "spur of the moment" time use analysis. While not a perfect system, this method will provide accurate indications with a minimum amount of time and effort - almost as simple as using "gut feeling" but probably more reliable. Here are the instructions. 1. Prepare an analysis sheet similar to the sample (Exhibit A) that follows this article. Be certain that every line is included. 2. At a routine company meeting of all employees and managers, distribute the analysis sheets. Tell your employees that they are about to do a "spur of the moment" line profitability analysis. Let them know that their totals need not add up to 100 percent, but they should try to come close. Give them five minutes to complete the form and turn it in. 3. Using the results, make a matrix similar to Exhibit B. Before entering results on the matrix, adjust each set of inputs so that each totals to 100 percent. (See Exhibit C to help you accomplish this task. First total each employee's percentages. Then divide the individual percentages by the total to get an adjusted percentage to enter into Exhibit B.) The average totals on the matrix can be weighted if you wish, but this is not necessary. From the matrix, you will see how your employees feel they are spending their time. 4. Follow steps 1 through 3 once to get the "feel" of the process, then twice again at intervals of 30-45 days. Each run-through should not consume more than 45-60 minutes of your time. Average the results of the three surveys, and you will have a completed survey with which to begin your line profitability analysis. 5. Convert the percentages of time for each principal into expense dollars per line by multiplying your total expenses for the time period by the percentage of time for each line (Exhibit D).proportionate to the time expended on behalf of each line. 6. Compare the figures in "D" with your commission income figures for the same period to set your profit loss analysis (Exhibit E). 7. Make sound business decisions based upon your findings. As you are reviewing the results of your "spur of the moment" analysis, keep these points in mind: •

A "marginally" profitable line may be desirable for several reasons, e.g.: it is prestigious; it is synergistic and produces leads for other lines; you are in the process of building this line; you have represented this principal for years (once a major line) and you have "political" ties.

"Pain level" may not be accurately measured by this method of analysis.

Many good representatives and managers use this method in combination with the "gut feeling" method.

When you find you have a "marginally profitable" line or one which is showing a loss, you can: talk to the principal about your analysis; talk to other representatives of the principal to determine if they are having similar problems; use the Rep Council concept to improve the principal, give the process some time; redo the survey to see if the same results are yielded. If all else fails, you may choose to resign the line and refer it to one of your competitors. No two representative firms are the same, and another company may be able to turn the line into a profitable venture.

You will find that this type of line profitability analysis produces a valuable side benefit. You and your employees will become increasingly aware of how time is spent (or misspent).

Page 179


NAFEM • MAFSI Principles of Decision

Exhibit A Date _______________________

Spur of the Moment Time Analysis In the next five minutes, please write in below the percentage of your time you have spent on each of the following lines. Your first impression is all that is wanted, and it is not important for all individual percentages to add to 100 percent.

Line

% of Time

AAA

______%

BBB

______%

CCC

______%

DDD

______%

EEE

______%

FFF

______%

GGG

______%

HHH

______%

III

______%

_______________________________ Signed

Page 180


NAFEM • MAFSI Principles of Decision

Exhibit B

Adjusting to 100 Percent

Adjust AAA

12%

12/120 = 10%

BBB

15%

15/120 = 12.5%

CCC

25%

25/120 = 20.8%

DDD

30%

30/120 = 25%

EEE

10%

10/120 = 8.3%

FFF

5%

5/120 = 4.2%

GGG

8%

8/120 = 6.7%

HHH

5%

5/120 = 4.2%

10%

10/120 = 8.3%

III

Total:

120%

100%

Page 181


NAFEM • MAFSI Principles of Decision Exhibit C

MATRIX Employee A

B

C

D

E

Principal F

G

H

Average *

I

___

___

___

___

___

___

___

___

___

AAA

________ %

___

___

___

___

___

___

___

___

___

BBB

________ %

___

___

___

___

___

___

___

___

___

CCC

________ %

___

___

___

___

___

___

___

___

___

DDD

________ %

___

___

___

___

___

___

___

___

___

EEE

________ %

___

___

___

___

___

___

___

___

___

FFF

________ %

___

___

___

___

___

___

___

___

___

GGG

________ %

___

___

___

___

___

___

___

___

___

HHH

________ %

___

___

___

___

___

___

___

___

___

III

________ %

------------------- All Totals 100%

-------------------

Total

* Average = Total of A-I divided by 9.

Page 182

100%


NAFEM • MAFSI Principles of Decision Exhibit D

Percentage of Expenses Converted to Period Covered

Principal

Percentage

Expense $

AAA

_______

_______

BBB

_______

_______

CCC

_______

_______

DDD

_______

_______

EEE

_______

_______

FFF

_______

_______

GGG

_______

_______

HHH

_______

_______

III

_______

_______

Total

100%

$ _______

Page 183


NAFEM • MAFSI Principles of Decision Exhibit E

Line Profitability Analysis

Principal

Commission $

Expense $

Delta +

AAA

$ _______

$ _______

+

BBB

$ _______

$ _______

+

CCC

$ _______

$ _______

+

DDD

$ _______

$ _______

+

EEE

$ _______

$ _______

+

FFF

$ _______

$ _______

+

GGG

$ _______

$ _______

+

HHH

$ _______

$ _______

+

III

$ _______

$ _______

+

Totals

$ _______

$ _______

+

Page 184


NAFEM • MAFSI Principles of Decision

AN ALTERNATE APPROACH TO LINE PROFITABILITY ANALYSIS By Joe N. Yore, CPMR This article represents an alternate approach to line profitability analysis that a line's profitability can be related to how much time the line demands per dollar earned and how well it fits with the rest of a firm's line card. The strength of your agency, your income potential and the income potential of your employees is determined by the profitability of your lines. Major lines obviously have a larger influence, but lines large and small are critical. There are several assumptions underlying this overview of line profitability analysis, i.e.: if you were not in business, your expenses would be zero; you are in business and during a certain time period you generate x dollars in expenses; it is valid to allocate the percentage of expenses to each line equal to the percentage of time your agency spends on a line. Lines may be classified in one of two ways. Either they are profitable or they are not profitable. You may be surprised to find that as many as 50 to 75 percent of the lines you represent are unprofitable (i.e., generate more expenses than income). There are various reasons to represent or not represent profitable or unprofitable lines. Some of the "yes" reasons for choosing to represent profitable lines may include the fact that a particular line generates cash for: strength; income for representative firm principals; income for employees; retirement programs; growth of the representative firm; reinvestment and other types of positives. On the other hand, one may choose to not represent a profitable line because: the principal wants exclusive representation; the line is expanding into areas that compete with another major line; or the line may be blocking representation of a prospective new line that is more desirable. A representative firm may elect to continue to carry an unprofitable line because- it is highly synergistic with other lines; it fills a void in the firm's product offerings; it keeps a firm in a product area until a premier competitor becomes available; or it is an emerging growth line with a good future. There may be many additional reasons for carrying an unprofitable line. Those reasons must be balanced against the reasons for dropping a line. Those reasons may include: the line is a drain on the firm's total resources; it takes the profits of other principals to supplement the line's presence on the line card; the unprofitable line may weaken the financial position of the representative firm; it may lower the firm's income potential as well as the income potential of the firm's employees. Certainly all avenues should be pursued to make the line profitable. One key way to increase that bottom line for the representative firm is a joint representative -principal study to reduce transaction costs, lessen time demands for reports and field visits, and decrease customer service requirements to allow increased time for sales activities. (Read most of these avenues to explore as areas where less time would be consumed per revenue dollar generated.)

Procedure for Line Profitability Analysis Here is a five-step process to analyze line profitability: 1) Collect data (percentage of time spent on each line by all company personnel) (refer to Line Profitability Analysis Form #1 which follows); 2) Convert data to 100 percent (of the company total time) (refer to Line Profitability Analysis Form #1 which follows); 3) 3) Merge all data to arrive at your agency's percent of time allocated to each line; (refer to Line Profitability Analysis Form #2 which follows); 4) Allocate total expenses based on the percentage of time devoted to each line; (refer to Line Profitability Analysis Form #3 which follows); 5) Create a ratio of expenses to revenue (start with expenses allocated to a line, and then divide by revenue produced by that line in the same time period) (refer to Line Profitability Analysis Form #3 which follows). Page 185


NAFEM • MAFSI Principles of Decision A basic computer spreadsheet package can be used to matrix all of this information. The process can be completed in a total of 15 minutes average per person of agency time. Using a spreadsheet for this process allows easy "what if" analysis.

Expanded Use of Information Once the line profitability information is available, the question becomes bow to use the knowledge that has been gained. Other than the obvious uses, don't overlook the value of using that pertinent information when a new line is being evaluated. If a prospective principal is properly interviewed, you may generate enough information to actually plug the prospective line into your matrix for a "read out" on its profitability potential - before the line is even signed on! (Some things to look for in that interview process include: the quality of the prospect's marketing material, including catalogs; the company's pricing structure, order fill rate and efficiency of engineering support at the factory; the position of the manufacturer among competitors; other forms of sales organizations in your territory; and the number of days factory personnel expect to be in your territory per quarter or per year.) Line profitability information can also be used to evaluate your major distributors, as well as the minor ones that your firm interfaces with, and evaluate your large customers (end users), as well as your smaller customers, all from a line profitability standpoint.

Page 186


NAFEM • MAFSI Principles of Decision

Line Profitability Analysis Form #1

Company Name ____________________________ Employee’s Name ___________________________

Manufacturer’s Name

% Time Spent

Adjusted to 100%

ABC

______%

______%

DEF

______%

______%

GHI

______%

______%

JKL

______%

______%

MNO

______%

______%

PQR

______%

______%

STU

______%

______%

VWX

______%

______%

TOTAL

______%

S/B 100%

Page 187


NAFEM • MAFSI Principles of Decision

Line Profitability Analysis Form #2

Company Name ____________________________________________________________

Percent Time Per Line Aggregate

Employees A

B

C

D

E

F

G

H Average

Mfr. ABC

____%

____%

____%

____%

____%

____%

____%

____%

_______%

Mfr. DEF

____%

____%

____%

____%

____%

____%

____%

____%

_______%

Mfr. GHI

____%

____%

____%

____%

____%

____%

____%

____%

_______%

Mfr. JKL

____%

____%

____%

____%

____%

____%

____%

____%

_______%

Mfr. MNO

____%

____%

____%

____%

____%

____%

____%

____%

_______%

Mfr. PQR

____%

____%

____%

____%

____%

____%

____%

____%

_______%

Mfr. STU

____%

____%

____%

____%

____%

____%

____%

____%

_______%

Mfr. VWX

____%

____%

____%

____%

____%

____%

____%

____%

_______%

TOTAL

Page 188

_______%


NAFEM • MAFSI Principles of Decision

Line Profitability Analysis Form #3

Company Name ________________________________________________________________

Revenue / Manufacturer

Expense / Manufacturer

Expense / Revenue Ratio

ABC

$_______________

$_________

$_________

DEF

$_______________

$_________

$_________

GHI

$_______________

$_________

$_________

JKL

$_______________

$_________

$_________

MNO

$_______________

$_________

$_________

PQR

$_______________

$_________

$_________

STU

$_______________

$_________

$_________

VWX

$_______________

$_________

$_________

TOTAL EXPENSES

$_________

Page 189


NAFEM • MAFSI Principles of Decision

EMPLOYEE PERFORMANCE REVIEWS By F. W. “Bud" Moulthrop Regardless of the size of any firm, a formal review system is recommended for management to evaluate each employee's performance. The basics of the system should be the same for all employees. A possible exception would be for the first review; an office employee's first review is recommended after three months, while the first reviews of sales personnel should be conducted only after a six month indoctrination period. You should also consider whether management personnel should be included in the review process. Once a review program is developed and installed, give it an adequate trial to evaluate its effectiveness. The benefits of the program may not be readily apparent the first or second time it is used. It is recommended that scheduled performance reviews (after the initial review) be conducted twice yearly on specific dates (with all employees informed of the schedule). However, it is not recommended that all reviews occur at the same time of year. You may want to base the review schedule on employees birth dates, their employment anniversary dates, etc. Holding to a specific schedule gives employees confidence in the system and provides them with the knowledge that their performance will be measured and discussed with them regularly. Performance reviews provide employees with a comfortable atmosphere to bring up any questions they may have regarding their employment and the opportunity to "talk things out" that may not otherwise be available. The review system should be used to inform the employee of his/her progress and to advise of any changes in individual duties, responsibilities, compensation, etc. It should also serve to inform an employee of corrective actions required to meet company standards and to address any other problem that exists in employee performance or attitude. Should an employee fail to take the necessary steps to correct problems outlined during the review, the documentation generated in the interviews will support subsequent dismissal should it become necessary. Keep in mind that the review process requires patience, understanding and, in particular, time. Meet with each individual to explain the process, terminology, definitions, etc. so there is no doubt as to their meaning. Use examples if necessary. Remember that you are conducting a personal, human evaluation of performance by an individual -- not a team or company or statistics. Do not draw comparisons with other employees. In all review discussions, be positive, truthful, and do not overemphasize any one area. Specifics that require follow-up can be handled according to your company's own management style. Above all, take advantage of the review opportunity to listen, and try to end each review on a note of encouragement and enthusiasm so that your employee feels gratified by the process and confident in its value. With the velocity of change in today's world, it is not a time to be timid, as long as your review is positive. In conclusion, cover all you can. If you cannot have a positive meeting, you should dismiss the individual and/or possibly the person giving the review, depending upon the position. Be sure to have your facts ready, making for a simplified presentation. What you are looking for is 1. perpetual improvement." If you are the reviewer, know what is important and redirect the review continually toward what is important. A review must have total integrity in order to capture the trust of the reviewee. Listen and stay flexible and in control of the situation. Collect all forms and information at the end of the review, and let your employee hear from you in the shortest time possible. No one likes to wait for "grades," and your response/evaluation should be received while the review is fresh in everyone's mind. Your expediency will demonstrate your caring, and in turn, your employees will also care. Examples of review forms used by two representative firms are included on the following pages. You may modify them to fit your particular needs or use them as guidelines to design your own forms. The main point in performance reviews is to get started. Why not start with yourself? NOTE: Non-formal reviews can go on continually, such as after sales calls or receipt of call reports. Don't overuse the formal process or it will lose its meaning. Page 190


NAFEM • MAFSI Principles of Decision

EXAMPLE OF EMPLOYEE'S PORTION OF PERFORMANCE REVIEW FORM Employee Name ________________________________ Employment Date _____________________ This page is to be completed by the individual employee prior to performance planning discussion. Review period: From _____________ Through _____________ __________________________________________________________________________________ JOB DESCRIPTION / DUTIES: Employee to state his/her duties in own words.

__________________________________________________________________________________ ACCOMPLISHMENTS: Indicate progress toward and/or completion of job related and personal goals.

__________________________________________________________________________________ GOALS:

(1) List specific job related goals (both short term and long term).

(2) List your personal goals (both short term and long term).

__________________________________________________________________________________ Signature of Employee Date Prepared

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NAFEM • MAFSI Principles of Decision

EXAMPLE OF SUPERVISOR'S PORTION OF PERFORMANCE REVIEW FORM Employee Name:_____________________________________________________________________ Review Period:

From ______________ Through ______________

Supervisor's evaluation of employee for review period. All evaluations based on demonstrated performance and observed characteristics, not on anticipated or assumed level of performance. I. __

GOAL SETTING Fails to set goals.

__

Sets goals when directed.

__

Sets readily attainable goals.

__

Sets aggressive goals.

__

Sets highly challenging goals.

Comments: ___________________________ _____________________________________ _____________________________________

II. __

JOB KNOWLEDGE Knows only the essentials of routine matters.

__

Knowledge adequate for present job, but not informed on related work.

__

Satisfactory knowledge of present job, with sufficient knowledge of related jobs to effect good coordination.

__

Well informed on details of own job and essential factors of related jobs.

__

Outstanding knowledge of all phases of own and related work.

Comments: __________________________ ____________________________________ ____________________________________ III. ACCEPTANCE OF RESPONSIBILITY __ Unwilling to be held accountable. Entirely dependent. Noncommittal.

IV. ABILITY TO PLAN AND ORGANIZE __ Work frequently shows lack of proper planning.

__

Often avoids responsibilities. Usually has an alibi. Prefers to depend on others.

__

Seems to understand value of planning but needs assistance.

__

Accepts responsibilities to a satisfactory degree.

__

Plans routine work satisfactorily but is sometimes not effective in unusual situations.

__

Willing to accept risk of authority and to be held accountable.

__

Plans routine work well and meets emergency situations promptly.

Makes commitments and assumes full responsibility.

__

__

Comments: __________________________ ____________________________________ ____________________________________

Outstanding. Competent in organizing and directing complicated procedures and operations. Comments:__________________________ ____________________________________

-- sample form continued --

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NAFEM • MAFSI Principles of Decision

EXAMPLE OF SUPERVISOR'S PORTION OF PERFORMANCE REVIEW FORM, CONT. Employee Name: ____________________________________________________________________ Review Period:

From ______________ Through ______________

Supervisor's evaluation of employee for review period. All evaluations based on demonstrated performance and observed characteristics, not on anticipated or assumed level of performance. V. __

JUDGMENT AND DECISION VI. Exercises poor judgment. Makes rash __ decisions or unwilling to make decisions.

CONTROL OF OPERATION Does not know status of expense, schedule or assignments.

__

Inclined to snap judgment or noncommital. Decisions of doubtful value.

__

Does not control expense, schedule or assignments.

__

Judgment satisfactory. Decisions reasonably prompt and accurate.

__

Maintains satisfactory control of expense, schedule or assignments.

__

Exercises good judgment. Decisions in the main prompt and accurate.

__

__

Judgment outstanding. Decisions prompt and accurate.

Maintains consistent expense controls and performs trade off on expense and schedule or assignments in all areas with advance notice of unfavorable performance in either.

__

Excellent control of all factors of operations (expense, schedule and personnel assignments). Comments: ___________________________ ____________________________________

Comment: ___________________________ ____________________________________ ____________________________________

VII. __

ABILITY TO IMPROVE METHODS VII. Complacent. Does things as they have always been done.

__

Makes some effort to change if directed.

__

Improves methods when need is apparent.

ABILITY TO COOPERATE WITH OTHERS' ACTIVITIES __ Obstructionist. Thinks only of his/her own unit. __

Difficult to secure his/her cooperation

__

Will cooperate when the need is great

__

Resourceful - constantly improving ways to do things.

__

Cooperative. Willing to help out other activities.

__

Highly ingenious. Outstanding in improving methods regardless of obstacles.

__

Exceptionally cooperative. Coordinates his/her activity with others.

Comments: __________________________ ____________________________________ ____________________________________

Comments:__________________________ ____________________________________ ____________________________________

-- sample form continued -Page 193


NAFEM • MAFSI Principles of Decision

EXAMPLE OF SUPERVISOR'S PORTION OF PERFORMANCE REVIEW FORM, CONT. Employee Name: ____________________________________________________________________ Review Period:

From ______________ Through ______________

Supervisor's evaluation of employee for review period. All evaluations based on demonstrated performance and observed characteristics, not on anticipated or assumed level of performance. IX.

ABILITY TO DIRECT AND MOTIVATE OTHERS

X.

OVERALL RATING

__

Ineffective at directing and and motivating employees.

__

Unacceptable

__

Secures fair cooperation but does little to motivate subordinates.

__

Marginal

__

Satisfactory leader who makes an effort to understand and motivate subordinates.

__

Satisfactory

__

Excels

__

Good leader who is active in motivating subordinates. __

Outstanding

__

Dynamic leader who stimulates enthusiasm and obtains outstanding motivation in subordinates.

Comments: _________________________ ___________________________________ ___________________________________ __________________________________________________________________________________ SUPERVISOR'S COMMENTS: Factors that are pertinent to job assignment that may or may not be covered in evaluation items detailed in review form.

__________________________________________________________________________ ___________________________________________________________________________ Employee Signature & Date Supervisor's Signature & Date

Page 194


NAFEM • MAFSI Principles of Decision

SAMPLE REVIEW FORM FOR EVALUATION OF OUTSIDE SALESPEOPLE Evaluation of: _______________________________________________________________________ Part I: to be completed by inside and outside sales RATING SCALE: 1 - Not Acceptable; 2 - Needs Improvement; 3 - Minimum Acceptable; 4 - Above Average; 5 Superior; 6 - Commendable; 0 - Not Applicable. SALES ABILITY 1. Professional image 2. Product knowledge PERSONAL 1. Attitude 2. Commitment / motivation 3. Energy / drive / enthusiasm / urgency 4. Initiative 6. Resourcefulness 7. Judgment 8. Disappointment and criticism reaction 9. Flexibility / adaptability 10. Planning / organizing 11. Company / organization (clearly defined responsibilities) 12. Training: A. Sales B. Technical / product COMMUNICATION 1. General responsiveness 2. Crisis responsiveness 3. Communications / feedback 4. Follow-up 5. Listening 6. Motivational techniques 7. Routine written interoffice corres. 8. Internal communications

RATING SCALE 1 2 3 4 5 6 0 1 2 3 4 5 6 0

COMMENTS ________________________________ ________________________________

1 1 1 1 1 1 1 1 1

0 0 0 0 0 0 0 0 0

________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________

1 2 3 4 5 6 0 1 2 3 4 5 6 0 1 2 3 4 5 6 0

________________________________ ________________________________ ________________________________

1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2

3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5

6 6 6 6 6 6 6 6

0 0 0 0 0 0 0 0

________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________

1 1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2 2

3 3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5 5

6 6 6 6 6 6 6 6 6

0 0 0 0 0 0 0 0 0

________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________

1 1 1 1 1

2 2 2 2 2

3 3 3 3 3

4 4 4 4 4

5 5 5 5 5

6 6 6 6 6

0 0 0 0 0

________________________________ ________________________________ ________________________________ ________________________________ ________________________________

2 2 2 2 2 2 2 2 2

3 3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5 5

6 6 6 6 6 6 6 6 6

Part II: (to be completed by outside sales) MANAGERIAL 1. Company planning and direction: A. Goal setting B. Monitoring / measuring results 2. General personnel stability 3. Salesperson compensation plan 4. Company professional image 5. Marketplace prestige 6. Creativity / progressiveness 7. Sense of responsibility / commitment 8. Growth 9. Company sales analysis and other computer programs 10. Consistent competitive feedback 11. Sales meeting contributions 12. Team player 13. Line portfolio / synergy

Part III: Additional Comments and Summary: __________________________________________________________________________________________ Page 195


NAFEM • MAFSI Principles of Decision

Sample Review Form for Evaluation of Inside Salespeople Evaluation of: ______________________________________________________________________________ Part I: to be completed by all RATING SCALE: 1 - Not Acceptable; 2 - Needs Improvement; 3 - Minimum Acceptable; 4 - Above Average; 5 Superior; 6 - Commendable; 0 - Not Applicable. PERSONAL 1. Professional image 2. Product knowledge 3. Attitude 4. Commitment/motivation 5. Energy/drive/enthusiasm/urgency 6. Initiative/creativity 7. Problem solving 8. Resourcefulness 9. Judgment 10. Planning/organizing 11. Sense of responsibility 12. Team player

RATING SCALE 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6

0 0 0 0 0 0 0 0 0 0 0 0

COMMENTS _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________

Part II: to be completed by outside sales and management COMMUNICATIONS 1. General responsiveness 2. Crisis responsiveness 3. Communication/feedback 4. Commitment/follow-up 5. Listening 6. Disappointment and criticism reaction 7. Flexibility/adaptability 8. Principal respect 9. Availability 10. Factory rapport/empathy 11. Customer rapport/empathy 12. General distributor rapport

1 1 1 1 1

2 2 2 2 2

3 3 3 3 3

4 4 4 4 4

5 5 5 5 5

6 6 6 6 6

0 0 0 0 0

_____________________________ _____________________________ _____________________________ _____________________________ _____________________________

1 1 1 1 1 1 1

2 2 2 2 2 2 2

3 3 3 3 3 3 3

4 4 4 4 4 4 4

5 5 5 5 5 5 5

6 6 6 6 6 6 6

0 0 0 0 0 0 0

_____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________

6 6 6 6 6 0 6

0 0 0 0 0

_____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________ _____________________________

Part III: to be completed by inside sales and management GENERAL 1. Punctuality 1 2. Dependability 1 3. Telephone skills 1 4. Internal communications 1 5. Electronic systems usage 1 6. Responsiveness to phone messages1 2 7. Sales meeting contributions 1

2 2 2 2 2 3 2

3 3 3 3 3 4 3

4 4 4 4 4 5 4

5 5 5 5 5 6 5

0

Part IV: Additional Comments and Summary: __________________________________________________________________________________________ __________________________________________________________________________________________ Page 196


NAFEM • MAFSI Principles of Decision

SAMPLE REVIEW FORM FOR EVALUATION OF MANAGEMENT BY SALES STAFF Evaluation of: ______________________________________________________________________________ Part I: to be completed by all RATING SCALE: 1 - Not Acceptable; 2 - Needs Improvement; 3 - Minimum Acceptable; 4 - Above Average; 5 Superior; 6 - Commendable; 0 - Not Applicable. SALES ABILITY 1. Professional image 2. Technical ability 3. Product knowledge 4. Competitive knowledge 5. Sales ability 6. (salesperson/order taker) 6. Follow-up - timeliness PERSONAL 1. Attitude 2. Commitment/motivation 3. Energy/drive/enthusiasm/urgency 4. Customer empathy 5. Principal empathy 6. Initiative 7. Problem solving 8. Resourcefulness 9. Judgment 10. Disappointment and criticism reaction 11. Flexibility/adaptability 12. Planning/organization 13. Sense of responsibility 14. Team player 15. Organization: files/samples/lit. 16. Training: A. Sales B. Technical/product 17. Seeks self-improvement/interest in learning 18. Sales meeting and marketing contribution

RATING SCALE 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6

0 0 0 0

COMMENTS _________________________________ _________________________________ _________________________________ _________________________________

1 2 3 4 5 6 0 1 2 3 4 5 6 0

_________________________________ _________________________________

1 1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2 2

3 3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5 5

6 6 6 6 6 6 6 6 6

0 0 0 0 0 0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________

1 1 1 1 1 1

2 2 2 2 2 2

3 3 3 3 3 3

4 4 4 4 4 4

5 5 5 5 5 5

6 6 6 6 6 6

0 0 0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________

1 2 3 4 5 6 0 1 2 3 4 5 6 0

_________________________________ _________________________________

1 2 3 4 5 6 0

_________________________________

1 2 3 4 5 6 0

_________________________________

Part II: to be completed by inside sales and managers COMMUNICATIONS 1. General responsiveness 1 2. Communication/feedback 1 3. Crisis responsiveness 1 4. Commitment/follow-up 1 5. Availability 1 6. Listening 1 7. Internal communications 1 8. Electronic systems usage 1 9. Responsiveness to phone messages1 2

2 2 2 2 2 2 2 2 3

3 3 3 3 3 3 3 3 4

4 4 4 4 4 4 4 4 5

5 5 5 5 5 5 5 5 6

6 6 6 6 6 6 6 6 0

0 0 0 0 0 0 0 0

-- sample form continued --

Page 197

_________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________


NAFEM • MAFSI Principles of Decision

SAMPLE REVIEW FORM FOR EVALUATION OF MANAGEMENT BY SALES STAFF , CONT. REPORTING / FOLLOW-UP 1. Frequency 2. Timeliness 3. Quality 4. Quotes 5. Samples

RATING SCALE 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6

0 0 0 0 0

COMMENTS _________________________________ _________________________________ _________________________________ _________________________________ _________________________________

1 1 1 1

2 2 2 2

3 3 3 3

4 4 4 4

5 5 5 5

6 6 6 6

0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________

1 1 1 1 1 1 1

2 2 2 2 2 2 2

3 3 3 3 3 3 3

4 4 4 4 4 4 4

5 5 5 5 5 5 5

6 6 6 6 6 6 6

0 0 0 0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________

1 1 1 1 1 1

2 2 2 2 2 2

3 3 3 3 3 3

4 4 4 4 4 4

5 5 5 5 5 5

6 6 6 6 6 6

0_________________________________ 0_________________________________ 0_________________________________ 0_________________________________ 0_________________________________ 0_________________________________

Part III: to be completed by managers GENERAL 1. Account ability A. General rapport - engineering B. General rapport - purchasing C. Spectrum of contracts D. Customer program knowledge E. Higher level decision maker visibility 2. Key account penetration 3. New account penetration/dev. 4. Forecasting effort /responsibility 5. Sales meeting contributions 6. Principal respect 7. Consistent competitive feedback 8. Overall sales performance/forecast attainment accuracy 9. Market share attainment/growth 10. Plans day efficiently/keeps appts. 11. Senses urgency of meeting quotas 12. Fulfills company goals 13. Expense control Part V: Additional Comments and Summary: __________________________________________________________________________________________ __________________________________________________________________________________________

Page 198


NAFEM • MAFSI Principles of Decision

SAMPLE REVIEW FORM FOR EVALUATION OF MANAGEMENT BY MANAGEMENT Evaluation of: __________________________________________________________________________________ RATING SCALE: 1 - Not Acceptable; 2 - Needs Improvement; 3 - Minimum Acceptable; 4 - Above Average; 5 Superior; 6 - Commendable; 0 - Not Applicable. PERSONAL 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

RATING SCALE

Professional image 1 Product knowledge 1 Attitude 1 Commitment/motivation 1 Energy/drive/enthusiasm/urgency 1 Initiative 1 Problem solving 1 Resourcefulness 1 Judgment 1 General responsiveness 1 Crisis responsiveness 1 Communication/feedback 1 Responsiveness to phone messages1 2 Commitment/follow-up 1 Listening 1 Disappointment and criticism reaction 1 Flexibility/adaptability 1 Planning/organizing 1 Sense of responsibility 1 Principal respect 1 Sales meeting contributions 1 Internal communications 1 Electronic systems usage 1

COMMENTS

2 2 2 2 2 2 2 2 2 2 2 2 3 2 2

3 3 3 3 3 3 3 3 3 3 3 3 4 3 3

4 4 4 4 4 4 4 4 4 4 4 4 5 4 4

5 5 5 5 5 5 5 5 5 5 5 5 6 5 5

6 6 6 6 6 6 6 6 6 6 6 6 0 6 6

0 0 0 0 0 0 0 0 0 0 0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________

2 2 2 2 2 2 2 2

3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5

6 6 6 6 6 6 6 6

0 0 0 0 0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________

1 2 3 4 5 6 0

_________________________________

1 1 1 1

2 2 2 2

3 3 3 3

4 4 4 4

5 5 5 5

6 6 6 6

0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________

1 1 1 1 1

2 2 2 2 2

3 3 3 3 3

4 4 4 4 4

5 5 5 5 5

6 6 6 6 6

0 0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________ _________________________________

COMPANY ORGANIZATION 1. 2. 3. 4. 5. 6. 7. 8. 9.

Clearly defined responsibilities Rep firm planning and direction: A. Goal setting B. Monitoring/measuring results Line portfolio - synergy Line portfolio - number Personnel commitment (appropriate number) General personnel stability General rep firm stability Contingency planning Salesperson compensation plan

-- sample form continued --

Page 199


NAFEM • MAFSI Principles of Decision

SAMPLE REVIEW FORM FOR EVALUATION OF MANAGEMENT BY MANAGEMENT, CONT. MANAGERIAL 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

12. 13. 14.

15.

Rep firm professional image Marketing prestige General distributor report Creative/progressiveness Rep firm sales analysis and other computer programs New product/market ideas Rep council contributions Motivational techniques Sense of responsibility/commitment Team player Training: A. Sales B. Technical/product Fulfills all company goals Forecasting effort/responsibility Reporting: A. Frequency B. Timeliness C. Quality Lead follow-up/result reporting: A. Quotes B. Samples C. Qualified Sales Leads

RATING SCALE

COMMENTS

1 1 1 1

2 2 2 2

3 3 3 3

4 4 4 4

5 5 5 5

6 6 6 6

0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________

1 1 1 1 1 1

2 2 2 2 2 2

3 3 3 3 3 3

4 4 4 4 4 4

5 5 5 5 5 5

6 6 6 6 6 6

0 0 0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________

1 1 1 1

2 2 2 2

3 3 3 3

4 4 4 4

5 5 5 5

6 6 6 6

0 0 0 0

_________________________________ _________________________________ _________________________________ _________________________________

1 2 3 4 5 6 0 1 2 3 4 5 6 0 1 2 3 4 5 6 0

_________________________________ _________________________________ _________________________________

1 2 3 4 5 6 0 1 2 3 4 5 6 0 1 2 3 4 5 6 0

_________________________________ _________________________________ _________________________________

Additional Comments and Summary: __________________________________________________________________________________________ __________________________________________________________________________________________

Page 200


NAFEM • MAFSI Principles of Decision

WORKING WITH INDEPENDENT SALES REPRESENTATIVES: WHO THEY ARE, WHAT MOTIVATES THEM AND WHAT THEY DO By Peter Kessler, Vice President of Sales, Karsten Manufacturing Company All too often, the good people inside your manufacturers' factories really do not understand the role of an independent manufacturers' representative used by their company to market their products. For many, it is not an easy concept, and they are not sure who this independent sales force is or what their relationship should be with the manufacturer's personnel. In order to help clarify just such a situation, Peter Kessler, vice president of sales, Karsten Manufacturing Company, authored the following article on manufacturers' representatives as part of Karsten's internal communication program. We think Peter does a great job of explaining the role of the representative to the other factory personnel. The same type of communication might help other manufacturers in the foodservice equipment, supply and furniture industry explain the independent representative's role. Peter gives us a good example to follow. Karsten Manufacturing produces foodservice equipment for the hospitality, corrections, school, gaming and other related industries. As a producer, we must have some form of sales and service activity in order to stay in business and employ all the fine people we do. Karsten Manufacturing Company decided many years ago that professional field sales companies, called manufacturers' representatives rather than Karsten employees, would perform our sales activity. There are those that view the use of professional field sales companies as an added sales cost to your products. They are not! These are companies that Karsten Manufacturing must have to identify, sell to, communicate with and provide service to our customer base. Manufacturers' representatives are a more efficient and more effective alternative to employing our own factory sales people. Utilizing independent representatives helps keep our product sales and marketing costs down, which helps make our products more competitive, yielding greater sales and company prosperity to all Karsten employees. What is an independent manufacturers' representative? Imagine your job is to market, stock, sell and be technically knowledgeable of 10- 15 different companies' products. Imagine having to be familiar with 30-50 different product lines with literally tens of thousands of different items. Imagine 10-15 different freight, return and payment policies. Imagine working with 10- 15 different sales and marketing managers, MIS systems and inside sales staffs. Imagine running your own business with a warehouse, sales office and employees. These are the job responsibilities of our manufacturers' representatives. To say the least, these representatives are highly motivated, customer service oriented and very independent. They are motivated by personal and business relationships, money and their ability to generate the sale. Their customer relationships are deeply rooted and take years to develop; these are relationships that would take us forever to develop if we chose to employ our own factory sales people. With all this said, how do we as Karsten employees best utilize our representatives and, therefore, gain a larger share of our representatives' time and sales efforts on our products? • • • • • • • • • •

Pay commissions correctly and on time Ship product in time and complete Maintain adequate stocking levels Make it extremely easy to do business with us Communicate efficiently electronically Provide fast and accurate answers to their inquiries Don't make sales and marketing decisions unilaterally—we consult first with our representatives. Be are a friend, as well as a business partner Trust our representatives Do what we say we will do Page 201


NAFEM • MAFSI Principles of Decision • •

Have clearly defined policies on stock levels, commission rates, freight and return policies, payment terms, territories, split commissions Communicate and keeps representatives informed on current pricing, quality issues, stocking situations, successes and failures, new products, etc.

If you make it easy for your representatives to be successful, they, in turn, will sell your products before the others they represent. It is that simple.

Page 202


NAFEM • MAFSI Principles of Decision

BETTER REPPING SURVEY REPORTS— SHARE OF TIME - SHARE OF MIND For Representatives and Manufacturers Interactive—Designed to Improve Teamwork and Profits by Jack Berman

Survey Results—"Share of Time - Share of Mind" How The Representatives Answered: Q. • • • • • • • • • • • • • •

"Why are certain lines favored over others? The principals treat us like partners. We know the products and are therefore comfortable selling them. Commissions are fair in rate, amount, split, and are paid on time. The principal responds promptly. The products are of good quality. The factory is easy to work with. Customer acceptance. Principals meet delivery commitments. Personal relationships with the principal. Good catalogs and selling aids. Fits synergistically with our other lines. Principal is custom orientated. Good income potential. Reasonable paperwork requested.

Some Specific Comments: "The determining factor comes down to how well the inside sales at the factory communicates with the representative's inside and outside salespeople. Without this, even the most potentially profitable line is doomed. " "Those principals that achieve emotional favorite status are NOT necessarily the ones which produce the most income or have the greatest income potential. They are principals who are the most responsive and easiest to work with. They are pro-representative in attitude and action—give the representative credit when penetrating a given market and are prompt in paying commission." "Easy to work with, management understands representatives and are considerate of our situations. They don't let us down, after we spend weeks, months, or years developing an account. They back up our efforts with superior performance in all areas production, service, etc. We have confidence in them and trust them. It's a real goal oriented partnership designed to benefit all parties—manufacturer, customer and representative." Q. What is it about other lines that tend to discourage salespeople? • • • • • • • • •

Slow response - lack of enthusiasm. Lack of support and understanding. Late payment of commission. Unreliable products and/or delivery. Poor product training. Not competitive. Regional Managers micro-manage - too aggressive - not product knowledgeable. Excessive unprepared factory visits. Management by intimidation. Page 203


NAFEM • MAFSI Principles of Decision • • • •

Unrealistic quotas and budgets. Constant turnover in personnel - including regional managers. Untrained inside people - rude - hostile. Difficult to work with.

Specific Comments: "Salespeople are discouraged when they are not knowledgeable. Salespeople must be trained correctly working with manufacturers on joint calls." "All salespeople have a comfort level with certain product lines. If a line is worth representing it is incumbent upon management and inside/outside personnel to provide effective product knowledge and presentation expertise in the market place." Q. Do you have a method for tracking the amount of time devoted to each line? One-half of representatives have no FORMAL method for tracking time devoted to each principal, but nearly all stated they instinctively knew if any lines might be neglected. One-half have some SPECIFIC method. Methods Mentioned: • Analysis and tracking of Call Organizers. • Software such as ACT, RPMS, Etc. • Periodic meetings - salesperson review of time invested in each line. • Analysis of phone bills, - time spent with principals on visits. • Tracking of quotes and samples. Some Specific Comments: "We use Call Organizers as a tracking tool, plus the software ACT." "All lines are not created equal. All lines do not require the same time. It's important to accomplish objectives—if it takes more time and pain to accomplish reasonable objectives than the line is worth or demands, then you have to make a decision." "We do have a line profitability analysis which includes: average commission rate number of calls ease of selling factor future potential ability to gain engineering interest." "We base time spent on each line by our monthly activity and marketing reports: New Activity (all) New business opportunities (NBO) Lost business opportunities (LBO) Number of RFQ's." "We meet monthly, and do a time study. We've developed a chart that lists the percentage of time spent on each line by each salesperson. We then equate that to the dollar and potential dollar value of each line and adjust the salesperson's time accordingly. It's not perfect, but everyone is aware of where time is to be spent." "We do not have an accurate method of tracking time spent per line. Personally, I don't even like the concept and will not answer the question, other than to say enough. If a representative has a good complement of synergistic lines, he should be selling several related products at the same time, thereby spending a good 300% of his available time, which, in essence, is the definition of the representative business." "No, although we do track all money spent on principals. Each of our salespeople must submit expense accounts by line. We do informally charge each principal account $1000 for each day they visit the territory. Out-of-pocket cost and daily charge together lets us know if a line is profitable." "We do an ROI every six months. My computer will tell me the percent of commission I get from each principal. My inside and outside salespeople tell me the percentage of time they spend working each line and I compare them and make any adjustments needed. I also am in tune with what's happening in the company and pretty much know the ROI from each principal." Page 204


NAFEM • MAFSI Principles of Decision "At year-end we ask each salesperson to estimate the percent of their time spent on each line and compare to percent of their income. We then set objectives and reallocate time.'' Q. If you were a manufacturer, what would you do to get the most attention from your representatives? • • • • • • • • • • •

From the top down, I would instill and monitor an attitude that we are a team and that the representative is our partner. Monitor customer service people to respond promptly. Good product training on a regular basis. Mail commissions on time - same day each month. Newsletter reporting representative successes. Minimize reports and paperwork. Provide extra commissions as incentives. Set mutual goals with representatives. Pay maximum possible commissions and be fair on split commissions. Provide best sales tools possible. Establish and listen to Representative Councils.

Some Specific Comments: "Be sure customer service people know the product and the goals of the company—and be sure they understand where the representative fits in to achieve the company goals." "Representatives sell for companies that are easy to work with and support them. All other factors are secondary." "I would treat them like my oldest son. Love them, encourage them, trust them, guide them, understand them, and then demand the most from them that they can possibly deliver. I would mail the commission check on the same day every month. Part of the love would be genuine recognition of accomplishments. Include them in long range planning. Show trust by respecting their judgment. The representative needs to be trained and retrained on a regular schedule. Give them the tools they need in the form of new products and new ways to sell. Don't ask them to do what you can't do yourself." "Have good cross references an easy-to-read catalog and a well laid out price list. Keep commission rates as high as possible." "Maintain good communications. Promote close liaison on key quotes or contracts. Send newsletters on company business and product development. List interesting applications of products." "(1) Always answer the phone on three rings or less. (2) Always have someone answer—not a machine. (3) Have accurate and complete literature. (4) Have technical people visit representatives for calls and training. (5) Maintain a fast competent method for handling failure analysis." "Treat representatives as if they were customers. They spend more time selling for principals easy to work with, just as customers seek vendors who are easy to buy from." "Treat the representative visiting the factory as you would want to be treated when visiting the representative's territory.'' "We are told we are the eyes and ears by a lot of manufacturers, but many don't ask for our input. We would feel great and help the principal by sharing our knowledge and establishing communications which go with this type of relationship." "Raise commission rates so the representative can hire and maintain the best salespeople and support people inside." "Direct all sales managers to be the representative's voice at the factory. This is typically where we need a regional manager's help. Let the representatives be district managers and give them the tools to get the job Page 205


NAFEM • MAFSI Principles of Decision done."

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NAFEM • MAFSI Principles of Decision "Insure that WE is permeated throughout the organization. Effective product meetings. Work toward mutual goals. Have long term plans—not just quarterly goals." "Establish a strategy plan customer list - products - sales goals. Publish it for everyone in manufacturing management, inside sales, sales management, and all involved with representative companies. Everyone signs up to do what is necessary to win. Measure it on a rolling month basis." "Make sure representatives feel they are a vital part of the organization. Meet commitments. Keep representatives informed of problems as well as good news." "Assign a regional manager or product specialist to visit the representative periodically to make buddy calls and conduct product knowledge meetings. We don't need help on sales techniques. We need help on technical issues and product knowledge. Also have an advocate at the factory to give our customers real support when needed." "Stop doing things FOR US and TO US and start doing things WITH US." "I would treat all representatives as if they were customers. Anyone who handles a telephone or types a letter should know that the customer is our most important asset. The company should create a sales atmosphere throughout the entire organization. The best example I have ever seen of this was SAMTEC. Sam Shine, President, had various signs hanging throughout the facility such as SALES DEPARTMENT—Manufacturing done here. SALES DEPARTMENT—Quality Control done here. Even SALES DEPARTMENT Shipments done here. It's that kind of attitude and sudden service which really gets the attention of the representatives and our customers. How Principals Answered: Q. "Do you feel you are getting your fair share of mind and time from: 2% stated "All representatives" 38% stated "Most representatives" 54% stated "A few representatives" 6% stated "No representatives" In expressing why they felt some representatives were giving MORE than their fair share, they cited the following most frequently: • Success • Potential • Factory Support • Personal Relationships • Product Training • Synergistic Lines • Prompt Communications • Importance of the Line • Easy-to-sell Products • Competitive Pricing In expressing why they felt some representatives were giving them LESS than their fair share, they cited the following most frequently: • Not as big as other lines • Poor synergy with other lines • Too many lines • Representative not interested in long haul • General lack of enthusiasm • Poor communications • Our neglect • Poor penetration • Bad relationships Page 207


NAFEM • MAFSI Principles of Decision Q. "What indicates that representatives are giving you more or less than your fair share? They felt they were getting MORE than their fair share as indicated by: • Activity - Phone calls, Sample Requests, Questions, Applications, etc. • Increasing Sales • Consistent Growth - New accounts, Good lead handling • Requests for factory visits They felt they were receiving LESS than their fair share as indicated by: • Tardiness in returning phone calls • Lack of product knowledge as seen by confusion - dumb questions - overlooked applications • Not asking the questions they should need answers to • Contrived customer visits on the arrival of the principal They also relied heavily on the reports from inside sales, and Regional Managers. Q. "What are your people doing to get MORE than their fair share?" • • • • • • • • • • • • • •

Improved product training. Increased territory visits - jointly planned. Sending more technically trained people in the field to help representatives and customers. Better leads. Free flow of samples. Participation in Regional Shows. Newsletters on Products and Applications. Representative Recognition - Representative of the Month. National Sales Meetings. Reduced paperwork. Weekly phone calls. Regional Managers are spending more time with less active representatives. Commission Incentive programs. Performance Reviews

Some Specific Comments from Principals: "We want our representatives to know they are our partners. We open our books to them so they can understand our business goals and can contribute with their input. It also helps them to understand our problems." “People who represent leading edge technology and products must (1) Know what bait to use. o use. (2) Know where the stocked ponds are, and (3) Get the fish into the boat. No one likes to come in with an empty stringer." "Sales is a three way partnership—Factory - Representative - Distributor, with no one element being more or less important. Therefore, we work as a team to maximize potential to the customer." "With the increased cost, difficulty, and competition in today's marketplace, a manufacturer can't afford to have poor relationships with its field staff. This is not just convenience, it is survival." "Win them over by the way we handle opportunities. Provide a system to fairly compensate them for their efforts. Don't ask for any nonproductive time unless it is truly needed and effectively used on our end. Listen to what they say they need. Don't waste their time." "We publish a list of our representatives in descending sales for each month. This lets everyone know the relative status from top to bottom.''

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NAFEM • MAFSI Principles of Decision "We stay in touch constantly. Increased territory visits are costly—but highly effective when jointly planned. We distribute a quarterly cassette newsletter called Traveling Light with technical reviews, representative successes, and policy updates. Customer service is empowered to make price and policy decisions to improve responsiveness. With industry reductions of vendors and engineering, our representative's role is more important than ever." "The best representative relationships are based on the partnership concept. Support and understanding have proved to out-perform most traditional representative/principal interaction." "It is important to let the representatives know how you feel. The representative and the manufacturer should have the same objective—sell as much as possible. If you are going to work against each other, those objectives will be impossible to achieve. Sounds like a simple idea, but individuals often lose sight of the goal, forget that we should all be on the same side of the rope, and end up in a tug-of-war with each other." "Representatives cannot be viewed as necessary evils. They are part of the family and total sales program." "Mediocre representatives are reluctant to step out of their comfort zone into the world of new accounts and new applications. Yesterday's call was preparation for today's prospecting which provides tomorrow's purchase order." "Some representatives spend far too much time moaning about commissions and how they depend on commissions to live. We know that, but we get tired of hearing it. Let's face it—they chose to be representatives— Get on with it!" "Good representatives are self-actualized and do not need to be prodded. They should be in sales because they enjoy sales and not because they think they can get rich quick." "(1) We spend more time in the field and send only highly qualified people to help the representative sell. (2) are developing new and better products as recommended by our Representative Council. (3) conduct more frequent training seminars for new and experienced representatives." "We concentrate on Newsletters - Application Notes - Demos and Demo training - Bonuses on new equipment. We talk to representatives to see what they need. We hold National Sales Meetings so representatives and factory can interact." "Our products are high tech. It is easier to motivate technically competent Representatives. Mind share comes from a combination of money, and making the line satisfying to sell from a professional standpoint." "I was very critical about the quality of product training when I was a Representative. I had this philosophy then and I still do at present." "Our product is very new and unique to the computer industry—Most people don't even realize our type of product exists or that there is a need for it. Hence we are doing our best to give our representatives education. We are mounting an End User awareness campaign. The public pull is an incentive for representatives to keep up with our product."

“Frankly Speaking" By Jerry Frank Jerry S. Frank (B.S., M.B.A.)is President of IMA Inc., Management Consultants since 1958. He is co-author of "THRIVING WITH REPS", the authoritative bible of marketing through Representatives. (Published by MRERF in 1992) His clients include multi-billion dollar world wide firms, start-up companies, and numerous representatives. He can be reached at IMA 16244 Dorilee Lane, Encino, CA 91436 - Phone(818)783-4461 Fax(818)386-1945.

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NAFEM • MAFSI Principles of Decision Manufacturers: Upward communication is extremely difficult—especially on a person-to-person basis. The downside risks may far out-shadow the rewards. You might get a pat on the back, but too often you run the risk of arousing some deep seated resentment or a comment like "That's a stupid idea!" Communication from representative to principal is UPWARD COMMUNICATION. When representatives respond to a survey, they open up and tell it like it is. From what they have said, it seems obvious that manufacturers could be well advised to examine their product training program to see if it could be improved in content and consistency. Do the representative salespeople feel truly comfortable in selling your products? Are you training new salespeople, as well as the veterans? Are your inside people treating the representatives like partners? Are they responding promptly Are they easy to work with? Your customer service people have more contact with customers and representatives than anyone else in your organization, and exert great influence on sales results. Do they truly understand the role of your representatives in your marketing and sales set-up? Do they know how a representative functions? It would be wise to review and monitor their attitudes and the kind of consistent training they receive. Are commissions being paid promptly? There is no greater turn-off than not being compensated on the same day each month. Representatives: Manufacturers listed indicators which showed whether they were getting their fair share of the representative's time. First and foremost, they knew when they were getting more or less than their fair share by the amount of ACTIVITY they observed. They cited phone calls, requests, questions, faxes, letters, etc. It is understandable that many representatives are so busy selling, they unconsciously neglect communications with principals, even when very actively and diligently pursuing sales for them. Manufacturer Marketing and Sales Executives rely on reports from their inside salespeople and their regional managers for opinions of the representatives. Representatives, themselves often admit they generally do a better job of selling their customers than selling their principals. SELL the inside people when you call, instead of yelling at them the way the customer might yell at you. Your own inside sales staff probably has the most contact with the inside people of the manufacturer. How well does your staff know your philosophy and policies for treatment of others? Do you bring your inside people into your meetings? Are they getting product training? Do all of your people recognize the influence of Regional Managers? Are they utilizing the benefits and help Regional Managers can bring them? Have you ever worked out Ground Rules with Regional managers? It is vital that you both know what each expects from the other in order to reach the principal's goals. Are you sending itineraries to visiting principals, and outlining specific objectives for the calls you will be making with them? While all of the above may sound like ABC, many representatives sometimes neglect the basics of good relationships with their principals. Often a person in a representative company will fall into a bad habit and not even be aware of offending principals. The answer lies in frequently talking about it in a form of Sales Aerobics often seen in the pages of Better Repping. Reprinted from Better Repping, Copyright 1995, Berman Publications, 11718 Barrington Court #341, Los Angeles, CA 90049-2930, (310) 472-4039; Fax (310) 472-4839. All rights reserved. Reproduction without permission is strictly prohibited

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NAFEM • MAFSI Principles of Decision

BETTER REPPING SURVEY REPORTS—EVALUATION OF PRINCIPALS AND REPS For Representatives and Manufacturers—Designed to Improve Teamwork and Profits by Jack Berman

Survey Results—" Evaluation of Principals and Representatives " This Report can be an excellent Guide for Staff discussions for both Manufacturers and Representatives. There are some surprises in how each measures the criteria by which they evaluate the performance expected from the other. Although dollar performance is the key factor, other areas very important: One Representative stated, "The bottom line is commissions earned versus time put in. Only after that, do all of the other factors become important." A Manufacturer stated, "Ultimately sales performance is the 'sine qua non'- (absolutely essential). Once established, communications, pro-active management of problems and participation in solutions is the key. We took for partners, when we evaluate our Representatives." Manufacturers can see what Representatives look for in evaluating Principals. Representatives can learn what Principals look for in evaluating their Representatives. The ten most important factors reported by each are listed below: Principals' Factors in Evaluating Representatives in order of importance:

Representatives' Factors in Evaluating Principals in order of importance:

(1) Territory Growth (2) Responsiveness (3) Stability - Continuity of Representative Company (4) Relationships with Customers (5) Relationships with our People (6) Professionalism (7) Synergy with their other lines (8) Product Knowledge of our line (9) Their understanding of our needs (10) Handling Reports and Forecasts, etc.

(1) Commissions (2) Commitment to Representative System (3) Product Training (4) Non-selling time required (5) Relationships with Key Decision-Makers (6) Responsiveness (7) Competence of Inside staff (8) Relationship with Regional Manager (9) Delivery Performance (10) Quality of Product

Observations by Principals: Growth of Representative's Territory (#1 in Importance) "Goals are vital. They force plans for growth." "Growth is more a function of changes outside of their control, except for the growth of share in existing accounts. This is always a ‘given’. It also rates an "A" in importance." "Two year growth is a primary method for us in evaluating Representative performance." "We target 10 to 15% growth per year. We understand a "bad year", but we average it out." "Both long-term and short-term growth are the very basis by which we evaluate a territory." "Five years is too long. Representative performance changes from year to year. We compare Representatives to last year, and we also ask for an annual plan for both OEM and Distribution." Representative Responsiveness (#2 in importance) "This is critical. Representatives who don't respond, or even respond slowly, are usually not selling your products. Motivated Representatives are quick to respond and quick to ask for help". "Responsiveness has to be two-way. If we, as Principals do not respond quickly, we cannot expect our Representatives to do so."

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NAFEM • MAFSI Principles of Decision Representatives' Stability and Continuity (#3 in importance) "High turnover of people is Death!" "A manufacturer cannot afford a lot of training and re-training." "We require one to five year sales plans (no forecasts). Good sales plans produce good performance." "These are the keys to long term relationships. Lack of stability in Representative personnel is a warning sign." "I look to see if Key Representative employees can obtain some equity. It promotes commitment." "There must be long term responsibility. However, with Representatives five years may be long term." Representatives' Relationships with Customers (#4 in importance) "Customers are getting more difficult to reach. They can hide behind Voice Mail and E Mail. How well Representatives know and penetrate customers is a most important consideration in evaluating Representatives." "More than product and service, representation is a relationship business. The Representative uniquely offers that." "The customer looks at our Representative and sees us. The Agent must expand our image, not degrade it." Relationships with Representative's Key People (#5 in importance) "The better the relationships you have with your Representatives, the more business you will do." "Lack of good relationship with Representatives usually means their goals are different than yours, resulting in poor performance." "Important, but no direct impact on performance.� Representative Professionalism (#6 in importance) "We expect the highest level of professionalism, but we are dealing with individuals who are all different, and must allow for those differences" "This is a given. If the Representative is not a professional, he won't remain a Representative." "Representatives must never think of themselves as peddlers. The way they think of themselves; conduct business-,present themselves to customers and to us, must be at a professional level. I admire their initiative in establishing and participating in the CPMR Program." Synergy with the Representatives' other lines (#7 in importance) "The Representative cannot sell our line successfully to customers where he is not also selling his other lines." "Compatible lines are the keys to efficiency and maximum selling time." "Good synergy is important but limiting the number of lines is also necessary. Too many lines hurt the sales of all lines." "Synergy is important to review annually because it shows the direction the Representative Company is taking" Representatives' Product Knowledge (#8 in importance) "The better the salesperson knows the products, the more time he will spend in selling them. No salesperson likes to discuss products he doesn't know. It is too embarrassing." "Most Manufacturers with direct sales do a much better job on Product training than those with Representatives. This is wrong. Representatives who have more products need more training." "An absolute must. You can't be successful in selling the line unless you know it well. We offer many tools and much training to accomplish this." "I find that Representatives with lines closely related to mine, have better knowledge of my line and its market." "The Representative's willingness to ask for help is most important." Representative's understanding of our Needs (#9 in importance) "We expect our key Representatives to visit our plant each year and talk to all of our people. We like them to participate in our Representative Councils and help spread the word to other Representatives." "It is very important to evaluate how well a Representative understands his role in our programs, and especially in new product introductions." "It is our responsibility to clarify our goals and needs and give direction to the Representatives." "Understanding the customers' needs is far more important than understanding ours." Representative Handling of Reports, Forecasts, Goals, etc. (#10 in importance) "We demand promptness, thoroughness, and accuracy." "We ask for only one forecast per year. We assume this also sets the Representative's goal." "The Representatives are our conduit to the field. They must participate in the administrative aspects of selling." "Paperwork should be kept to a minimum and give the Representative more time to sell." Page 212


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Observations by Representatives Commissions (#1 in importance) "Total commission is the engine that drives our company. Medium and small Principals can be the difference between profit and loss." "Commission is the ultra-motivator." "When any line accounts for over 25% of our total commissions, we view it as a danger point unless our contract provides for termination of one year or more." "Most important is the potential; how well the technology fits our customers, and where we are going." "If a line does not return enough commission, it obviously does not get enough attention." Principals' Commitment to the Representative System (#2 in importance) "I look at the background of the management, especially as a Manufacturer grows and merges. If the commitment isn't there, you can be in trouble even when you do a good job." "Without it, there could be no long term relationships." "Commitment must come right from the top." "When it is right, you feel it." "Do they flip between Representatives and Direct in good times and bad?" Product Training (#3 in importance) "Principals with solid product training are rewarded with success and more time in the field." "Too few Principals do a good job of product training." "Product training is lacking from almost all of the Principals we represent." "Visiting Factory people should do training on every visit to the territory" "Lack of Product knowledge kills sales." "Principals should give us: Manuals - Newsletters - Kits - Technical Seminars - CD's for Laptops." Non-Selling Time (#4 in importance) "Just how much time is required and what is the return on your investment? The Representative's resources are limited to his time and effort." " No one can afford to waste effort on reports and procedures that do not bolster sales." "This is an important factor when deciding if we take a line on or drop an existing one." "Too many Principals are asking for more and more Marketing time which takes away from selling time." "In our business, after sale service is most important if you want repeat orders. However, when we are required to do to do too much service, it is difficult to maintain a profit margin." "When you spend too much time on one line it detracts from others and you could lose a good line." "Paperwork is a nightmare. Just how much information does a factory need? What do they do with the information we send?" "We wish we could get paid for all we do." Relationships with Key Decision Makers (#5 in importance) "Critical. Representatives must have good relationships with Principals' key decision makers. The ones who sign your checks had better feel you are worth what you are receiving." "It is extremely important to have access to management." "The higher up you go, the more solid your position." "You learn your Principal's direction more fully when you are friendly with management." Principals' Responsiveness (#6 in importance) "This is the most important factor in time spent for a Principal. Nothing discourages us and our salespeople more than tardiness in providing answers!" "You won't get new customers if you can't make their buying decisions easier." "Some Principals are problems every time we call." Competence of Principals' Inside Staff (#7 in importance) "How fast do they respond? Too many Principals do not do enough consistent training of their inside people in sensitivity to the needs of the Representative and the Customer." "Quick response from inside people can increase sales effectiveness significantly." Page 213


NAFEM • MAFSI Principles of Decision "To have a productive relationship both sides must communicate with each other openly. If problems arise, they should be discussed quickly." �Most of our Principals have transferred to us many of the tasks formerly performed by their Inside sales" "With better on-line capability with our Principal, the inside staff is not as important as it once was." "One person should be assigned to our territory." "Inside Sales should have longer hours for different time zones." "One bad apple can ruin a customer relationship." Relationships with Regional Managers (#8 in importance) "Regional Manager's effectiveness, compatibility, and support of multiple-line selling can mean the difference between profitability and un-profitability of his line." "The Regional Manager is the key to helping grow the line and expediting factory assistance." "Some are good—some are bad. Best if located at the Factory and become our advocates." "What value does the Regional bring to the territory? All too often, they are just paper-pushers." "Most waste the Representative's time and are not that well tuned into their Home offices or their factories." "The Representatives can also serve this function." "We are fortunate. We do not have any Regional Managers to interfere with our efforts." "A good Regional Manager, (and there seems to be few), is worth his weight in gold. He is our Principal's champion in the field, and ours at Corporate. They are more valuable when located at Corporate." "This topic would rate an A in importance if most Regional Managers were actually helpful." "Are they are knowledgeable about their products, and ready to work?" "Are they capable of running a good training program?" "Are they prepared to talk on issues when notified in advance?" "Are they timely in response; do they have the ability to access engineering?" "Are they helpful at the factory, and willing to support efforts, expedite, and maintain good customer relationships?". Delivery (#9 in importance) "Factory delivery and service can have a big impact on a Representative's standing with his customers." "If one factory is not honest on delivery promises, it can affect your other lines with that customer." "Long lead times or delayed shipments gather no repeat orders." Quality (#10 in importance) "Most companies have good quality today. It is expected." "Quality refers to service as well as products." "Forget everything else if you don't have it."

Other Comments by Principals: "Thorough customer knowledge and customer advocacy are most important in a Representative. Representatives add value to the customer by understanding their needs and communicating them to the Factory. They must be active participants in solving customer problems and meeting customer needs." "We monitor sample requests; new product and market opportunities; quotes; and numbers of customers direct and through distribution. All are indicators of a Representative's selling activity and focus." "I always ask, "Who are your top five accounts? Do you sell my line at these accounts? If not, why not?"

Other Comments by Representatives: "The bottom line is time versus commission. The rest is good material for Representative Councils to discuss." "Too many Principals do not understand the synergy of compatible lines. They look upon other lines as being competition, rather than empowerment." "Factories talk about professionalism in Representatives, but how many of them know about the CPMR Program?" "When we take on a new Principal, we always try to determine how long the previous Representative has had the line; the reasons for a change; and the general tenure of the Representatives." Reprinted from Better Repping, Copyright 1996 Berman Publications, 11718 Barrington Court #341, Los Angeles, CA 90049-2930, (310) 472-4039; Fax (310) 472-4839. All rights reserved. Reproduction without permission is strictly prohibited.

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BETTER REPPING SURVEY REPORTS—TIME IN THE FIELD For Representatives and Manufacturers—Designed to Improve Teamwork and Profits by Jack Berman

Survey Results—"Time in the Field " Special Note: Many Manufacturers and Representatives use these Survey Reports to hold meetings with their staffs. They report that it provides excellent training and review. This issue is perfect for that. A suggested list of questions and topics to cover is included at the end of this Report. This Survey has also set a new record for returns. Obviously, the subject is vital to all sales and marketing people. An individual's sales volume depends on three factors: (1) Time spent face-to-face with customers; (2) Who the customers are; and (3) How effectively that time is used. This Survey is concerned with the first factor. An increase in face-to-face time is measurable. Here are some direct answers and some practical solutions.

The Problem Nearly half the salespeople spend less than half of their selling hours with customers. All agree they should spend over half of their time in the field. 50% feel they should spend over 75% of their selling time. Manufacturers agree that erosion of selling time is a COSTLY problem. Data: Full-time Salespeople Salespeople - Actual time spent in field: 46% say 25 - 50% 50% say 50 - 75% 4% say over 75% Salespeople- Time they say they should spend: 48% say 50 - 75% 52% say over 75% What Manufacturers say Salespeople should spend: 10% say 25-50% 40% say 50% say

50-75% over 75%

Nearly 75%of Combination Manager/Salespersons spend less than half their time in the field. 57% believe they should spend over half their time. 20% want to spend over 75%. Usually, they are the most effective salespeople. Data: Combination Manager/ Salesperson Actual time spent 40% say under 25% 34% say 25-50% 23% say 50-75% 3% say over 75%

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NAFEM • MAFSI Principles of Decision Full- time Representative Managers also want to be able to significantly increase their time in the field with customers and their salespeople. Data: Representative Managers Actual time spent: 86% say under 25% 14% say 25-50% Should spend 30% say under 25% 70% say 25-50% Full time Salespeople and Combination Manager/Sales people list the ten most time- consuming activities that rob them of face-to-face time with Customers: Full time Salespeople Contacting and following up with principals Getting appointments Misc. Paperwork Monthly reports Principals visiting the territory Principal forecasts Itineraries for visiting principals Meetings with visiting principals Principal sales meetings Call reports

Combination Manager/Salespeople Contacting and following up with principals Principals visiting the territory Meetings with visiting principals Principal forecasts Getting appointments Itineraries for visiting principals Misc. Paperwork Monthly reports Principal sales meetings Representative company sales meetings

Suggested Solutions How Representatives believe Principals could help them achieve more face-to-face time with customers Train their people to respond quicker. It will cut down on much time needed for follow-up. Reduce reporting to absolute necessary information. It will condense paperwork. Send better qualified leads. Simplify and standardize forecasts. Eliminate unnecessary territory visits that serve no purpose. Provide more notice of visits - to allow us both time to prepare. More thorough and continuous Product training - Use CD Roms - Tapes, etc. More quality telemarketing. Do non-selling work - whenever possible - during non-selling hours. Make more use of inside people for non-selling activities. Take time to organize their work better - it saves time. Improve their own time-management by assigning higher priorities to face-to-face time. Plan their itineraries and establish clear objectives for each call. Be more aggressive in resisting unnecessary work. Use lunch, dinner, and social time to develop closer personal relationships with Customers .

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NAFEM • MAFSI Principles of Decision How Representative Management can help their salespeople achieve more face-to-face time with customers. What Manufacturers say: Train, motivate, and use inside Representative people more effectively. Furnish salespeople with latest tools and train them (Laptops, e-Mail, Fax, etc.). Streamline paperwork - simplify and automate reporting systems. Minimize meetings - hold during nonselling time. Do time studies to prioritize salespersons' responsibilities

What Representative Salespeople say: Keep improving and training better inside salespeople to handle more work. Keep paperwork to a minimum. Try to limit Principals' visits. Better organization of Principal visits. Better individual updated Customer Reports . Cut down on Meetings.

A Few Notable Comments Manufacturer "We must also emphasize the quality of face-to-face time with customers. Being very busy, the call must be organized to be of value for the customer." Representative Manager "As a manager of a good Representative sales force, a lot of time is spent smoothing over disappointment and problems with response time and delivery, with individual salespeople." Manufacturer "I am a firm believer in letting the Representatives know that I use what they have taken time to provide me. If I ask for something, I try to provide feedback." Representative Salesperson "Because of the increasing cost of a sales call, we absolutely must focus on the time with customers and make it effective." Representative Manager "A Representative salesperson can do four things- (1) Make the first call at 8 am (2) Fax Call Organizers to Customers one day before the call-, (3) Schedule the next visit when face-to-face on a sales call; and (4) G.O.O.O. - "Get Out Of the Office" Manufacturer "Representative management should supervise their people more closely on how they spend their time, and train them to be time managers as well as good salespeople." Combination Manager/Salesperson "This is an excellent survey and I am anxious to see the results, because something has to be done to reduce paperwork!" Representative Salesperson "This is the single most important problem we salespeople face!" Combination Manager/Salesperson "Face-to Face time is wasted time unless you have clear-cut objectives and allocate the appropriate amount of follow-up ." Representative Salesperson "Pre-qualifying leads over the phone helps a lot. Deciding to see if we have anything to talk about is a big plus." Combination Manager/Salesperson "You've hit on a very serious and important problem. Our Principals downsize and dump marketing functions on us. Also, the professional manager's need for reports is throttling our sales efforts."

Sales Aerobics Topics A few ideas are presented here to discuss with your staffs. Encourage interchange of ideas. Keep it positive. Involve everyone. Add more topics as suggested by participants. Make it fun. Follow through. For Manufacturers: How can we improve response time to our field sales force? How can we get them to improve their response time to us? Let's examine the paperwork we ask from them. What can we do to decrease it? What are the best ways of convincing the Representatives that what we ask for is very important? How can we best let them know what we are doing with the paperwork they send us? How can we improve the quality of leads we send to our Representatives? Representatives want thirty days notice before we make a trip into their territory. Why do you think they need it? What do we want from them to help us prepare better? How can we improve our product training for our Representatives? Page 217


NAFEM • MAFSI Principles of Decision For Representatives: How can we make one more quality sales call per week? Two? Three? What non-selling work do we do now, that we could do during non-selling hours? How can we organize each call to be more valuable to our customer and our principals? Select three customers with whom you want to establish, or improve, or further cement personal relationships? What would do in each case? When will you do it? How will you be sure you do it? How can we better use our inside sales force to help us get more quality face-to-face time with our customers? What sales tools could help you do a better job? How can we better prepare for a Principal visit? How can we better motivate our Principals to respond faster? What can we do to get better appointments faster? How can we get more from a Principal's visit? It is obvious that these suggestions are just to get you started. You will come up with many more once you begin to do "Sales Aerobics". A recent Department of Labor indepth study indicated 78% of employees learned more from each other than from all other sources. Sales Aerobics improves skills, and stimulates high morale. DO IT! Reprinted from Better Repping, Copyright 1998, Berman Publications, 11718 Barrington Court #341, Los Angeles, CA 90049-2930, (310) 472-4039; Fax (310) 472-4839. All rights reserved. Reproduction without permission is strictly prohibited.

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BETTER REPPING SURVEY REPORTS—GETTING TO THE END-USER For Representatives and Manufacturers—Designed to Improve Teamwork and Profits by Jack Berman

Survey Results—"Getting to the End-User" Representative Question Who is your main target? 60% said Dealer/Distributor 30% End-User 10% Consultant Manufacturer Question Who do you feel is most responsible for influencing the end-user of your products? 47% Representatives 29% Distributor/Dealer 12% All 6% Manufacturer 6% Varies Prime reasons for Representatives being most responsible: Representative creates product benefits and awareness Representative has deeper product knowledge Dealer does a poor job of selling Prime reasons for Dealer being most responsible: Dealers daily contact with end-users Dealers frown upon Representative calls on End-users Manufacturers' Comments "Product awareness must be created at the end-user level. Volume is achieved when the end-user demands our products." "We make heavy duty, high priced equipment, The Representative is critical in the sale by either direct contact with the end-user, or educating the dealer sales force, and consultants who recommend equipment to the end-user." "The major responsibility of Representatives and Manufacturers is getting products into the distribution channels by spending most of the time calling on and working with the distributor/dealer. End-user calls without the dealer are frowned upon by many dealers." “For the institutional market Representatives are most effective because the buyers are more sophisticated about their needs. Dealers are stronger with independents because of frequent access to these customers." “Dealer are in daily contact with end users, but their influence is declining, particularly at the chains" Representative Question "How important to a prospective principal is your ability to effectively reach the End-User? Very Depends on the product More than ever - Dealers are cutting back on their Sales Forces

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NAFEM • MAFSI Principles of Decision Manufacturer Question "Do you have an organizational structure or process that outlines the responsibility for reaching the end-user? 70% said "No" 30% said "Yes" Comments: "Our National Account Manager is responsible for the top 25 chains. He keeps Representative apprised. Representative is responsible for schools, institutions, and smaller chains. Representative utilizes factory product managers for product support. The Manufacturer should bring Representative on all calls." "We value the position of the prime specifier. Regional managers follow through. The structure flows from the top: Management, Regional Manager, Representative." Representative Question Do you have a structured process for getting to the End-User? 29% said "Yes" 64% said “No" The rest didn't answer Comments "We're involved with sophisticated equipment steam and refrigeration - in specifying, demonstrating and after sales service." "That's impossible. Every End-User has a different make-up and different hot buttons." "We have a selling plan with customer profile, marketing materials, equipment guidelines, direct mail marketing, and participation in the segments programs and organizations.” "Lead follow-up to qualify an appointment for a sales presentation. We also hold periodic 'End-User' seminars in our test kitchen." “Key restaurants, school systems, targeted and worked on a regular basis. Participate in several shows. Send two mailings to key accounts motivating them to attend the shows." Manufacturers Question Do you feel that your current representative force gives you adequate call frequency at the end-user? 87% said "No" 13% said "Yes" Representatives Question Are you giving your Manufacturers adequate coverage at the End-User? 56% said "No" 44% said "Yes" Manufacturers' Comments "Representatives are too busy chasing immediate sales to generate immediate revenue. End-User sales are typically longer term sales.' "Most Representatives give end-user call more lip service than priority. They get bogged down with daily activity and do not plan end-user activity.” “I have several Representatives who sell cooking equipment which puts them in front of many end-users. If the Representative has lines that are sold to the end-user, he is in front of them." "This is a difficult question. Some Representatives are dealer oriented, and some are more end-user oriented. Both are effective. With our products, we are dealer - designer consultant oriented and less end-user oriented, so when we look for a new Representative, we rely less on end user abilities and more on design abilities."

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NAFEM • MAFSI Principles of Decision Manufacturer Question What are the responsibilities of Manufacturers and Representatives in reaching End-users? Manufacturer Replies: Our responsibilities: • Strong Advertising • Trade Shows • Support calls for Representatives • Call on National accounts • Good end-user material • Handle leads properly • Quality products • Good customer service • Direct mail • Local show participation Representative responsibilities: • Call on chains and consultants regularly • Participate in local and regional Shows • Train dealer sales forces • Keep distributors and consultants up-dated • Make demos • Make mailings • Make End-User calls with dealers • Follow up with customers Representative Question What are the responsibilities for Manufacturer and Representative getting to the End-User? Manufacturer responsibilities: • Create product awareness and generate leads • Provide good marketing materials • Provide sufficient samples • Participate actively in all Trade Shows • Selective advertising to key End- Users • Regular calls on Major End-Users Our responsibilities: • One on one contact with End-Users • Follow up leads promptly • Participate in Trade Shows • Train Dealer sales forces Manufacturers Comments "Manufacturers must support end-user Associations (SFM, HFM, NACVFS, ASFSA, ACFSA, etc.) through membership and active association. Also have regional managers, sales managers, product managers make periodic calls on key end-users. They should develop end-user leads through Trade advertising and direct mail, and possibly telemarketing. Participate in Trade Shows." "Representatives should make regular calls on key end users to educate decision makers on their manufacturers' products. They should also follow up end-user leads and report results back to the manufacturer. Once equipment is purchased, they should follow up to be sure the end-user knows how to properly use the equipment and is satisfied. They should also actively participate at local Trade Shows.”

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NAFEM • MAFSI Principles of Decision Manufacturer Question What is the biggest problem in getting the Representative to make End-user calls? • • • • • • •

The time involved Cannot get orders direct from end-users Not as rewarding as time spent with Dealer/distributors Lack of product knowledge Lack of synergy with other lines Poor relationships with dealers

Manufacturer Comments “Time, time, time. The dealer is taking more of the representative's time each year and the representative is taking on what used to be the responsibilities of the dealer. The dealer salesperson used to be more well rounded and knowledgeable. Constant calls to put out fires allow less time for end-user calls." "Penetrating R&D and learning the true purposes and challenges for the products. Representatives are generally lacking in selling skills. They have product knowledge, but lack the ability to apply selling skills." "Lack of time and fear of breaking out of the comfort zone. Representative is strong in institutional, but will not approach supermarket." "Representatives don't have sufficient product knowledge and are not comfortable on end-user calls. Representatives have too much pressure from manufacturers for immediate sales." Representative Question What are your biggest problems in making End-User calls? • • • • • • • •

Not enough time Costs Dealer resentment Getting appointments Geography Voice Mail Getting to decision-makers Contacting End-User at right time

Representative Comments "Trying to explain to the End-User where the Dealer fits in." "Getting an appointment. Rejection. The key is having a product or line that can provide a benefit or solve a problem." Manufacturer Question What percentage of Representatives' calls do you think should be on End-users? 46% said 20% of calls 31 % u 40% " " 15% u 60% " " The balance declined to answer Representative Question What percentage of your time should be devoted to End-User calls? .. To Dealer calls? 45% - more time with End-Users 42% - more time with Dealers 13% - equal time with each

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NAFEM • MAFSI Principles of Decision Manufacturer Question How should possible conflicts with distributors be handled when Representatives do End-User work? "Could easily result in loss of distributor if not careful. Distributor should be advised ahead of call. If severely objected to, Representative should back off or invite distributor to call with him, in an idealistic situation, End-User chains should be sold direct with the Representative earning a larger commission. Schools, hospitals, Prisons, might be treated the same way.' "The dealer feels threatened when the Representative convinces an End User to use a product which is contrary to the dealer's wishes." "Dealers typically feel the End-User is his customer. Representatives must make dealers realize that they are not competition and that they only make money by promoting their products. It is up to the dealer to be awarded the sale." "Representatives should make End-User calls only with or for a dealer, or the dealer may feel cut out." Representative Question How do you handle possible conflicts with distributors when doing End-User work?" • • • • • •

Ask user for dealer preference Open communications with dealers Very few conflicts Provide good margins for dealers Use dealers to open doors Make calls with distributors

Comments "(1). If the distributor gives me the lead, I am loyal to that distributor; (2). If I generate a lead, I ask the End-User to choose the distributor. My goal is to get specified.” "I don't care! Most dealers aren't selling your products unless they stock them. Buying groups have changed that scenario. So Representatives will be stocking and selling direct." "By simply reminding them that our job is to get the product specified, and their job is to sell the product. Where is the conflict?" Manufacturer Question Other than at Trade shows, does your company have an on-going program targeted at generating End-User leads?" 69% said "Yes" 31 % said “No” Representative Question What should a Manufacturer do to help you in contacting End-Users? • • • • • • •

Pre-qualify leads Get leads out within 10 days Provide up-to-date lists of End-Users Define segments they want penetrated Assist at National Chain headquarters Provide support when requested Raise commission to allow us to spend more time with end-users

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NAFEM • MAFSI Principles of Decision Representative Question How do you feed back information on End User activity to Manufacturers? • • • • • •

We don't Informally - verbal, fax, etc. Poorly Use their forms Send Monthly activity reports Send copies of quotes, specs, letters, etc.

Comments "Print reports regularly with ACT software." "Newsletters and verbal. In reality, we do a poor job of letting manufacturers understand all that we invest in the End-User." "Not very effectively. Time is money!! My paperwork is already too heavy. I do realize that the manufacturer wants feedback and they deserve some. However if our numbers do not tell the story, they can get another Representative." Manufacturer Question Do you feel your Representatives should have a designated person to handle End-User calls? 38% said "Yes" 62% said “No" Representative Question Should your Company have a person designated to do End-User work? 62% said "No" 38% said "Yes" Manufacturer Question "Would you share this cost with your Representatives? 50% said "No" 13% said "Yes" 31 % did not answer 6% were doubtful Manufacturer Comments “Representatives are independent business men and they should determine the best methods.' "We will provide money to support it. We must achieve our sales goals." "Logistically impossible. All salespeople of the organization should pursue End-User calls." Representative Question Should your company have a person designated to do End-User work? 58% said "No" 42% said "Yes" From those who said "No" • We are all involved • Our territory is too large • Our territory is not large enough • It is not productive • It is better to have a salesperson follow • through to completion • From those who said "Yes" Page 224


NAFEM • MAFSI Principles of Decision • • • •

Dealers are inept More thorough coverage Can divide market into segments Would like to, but can't afford it

Comments from those who said "No": "If End-User calls are done correctly, the orders received will automatically put you in front of the dealer. Dealers are End-User callers and we need to use that resource." "I want everyone in our group having significant contact with the End-User. We all need to be active on the street. Contacts and close relationships with End-Users pay huge benefits. We are the professionals and need to have End-Users use our knowledge.” Comments from those who said "Yes": "Because this person would be focused on missionary work and not have order responsibility, He would have responsibility to coordinate efforts with the territory sales representative." "A real conflict often occurs when a Representative has a Distributor base, and also calls on a lot of End Users. It is cleaner if the End-User person does not worry about distributor threats and protecting their accounts.” Representative Question Should a Manufacturer financially participate in supporting that person? From those who answered "NO" to the question of a specified person for End-Users: 66% said "No" 33% said "Yes" From those who answered "YES" 79% said “Yes" 21 % said “No” Representative Comments "We need to be paid more than a 5% fee for what we are expected to do , especially with all the End-User work we try to accomplish. Our firm will not take on any new lines that pay less than 10%. We still believe that the manufacturer needs to support us through strong commission levels. We can then perform for them at the maximum level." "If the commission structure is fair, that person will pay for himself. Also, as an independent business man I want control of where and when my people spend their time." "If the manufacturer is going to require detailed information on calls, results, etc., as well as a specific number of calls, then financial considerations are a must. However, the quality of Representatives is such that reaching End Users should be left in their hands and the costs borne by their organizations." "Representatives who close a sale without dealer involvement should receive additional commissions. This would encourage Representatives to prospect and increase market share." General Comments by Manufacturers “With the power of the dealer to switch orders, you need a strong End-User program." “Why should cost be shared when End User calls are a specific function of a Representative?." "End-User contact by the Representative and the Manufacturer is the only way to aid in improving profit margins for all involved including Representative, Manufacturer and Dealer." “Perhaps an extra bonus or commission could generate more interest in motivating Representatives to make end-user calls. It might be cost effective for manufacturers to offer this incentive." "MAFSI and NAFEM professionals are the true partners in our industry. Most other partnerships are buzzwords. We must take control of the market , influence the end-users and bring the order to the dealer to process.”

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NAFEM • MAFSI Principles of Decision General Comments by Representatives "If Manufacturers pre-qualify leads better, Representatives can spend more time with prospects, and not waste time with coupon clippers.” “The topic is timely, as some Manufacturers are trying to dump End-User responsibility on the Representative without any compensation." "Manufacturers must stop decreasing commission rates so they can sell to buying groups. It is short-sighted. The dealer does not use savings to promote the line. The Representative eventually tries to avoid selling to buying group members because it costs him commission dollars. Why penalize the one link in the chain who is paid to sell their brand only?” "Due to the changing role of Representative and Dealer, it seems that the Representative is doing more contact with the End-User and taking on more of the responsibility that the Dealer has abdicated.” With the decline of Dealer value in the network, the Representative is being burdened. The Representative should be compensated for the work with higher commission rates." "We are independent business men faced with problems in time management and costs. It is human nature and essential to spend more time with the lines that give us the best return. The more assistance they give us, the easier it is to sell, and the more productive for all concerned." "End-User work continues to grow for us as Dealer salespeople need more assistance. It is a focus of our business and produces more sales than dealer calls on a percentage basis. The more a factory helps their Representatives with End User issues, the more their sales will grow." "Increased dealer demands for demos are forcing Representatives to do demos dealers have done. Who covers the added costs?" "End-User work is risky. Dealers accuse Representatives of playing favorites and diverting business. Manufacturers are demanding that Representatives make more End-User calls. Will they back us when dealers complain? I lost a line when a Manufacturer gave in after one such instance." Reprinted from Better Repping, Copyright 1995 , Berman Publications, 11718 Barrington Court #341, Los Angeles, CA 90049-2930, (310) 472-4039; Fax (310) 472-4839. All rights reserved. Reproduction without permission is strictly prohibited.

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HOW MANUFACTUERS CAN GAIN THE REP’S MIND-SHARE by Paul Pease Earlier this year, I completed a five-city tour on behalf of MANA, presenting two half-day workshops. In the morning, the program was How to Find, Qualify, & Develop An Outsourced Field Sales Organization and in the afternoon, How to Gain Your Manufacturers’ Representatives’ Mind Share. With the interaction that went on, it was apparent that the attendees were interested in finding out what it takes to start a rep relationship right and how to continue building it for sustained success. This is a good sign because it showed that manufacturers were digging for ways to work with representatives more effectively. Although several topics were covered, I’ll write strictly about four topics here that seemed to be the most pressing issues: 1. Finding reps 2. Lead qualification 3. Communication 4. Working the rep agreement

Finding Reps Clearly for many in the group, their experiences in digging up and qualifying reps were either not going well or turned out downright bad. Even with resources0 such as MANA’s online rep search capability available, it seemed as though something was missing, because reps were being hired, but not “doing their job.” Here are a few pointers gleaned from the workshops on that subject: • Identify what you are looking for in a rep organization. • Realize that good reps are already busy, and probably turning down about one to two lines per week. • Understand that as soon as your search starts, what you find versus what you are looking for will not match. Consequently, you must be willing and able to adapt the best available choice. • Actively pursue all avenues of digging for reps, including visiting competitor web sites, talking to other reps, talking to manufacturers, and working the aisles of trade shows to dig up reps. • Understand the mind-set of the rep, just as you have to understand the mind-set of the customer. This helps you understand what makes them take action. In the manufacturer’s case, it helps the manufacturer understand what attracts a rep to a line. • •

Dig up leads and call them individually. Blasting out e-mail and form letters won’t do it. Reps are small business people that expect individual attention because they give their customers individual attention. Soliciting reps is an ongoing process. It takes effort and patience to develop a solid rep organization.

Who Generates and Qualifies Leads? Generating and qualifying leads was one of the most contentious subjects. Manufacturers spend many thousands of dollars on advertising and promotion to generate leads. They need to see some sort of justification for the expense. In the short term, the justification for the ad budget comes from qualifying leads: how many prospects are they getting per dollar spent? In the long term, they want to see how many of those prospects turn into orders. The problems that arise in the “who generates and qualifies leads” arena come from a number of sources. First of all, one of the main reasons a rep is hired is the fact that they have multiple lines, and that these lines will provide new leads for other lines on the rep’s line card. The good rep will know that they are on a sales call to sell every line they possibly can sell to any account. The customer wins with a single source for multiple solutions, the manufacturer wins because they get new leads from the rep’s other lines, the rep wins because they make more sales on one call. What about the leads generated by the principal’s advertising and marketing? Most reps carry seven to 12 lines. Most manufacturers who aggressively advertise and generate leads are going to generate at least 30-40 leads per month in a given territory. That means a rep firm will get at least 200-300 leads per month. My experience in following up leads is it takes a minimum of five minutes per lead, and that’s for leads that don’t go anywhere.

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NAFEM • MAFSI Principles of Decision So, how much time away from field sales calls to existing product line customers -- where a rep is “shooting fish in the barrel” -- will a rep spend chasing down unqualified leads (if that’s what they are expected to do)? It comes out to about three days per month at a minimum out of the field. Suppose now that a principal decides to qualify leads for the rep. The rep gets the lead, follows up, and bingo! The next time the rep has leads from principals come across his or her desk (or via email), which one will be picked up first? For those principals who are trying to get more mind-share from the rep, which principal will actually get more mind-share: the principal who sends 30 unqualified leads, or the principal who sends three qualified leads? The bottom line is it’s everyone’s job to generate qualified leads. The rep should generate qualified leads from their existing accounts with their lines, and the manufacturer should qualify the leads they are sending to the reps from the manufacturer’s advertising.

Communication From the Reps on Field Activities Communication with the factory was another issue of concern. However, what information each manufacturer wanted differed, as well as the format it was to be generated in. This led to the following problem for the rep: If the rep’s 10 different lines were asking for 10 different formats for field reports, how can the rep reasonably manage this information flow? They can’t. In fact, nobody could. Until manufacturers come to an agreement on what information they want and in what format they want it, getting timely factory-specific field communication from the reps will continue to be a challenge. This doesn’t mean that information can’t come from the field. Reps have been resistive to providing information from the field because of IRS concerns, they feel their customer information is sacred, and it involves wasting time doing paperwork. In the workshop, we discovered that the keys to getting information from the field were to make sure the information was used to help generate more sales, to avoid punishing people for providing information by hounding them for results, and to use field information in such a way that the factory developed an intelligent understanding of what customers wanted. How do we keep the information format simple, yet effective? The best way to get field information was for the rep to send the manufacturer timely, regular copies of all business correspondence sent to a customer that pertain to that manufacturer. Copies of letters, e-mails, faxes, or other correspondence to customers that are quotes, sales call follow-ups, or any other action item by the reps on behalf of the principal should have a corresponding copy go to the manufacturer. This puts the rep and the manufacturer on the same page. More important, from the manufacturer’s perspective, it lets them know that something positive is going on in the territory.

Making the Agreement Work Finally, working the rep agreement was a keen topic. This is where many organizations fail in anything they do: they sign a contract and then expect the contract to run itself. No contract does any work: it never has done any work, and it never will do any work. The contract is merely a guideline for the rules of playing the game. For the game to be played successfully, it is the responsibility of both the rep and the manufacturer to work the contract in spirit. Some areas that were covered in the workshops that were helpful in working the relationship successfully were: Detail task capabilities (show participation, local seminars and workshops, customer training, quoting, order entry, stocking product, collecting money, aftersale support, etc.) were reviewed based on each rep organization’s real capabilities. The key here was to develop a task list of what the rep organization in a given territory actually could do. Likewise, a capabilities list was generated for what the manufacturer could do. This helped in a couple of areas: • It tailored the reality of what a rep firm could do based on the specific rep firm. • It showed the manufacturer’s capabilities. • By comparing the rep to the manufacturer’s capabilities, gaps and overlaps would show. Gaps were addressed in the mutual action plan (next paragraph). Over-laps were chosen by rep or manufacturer as to who could handle them best in that given territory. Page 228


NAFEM • MAFSI Principles of Decision A mutual action plan was developed for the next six months, based on what agreed objectives for the territory were. Also, the mutual action plan could address any gaps in the capabilities chart. Maybe there was a need to create a local warehouse to support the territory customer base, and the rep and principal would work together to fill that “gap.” This would be worked into the mutual action plan. For any agreement to be successful, it must be worked diligently in the full spirit of the agreement. By doing this, there are no surprises when it comes time for a periodic review of the agreement. Through the MANA workshops, manufacturers found that developing a successful outsourced field sales network involves diligently building the field sales organization and working the spirit of the contract to insure a successful relationship. The result is a win-win-win: the customer wins by getting better service with a more cohesive rep/manufacturer relationship, the manufacturer wins with territory growth and the rep wins with more commissions. That’s the object of the game. Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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IMPROVING SALES PARTNERSHIPS WITH TECHNOLOGY By Gregg E. Marshall Last month we looked briefly at Customer Relationship Management (CRM) software, technology to let all parts of your company share information about your customers to build better long-term relationships. One important part of CRM is that it really isn’t about the technology; it’s about creating a customer-centric business strategy. This month let’s change the focus from your customers to your sales partners. There is a new breed of software coming to market called Partner Relationship Software (PRM). Where CRM is designed to facilitate direct relationships, PRM is designed to streamline the workflow between you and your channel partners. It’s important to recognize that, like CRM, PRM isn’t as much about the technology as it is about recognizing the need to develop better relationships with your sales partners. PRM isn’t about micro managing them or manipulating them to sell more of your products. PRM is about increasing the amount of value you provide to your sales partners, reducing the overhead of working together, and strengthening the bond between your companies. Do that and sales increases will naturally follow. In fact, PRM has three primary goals: • Increase Revenues • Decrease the costs of managing your sales partners, and • Create unbreakable partnerships and vendor bias. Put another way, the goal of PRM is to treat your partners like they were your best customers, recognizing you can’t treat them as if they are internal employees. PRM focuses on four functional areas: 1. Marketing Automation -- creating quality leads and following up on them 2. Sales Automation -- closing those leads into sales 3. Customer Service -- resolving pre- and post-sale customer issues 4. E-Commerce -- making transactions efficient Most PRM systems use extranets, or password protected web sites, to improve communication and streamline workflows. One PRM study showed the average sales partner spends six hours a week searching for information needed for sales presentations. Many companies are getting rid of three- and four-inch binders and putting that information on well organized web sites. Some are also using broadcast e-mail to alert their sales partners to new information and important promotions. Every PRM package is different, but there is a long list of functions that many include: partner profiling, lead distribution and tracking, literature fulfillment, soft-dollar (coop) accounting, marketing program management (feedback on what works and what doesn’t), business planning, product ordering and configuration, RGA processing, order and inventory status, service and support information, training and product certification. As you can see there are many areas where you are interacting with your sales partners that can be streamlined using these web-based tools. Many of these functions are being done now with paper files and filing cabinets or spreadsheets and small internal databases. For instance, partner profiling is one area that many manufacturers struggle with. Many of our manufacturers would send out periodic requests for the same information. Many years ago, after getting several requests in a short period of time, we finally developed a company profile we sent back to such requests. I’m sure that in most cases that information was filed in a filing cabinet and rarely used. One manufacturer I know has hundreds of reps across its many divisions. They have built an internal database for keeping track of those reps and their employees. But the system requires costly maintenance, is often out of date, and can’t be used to automatically generate mailing labels or other support for their marketing department. Page 230


NAFEM • MAFSI Principles of Decision We’ve had other manufacturers who continue to send us price sheets and other internal information for years after we stop representing them. Almost no manufacturer I know of attempts to keep anywhere near that same information on their wholesalers. If they can’t do it for 30 to 40 reps, how could they do it for hundreds of wholesalers? PRM partner profiling is the basis for drastically improving that problem. Sales partners keep their own profiles current (with periodic reminders automatically generated) and the information can be used to generate mailings or e-mails quickly and easily. Another area that is frustrating for manufacturers is lead follow-up. According to a Computer Reseller News survey of value added resellers, only 13 percent of all leads are acted upon. I believe the number is similar in our industry. Manufacturers go to considerable expense to generate leads, which are distributed to the reps that usually distribute them to wholesalers. Rarely is there any feedback on whether that lead converted into a sale. It’s not all the sales partner’s fault. I remember one “hot” lead we were given and instructed to follow up on directly that ended up being a trailer home about two hours east of Casper, Wyoming. Even if they had been a qualified lead for the piece of equipment, the commission on that $300 sale wouldn’t have paid for the gas for the trip, much less the lost time. At the same time it is a travesty to have a lead that might have been telephone qualified by the manufacturer being dropped by their sales partners. My favorite quote for PRM lead management is “PRM is a cattle prod to keep leads from going stale.” PRM lead systems can handle the distribution directly to wholesalers (while still keeping the rep in the loop) and provide the needed reminders up and down the channel to make sure good leads don’t go bad. Another exciting area is the possibility to create a stronger community between your sales partners. Many PRM solutions have discussion or bulletin board capabilities that let the sales partners generate their own content. They can share ideas and help each other solve problems. I’m amazed how many manufacturers appear to go out of their way to keep their sales reps or wholesalers from talking to each other, resulting in the same wheel getting invented over and over again instead of developing high performance race car engines. If you would like to experiment with PRM before making the big leap, take a look at MyChannels at www.channelogic.net, a free PRM partner profiling system by Channelogic. While not a complete PRM solution, it is a good introduction to what can be done. Of course Channelogic would like you to use their more advanced software, which is complementary to both CRM and PRM and helps integrate your enterprise systems. As with CRM, PRM is destined to be a big industry. AMR Research estimates that $350 million will be spent on PRM in 2000, growing to $2 billion by 2003. Not bad for a market that really just got its start in 1998. For most companies, even with PRM systems costing six figures, AMR found the payback time is less than 12 months. Look for new entrants, more functionality, a vertical industry focus, alliances, mergers, acquisitions, and European expansion to be trends in the PRM market. While it might seem better to wait until the PRM market stabilizes, the cost of not implementing PRM will dwarf any risks. PRM really excites me. I can see enormous gains in productivity and sales revenue from a good PRM implementation. But just automating a command and control approach to your sales partners won’t work. The bottom line is you need to remember your sales partners are people running their own businesses; your job is to help them be more successful. Do that and you’ll see your sales grow beyond your wildest imagination! Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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MEASURING THE MANUFACTURER/REP RELATIONSHIP Here’s why some manufacturers go to market with independent manufacturers’ representatives: • “Reps are ideal for us in that they bring with them a vast contact database containing valuable intelligence on their territory and market.” • “We’re a small company with a distinct lack of manpower. Working with manufacturers’ representatives is the only way we can cover the nation the way we need to.” • “For the specific product we use reps for, we’ve found that it’s a relationship sale and the rep provides the plant-level sale infiltration that does the job for us.” While the manufacturers in this case are speaking about their experience with the same rep, the message contained in their words can be extrapolated and used to describe the feelings of many manufacturers across a broad range of industries. For the record, the manufacturers and the rep they are speaking about are: • Wepackit, Inc., Orangeville, Ontario, Canada. The company is a manufacturer of case erecting, packing and sealing packaging equipment. According to information found on the company web site (www.wepackitinc.com), “Our mandate is to offer automation solutions that truly represent value for our customers.” • Heat and Control, headquartered in Hayward, California. Visitors to this company’s web site (www.heatandcontrol.com) will find that the manufacturer designs, engineers and builds the machinery that creates and packages prepared meats, poultry and seafood, french fries, baked and fried snacks, and other quality foods. “Our equipment operates around the clock, around the world, giving our customers the advantages they need to succeed in today’s competitive markets.” • Smalley Manufacturing, Knoxville, Tennessee (www.smalleymfg.com), custom designs and manufactures conveyors and conveying systems in North America. And the rep in question is Scott Lincoln, Lincoln Packaging Corp., Strasburg, Pennsylvania. Lincoln opened his doors seven years ago and a visitor to his agency’s web site (www.lincolnpackaging.com) learns the firm “has provided numerous industries with packaging machinery produced by quality machine manufacturers. Our main territorial focus is the Mid-Atlantic States region with overflow coverage in adjoining states. Our future growth includes providing representation and consulting services along the entire Eastern Seaboard of the United States.”

Gauging the Reps’ Value What is it that these manufacturers see in reps in general and in Lincoln specifically that recommends their chosen method as the way to go to market? According to J.P. Perreault, director of marketing and business development for Wepackit, Inc., “We’re a Canadian company looking to accomplish product and market penetration in the United States. Independent manufacturers’ representatives are ideal for us in that they bring with them their vast contact database for their territory and market.” As Perreault continues to describe how he works with reps in the United States, there’s one point he continually returns to - the importance of relationships. “With all the talk and predictions about how the Internet and web advertising were going to affect the way we do business with a net result that there will be less of a role for the rep – we’re finding just the opposite. Even with the new wave of younger engineers entering the industry, we’re finding that what people want are relationships, and that’s what the rep provides. Relationships build a level of confidence between the manufacturer and customer. To reach our potential market in the past, I’ve tried everything - print advertising, the Internet and the web. But what we’ve found is that there is no better method for us as an industry in transition to reach our market than reps.” If that isn’t enough of a positive recommendation for going to market with reps, Perreault continues that “United States-based reps offer this Canadian company the real strength of communicating the product value of our offering that we couldn’t achieve otherwise.”

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NAFEM • MAFSI Principles of Decision As if those strong comments weren’t proof enough that the rep route works for Wepackit, Perreault adds that “because of our efforts with reps, our gross sales have increased 40% in the United States. That’s proof to us that with the assistance of our reps if we can position our product’s quality with potential customers and provide a competitive price, we’ll be successful.” How does this manufacturer find the reps that he’s so high on? According to Perreault, “MANA, with its directory and ads in Agency Sales, has been very helpful. With that as a start, our efforts to find new reps have been somewhat self-perpetuating.” He adds that the company may not respond to every inquiry from reps and in general terms, it employs a philosophy that leads them to partnering with quality agencies and searching for longterm relationships. On the subject of relationships, Perreault has some very firm opinions. “Relationships - business and personal are very important and many times you can’t separate one from the other. But relationships between you and your rep will only take you so far. There comes a time when you have to deliver - that’s the bottom line. It all comes down to performance. In the case of Scott Lincoln, he gets the job done for us, and that’s what it’s all about.” A part of Lincoln getting the job done, according to the manufacturer, “is that he is so incredibly detailed with his front-end communication when it comes to defining a project. The type of input he provides allows us to easily respond to his inquiries in a quality manner. He gives us this type of information because he realizes the potential of what he’s working on. As a result, we’ll support Scott to the nth degree in everything he does. If he says he needs more support from us, he’s got it.” Another of Lincoln’s strengths that Perreault refers to when speaking about the rep concerns his ability to “stay focused on his core products. This is something that he is especially adept at. Sure, there may be some shortterm opportunities that are presented to him, but rather than follow them, he always stays focused. He’ll pass up an opportunity like that, stick to his guns and resist temptation.” Perreault qualifies his praise for reps with one measured observation. “Sometimes, and I emphasize it is sometimes,” he explains, “we run across reps and agencies that don’t know when to disengage themselves from the process. In these cases, we found that they are so protective of their customers, they have a feeling that once they open the door to the manufacturer with the customer, their relationship is in danger. They don’t or won’t back out at the logical time. What happens then is because they want to ensure that everything flows through them, we have a useless layer of communication.”

Selling a Specific Product Another of Scott Lincoln’s principals is Heat and Control, Inc., headquartered in Hayward, California. Brian Barr, sales and applications manager for the manufacturer, explains that for one of his company’s product lines, the Checkweigh inline weighing product, reps were the only way to go. “For this specific product manufacturers’ representatives offer us the best market penetration at the right price point.” He adds that the Checkweigh product is a plant-level decision buy. “What it comes down to is relationship selling, and that’s what the rep does best.” He adds that how the rep performs for the company in this area is a perfect example of the rep-s value achieving market penetration. Heat and Control uses reps nationwide on this product, and Barr explains that the company has been able to find reps through word of mouth from their existing reps or from recommendations from current customers. “We’ll ask some of our customers who the reps are that call on them for other products and have done a good job for them. This has been a big help to us in locating reps.” Barr explains that many of the reps the company does business with - including Lincoln – originally came from the manufacturing side. “As a result, they know all the concerns and problems the manufacturers have to face, and that’s a big help in our relationship with them.” While reps have done the job Heat and Control needs and wants them to do, Barr adds that a continuing concern for his company is to ensure they gain a fair share of time with their reps. “We know that we have to compete with other manufacturers for the rep’s time. We feel we do that by partnering with the reps we do business with.” He explains that the company has at the ready all the tools and support they will need to get the job done in the field. Page 233


NAFEM • MAFSI Principles of Decision “We make sure our internal service structure is set up so our application people are always there to support the reps. Our whole effort is focused on treating our reps just as we would treat our customers.” He adds that Scott Lincoln fits the description of the kind of rep that they like to do business with, especially considering “his attention to detail.”

Serving the Small Manufacturer As Keith Iddins, head of marketing for Smalley Manufacturing, Knoxville, Tennessee, describes it, the reason his company goes to market with reps sounds like one ripped right from the pages of a marketing textbook. “We’re a small business, and the cost for us to cover the country with direct people would be very expensive. As a result, we work with reps nationwide and have three of us internally work with those reps.” Just as the other manufacturers before him, Iddins praises Lincoln for his front-end work. “He takes care of the customer and thoroughly follows up on all leads.

A Rep’s View of the Relationship It wouldn’t be fair to limit this manufacturer/rep discussion to one where only the manufacturer has a word, especially when Scott Lincoln is anxious to weigh in with his thoughts on the relationship. At the outset, just as we asked the manufacturers in this article how they found good reps, we also asked Lincoln how good manufacturers can find him. In response he offers an endorsement for MANA, which he joined last year. “Unless a manufacturer knows I’m here, he’s not going to find me,” he says. “I can be the best rep in the world, but unless someone has heard of me, that won’t do me much good. In addition to word-of-mouth recommendations, which are very worthwhile, MANA has been great. It’s an organization that works hard to build relationships between manufacturers and reps and to create matches between the two.” Having spent time as both a manufacturer and a rep, Lincoln knows what it takes to do both jobs, and much of what he talks about points directly to the importance of relationships and teamwork. “As a rep, I have a mixture of exclusive and non-exclusive agreements with principals. Some have written contracts and some exist on the basis of a handshake. I’m from the school where it’s perfectly all right to do business with a handshake. In such arrangements, I find you have to pay much more attention to the relationships. With a contract, after a couple of years, no one really remembers what was agreed upon anyway. What’s important is the relationship.”* Lincoln continues by defining the terms of the relationship. “As a manufacturers’ representative, it’s important that the rep think of himself as a direct employee of the manufacturer and strive to conduct himself accordingly. Just as any direct salesperson, you are paid to sell. And, whether it takes six months or longer to get the sale, you benefit from the selling of the manufacturer’s product.” Perhaps, drawing from his time as a manufacturer, he adds that “often within the manufacturer’s organization, there may be several who have negative preconceived notions about the rep - notions such as reps are just order takers, and nothing more. I know that’s far from reality. Those people aren’t the ones who are there when you’ve worked 12-14 hours a day and late at night check into a hotel exhausted. Then, at the end of many weeks, nothing has happened and none of the orders have come in - yet you still did all the work that had to be done. There’s obviously a lot more to the job than just taking orders.” In terms of doing away with those pre-conceived notions and working to improve relationships, Lincoln is quick to talk about the importance of teamwork. “I don’t have an MBA, nor am I a Business 101 kind of guy,” he explains. “But I can use a computer, create spreadsheets and I know how to work between engineering and accounting. One thing I’ve come to realize through all the downsizing and the resultant pressures that have been placed on our customers is that customers today expect more from a sales agent than ever before.” To provide the products and service that the customer needs, Lincoln maintains that he has been able to work with manufacturers that provide him with the kind of support allowing him to better serve the customer. The three manufacturers already interviewed for this article fit the bill for what Lincoln is speaking about, so much so that all were the recipients of “Awards of Excellence” from the rep. According to Lincoln, “Two years ago I instituted these awards based on criteria reflecting the manufacturer’s performance.”

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NAFEM • MAFSI Principles of Decision Among the criteria that Lincoln uses in making the awards are: • Timely response to inquiries • On-time delivery • Successful installation – “Did we, as a team, get it right? Does it work? Did we quote it properly?” • Satisfied customer - this includes long-time support in terms of parts and service. • Pursuing a competitive edge in the marketplace – “If I bring good potential business to a manufacturer, have they followed through from their end by being competitive in the marketplace? What good does it do for me to do my job and then we never get any business because they are not competitive?” Lincoln adds that “these awards have really helped me take a harder look at my top - and low-performing manufacturers and encourage the low performers to either come up with solutions to problems or perhaps I’d even consider changing companies.” If the aforementioned Awards of Excellence are any indication, it doesn’t appear that any type of “change” will occur in the relationship between this rep and these manufacturers. * Editor’s Note: While we agree that relationships always come front and center, readers might remember that in general, MANA and many others who have appeared in the pages of Agency Sales don’t necessarily recommend conducting business solely on the basis of a handshake. MANA’s legal counsel has regularly recommended the preparation of contracts. To that end, the association offers its members a recommended standard contract guideline.

NAM – Another Manufacturer Asset Valuable information is provided for manufacturers when they visit the MANA web page and follow directions to click on the NAM location. MANA and the National Association of Manufacturers (NAM) have entered into a strategic partnership for the benefit of the members of both trade associations. It is noted that “small and medium-sized manufacturers and professional field sales companies have been partners in profits since the early 20th century, and today their respective trade associations are partners in advocacy, education and other key areas. “Today, more than ever, MANA and NAM members are teaming up to penetrate mutually profitable markets. “The NAM members have the technology, manufacturing skills and the personnel to produce world-class products at very competitive prices. MANA members, in turn, have the sales and marketing skills to present the products of NAM members to customers all over the world, and to do this in a manner that presents the manufacturing concern in the best possible way. Today, the U.S. economy is the envy of the world because we’ve learned how to focus on what we do best and to outsource to partners what they do best.” Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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THE PERFECT FORECAST IN THE EYES OF A REP By Harry J. Abramson Undoubtedly, one of the most imperfect aspects of today’s business world is forecasting. It’s one of the most complained about chores by salespeople. To me forecasting and insanity have a lot in common. Reps are continually asked to submit forecasts using the same error-prone methodology, which results in the same inaccuracies. Insanity is repeatedly doing the same thing and expecting the results to change! So let’s keep reading and get more sane! There is no question in my mind that it is virtually impossible to accurately forecast in today’s wild and wonderful world. The economy is highly volatile and the technology is changing dramatically. Furthermore, I do not believe that forecasting should ever be referred to as a science. When forecasts are accurate, it is often due to the laws of compensating errors. Your odds of hitting the “forecast bull’s-eye” are greater than that of winning the lottery. So let’s explore or, if you prefer, “deplore” the world of forecasting. Some of our country’s most brilliant business prognosticators never saw the recession coming. If they had, our customers would not have been caught holding billions of dollars worth of inventory. So, what happened and how could it have been avoided? I thought that there were computer models that took into consideration all of the economic factors and barometers that financial analysts monitor daily. To my point, sales forecasting is an imperfect science! Most salespeople in the electronics industry call on engineers and buyers. Are we knowledgeable of market conditions and trends - obviously not! Do we spend time with our customers’ marketing gurus in the pursuit of more accurate forecasts? I don’t think so! But these are precisely the guys who are chartered to study their customers’ needs and things like building starts, GNP and currency exchange rates. These are all factors. Buyers are simply responsible for negotiating fair pricing and responding to requisitions. If they were perfect forecasters, they would be in another department. Engineers are chartered with the responsibility of designing the most functionally perfect products that the user would ever want. The demands on engineers can range from developing the lowest cost products to those that are full of features and benefits notice I didn’t say forecasting.

Forecast Definition Let’s get basic! Sales forecasting is the process of organizing and analyzing information in a way that makes it possible to estimate the future. Obviously, the better the database and account knowledge (user), the better the forecast. However, this does not take into consideration the multitude of outside economic influences that are not visible to the untrained eye. Also, it should be noted that market trends develop faster than ever before and manufacturers have to be “change masters” if they aspire to be industry leaders. Perfect principals are mindful that a forecast is a prediction and has limitations. Handicappers are also predictors - Need I say more?

Why Request Forecasts Do field salesmen truly know what happens to the forecasts that they labor over for hours? Are they entitled to know? Absolutely! Here are some possible answers: 1. I keep them on my desk in case someone asks (plausible). 2. I turn them over to my boss (and they sit on his desk). 3. We have a management meeting and review each one of them (unlikely). 4. I keep them and measure each rep’s accuracy (nothing better to do). 5. We immediately buy raw materials based on reps’ forecasts (no wonder you’re over-stocked)! 6. I really don’t know why I request them, except that we have always done it that way (at last - honesty). Perfect sales managers only request forecasts when they serve a purpose. That means that they are read and some action takes place. However, some perfectly honest RSM’s told me they do one of three things: pile them, trash them and sometimes read them.

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Is Forecasting Archaic? Isn’t it amazing how many sales managers and their hierarchy complain about the continued inaccuracy of forecasts, but continue to request the same data in the same format with the same methods with the same results? When will manufacturers realize that you can’t live or die by the risky, error-prone, frustrating practice of forecasting bookings when in reality they are asking us to forecast our customer’s customer demand? Frankly, this is an area that even your most brilliant customers cannot anticipate. When the marketplace demands a product - they want it now! Isn’t it more prudent to factor industry market segment “demand and fall-off,” as opposed to putting so much emphasis on specific accounts?

Preparation Time Do principals think that reps are sitting in their offices thinking about their vegetable gardens and waiting for their next year’s Burpee seed catalog? Get real! The perfect rep is always planting business seeds and harvesting at the same time. They need at least three to four weeks to prepare a reasonably good forecast, since this will allow enough time to speak with their accounts. Giving three or four days’ notice is unfair, inconsiderate and poor business practice. Short notice is guaranteed to yield inaccurate results! Perfect principals are considerate of their representatives’ time and schedules.

80/20 Forecasting Perfect principals only ask their representatives to forecast for the 20% of their accounts that are responsible for 80% of their total sales volume. This approach still results in the principal receiving well over 90% of total forecasted sales. This streamlines the process and helps everyone. Like the book says, “don’t sweat the small stuff.” The perfect principal has their marketing department maintain a vigil of their top accounts as well as a periodic dialogue. Incidentally, is there still a position called “market research manager?” If not, why not?

Forecasting Humor 1. It is difficult to forecast, especially if you are forecasting for the future. 2. As soon as you submit your forecast, you can be sure that it is inaccurate. 3. Sales managers who live by the crystal ball must be prepared to eat ground glass. 4. The only thing less accurate than a weather forecast is a sales forecast! 5. If your forecast is ever accurate, never let your boss forget it!

Advancements I’d like to make a personal observation. I’ve been selling technology for more than 35 years. During this period, I’ve seen innumerable technological changes and, more important, advancements. However, there is one common thread that is consistent among all of the companies that I’ve represented. Are you curious what this is? All of these manufacturers are still forecasting basically the same way! If you don’t believe it, dig out the old files and you’ll see. The sales managers have changed, but the system has not. Something is wrong with this picture!

Databasing Near perfect forecasts cannot be achieved without a database! With that in mind, how can a clear-thinking manufacturer request a forecast without providing a sales history? Like it or not, most forecasts are based on historical data. Why? Because typically the salesperson asks the customer, “How much more business do you expect to place next month or next year?” The operative word is “more,” because this is the way positive thinking sales-people express themselves. Unfortunately, when the question is posed to the buyer, he can only answer in generalities. He may have heard a general statement that his company expects to do 10% more future business. However, this may have little or no bearing on the specific products that we sell.

What Caused the Glut? In the 10/1/01 issue of Electronic News there was an article headlined, “What Caused The Glut?” The author reported that some of it could be attributed to overzealous forecasts or down-right dishonesty. I believe the reasons are far more deep-seated. The economy in 2000 was a steamroller of success. Sales-people weren’t just meeting their forecast, they were exceeding it. Projections were easily met and sales and marketing types were in a state of euphoria. When reps were asked for their 2001 forecast, many of them submitted a “flat” to Page 237


NAFEM • MAFSI Principles of Decision slightly down projection. Unfortunately, when the manufacturers (principals) received these forecasts, many of them sent them back to their representatives stating that their reps’ projections did not conform to their own. In some cases, these representatives were singled out for their negativity and were viewed as pessimists. Ultimately, many were forced to condescend to their principal’s budget as opposed to “their reps’ forecast.” This type of conduct hardly serves to keep the financial boat afloat. I believe that the perfect principal places faith and confidence in his representatives. He should entrust his representatives with both the sales and forecast responsibility. There is far too much massaging of forecast dollars by sales management. Perfect sales managers do not add or subtract numbers to reach a goal. They accurately report it as their professional sales representatives see it. If more principals spent time strategizing with their representatives and spent less time on forecasting and reporting, I believe it would be reflected in increased sales and a healthier bottom line.

The Monthly Cycle Why do so many sales managers put their reps through the same painful monthly cycle only to get the same imperfect garbage (oops, data) they’ve been receiving for years? It’s a tremendous burden on the sales force and it makes little sense! More important, it often robs salespeople of precious selling time. Whatever happened to Market Research departments? I don’t believe that many of our principals, and certainly not reps, are performing this function. Perfect manufacturers/suppliers spend their time studying industry trends by market sector. Better yet, they understand their customers’ “supply line management systems,” MRP’s, inventory management and how and when an order gets executed. Keep in mind that the distribution business is even more difficult to forecast. Just ask any distributor management person with whom you come in contact. They have an equally tough time.

Peter F. Drucker Peter F. Drucker’s book, Management, states that the future is unpredictable and any attempt to mastermind it is foolish. Further to that point, he says we can only discredit ourselves by attempting it. This is very interesting! He underscores his point with, “If anyone still suffers from the delusion that man is able to forecast beyond a very short time span, let him look at the headlines in yesterday’s paper and ask which of them he could possibly have predicted....” So much for medium and long-range forecasts. Mr. Drucker is recognized as one of the giants in the world of business and I wonder why more people, especially sales management types, don’t subscribe to his thinking. Could it be that they don’t read his books or think he’s a dummy? I seriously wonder.

The Plea Mr. Sales Manager, you can’t fight the laws of economics – the natural ebbs and flows. Please stop screaming at your reps for inaccurate forecasts. They do the best they can! It’s time to stop the insanity and change the system. Most of you have been doing it the same way for so long that it’s time for a change. Believe it or not, there are alternatives! Courses are offered in colleges and universities, and they encompass more than the “field sales up” approach. If you are not aware of them, simply go to the library or bookstore.

Alternative Techniques Most field salespeople only know one form of forecasting, that being the “sales force composite” commonly referred to as the “bottoms-up” technique. However, there is a plethora of approaches that I encourage sales management to consider. Some are: 1. Analogous forecasting 2. Assumption base model 3. Atar model 4. Box-Jenkins models 5. Customer/market research 6. Decision trees 7. Delphi method 8. Diffusion models 9. Experience curves 10. Expert systems 11. Exponential smoothing 12. Jury of executive opinion 13. Linear regression 14. Moving average Page 238


NAFEM • MAFSI Principles of Decision 15. Neural networks 16. Nonlinear regression 17. Pre-cursor method 18. Scenario analysis 19. Simulation 20. Trend line analysis ... and many more! Unfortunately, virtually all the rep sees is the “bottoms-up” approach.

Forcing the Forecast The perfect rep does everything possible to submit an accurate forecast. He speaks to the “people in the know” at his accounts. The resulting forecast is a reflection of the intimate knowledge that representatives garner from their OEMs’ key contacts. That information is submitted to the principal as “the way we see it.” More important, it’s the way the customer sees it! So, why is it that so many principals come back and say that the numbers are unacceptable? Unfortunately, there are some principals who force the forecast down the rep’s throat. When the rep emphatically states that the customer only plans to build a specific quantity, too often the principal instructs the rep to add the dollars or units to base or miscellaneous business - This is hardly forecasting! If a principal needs to forecast from the top down, they should be open and honest about it. The perfect principal does not dictate forecast dollars. They collaborate with their representatives, look at the accounts as a team and develop strategy as to how they can win more business – without massaging. Believe it or not, perfect principals believe in reality-based forecasting!

Summary Can you imagine anyone saying that they have a perfect model for forecasting? Of course not! It just doesn’t exist. If it did, everyone would be using it and there would be no complaints. With so much uncertainty in our economy, why would any company place much credence in forecasts? More importantly, why would you criticize reps considering what you’ve just read? Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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Training and Education Introduction: Why Develop a Factory Training Program for Your Independent Manufacturers Agents? ............................................................................................................................. 241 Carrying the Rep’s Message (New) .......................................................................................................... 242 Bridging the Communication Gap Between the Corporate Office and Sales (New) ................................ 245 Product Training ..................................................................................................................................... 247 Factory Product Training for Sales Representatives (Professional Field Sales Force Training).............. 248 The Mechanics of Good Product Training - Do It Right, Do It Regularly ................................................. 253 Effective New Product Training ................................................................................................................. 256 Product Training: What Agents Have to Say About It ............................................................................... 258 How to Get the Most Out of Your Agent Training ..................................................................................... 260 Agents Report on the Three Most important Training Issues ................................................................... 262 Manufacturers Use Agents to Train Agents .............................................................................................. 264 Personal Field Sales Training Via the Internet ......................................................................................... 266 Factory Training of Internal Personnel ................................................................................................. 268 A Training Program for Internal Factory Staff ........................................................................................... 269

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INTRODUCTION: WHY DEVELOP A FACTORY TRAINING PROGRAM FOR YOUR INDEPENDENT MANUFACTURERS AGENTS? NAFEM companies now realize the value of knowledge in our fast paced, ever changing industry. Our sales force is the bullet that delivers the knowledge of our products and services to the respective industry channels. Development of a focused, knowledge-oriented factory training program is vital to your company's survival. Unless, of course, your prime weapon for selling is price. Many NAFEM companies struggle with training. They do not know how to get started nor do they know what is needed. The first step is to place your ego on the shelf and ask your representatives what they need. Then you might glance through the next few sections of the TRAINING AND EDUCATION chapter of PRINCIPLES OF DECISIONS. Focused, hands on factory training programs bring value your representatives. These programs educate your sales force and build stronger relationships with everyone at you factory. They force engagement between the representative and your internal personnel. They also bring value to the manufacturer as you now have a tool to help your company avoid that ugly sin of price, price, price. While it is important to develop a factory training program they certainly should not be held during industry conferences, nor should they be held just for the sake of having a meeting. Some of the industry leaders have shared their training program knowledge in the next few pages. Take a look.

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CARRYING THE REP’S MESSAGE Understanding the rep’s role gets a manufacturer’s marketing plan in the air Here’s an analogy one manufacturers’ representative uses to describe the experience of a manufacturer contracting with reps without fully understanding what the rep brings to the partnership. “Imagine what would happen if someone put you behind the controls of a small, light airplane, with a full tank of gas (assuming you’re not a pilot). What do you think would happen after they told you to ‘Go’? Chances are, you’d wind up in a ditch at the end of the runway.” So too is it with manufacturers’ representatives, according to Al Brosseau, Albro Export & Marketing, Inc., Montreal, Canada. And rather than let potential marketing partners wind up in that ditch, Brosseau has taken the bull by the horns when it comes to educating not only manufacturers concerning the value of reps, but also the various governmental agencies that will refer manufacturers to the rep way of doing business. Brosseau, the rep/consultant who carries the title “assistant to customer and president of Albro,” is uniquely situated to deliver his message, given how the agency has positioned itself as “a combination of sales representative and marketing consultant. We represent Canadian manufacturers of building materials and architectural systems in the USA, and we also offer consultative services such as finding sales agents, showing manufacturers how to work with them and market studies.”

What’s Happening in Canada? It’s in that latter capacity as consultant that Brosseau has been spending a good deal of time recently. “What’s happening in Quebec and elsewhere,” he explains, “is that we’re having a number of governmental agencies recommending to manufacturers that they should begin using manufacturers’ representatives because they don’t cost anything.” Obviously, communicating the true value of reps and how they operate is getting lost via faulty communication. That’s where Brosseau comes in. Since the beginning of the year, he can point to a full schedule of presentations he has made, largely to manufacturing groups, concerning who and what manufacturers’ reps are and what they truly contribute to the marketing effort. A look at his schedule earlier this year found a variety of presentations -- in French and English -- covering: • How to work with manufacturers’ agents • How to sell in the United States • How to get the most out of a manufacturers’ agent • Before selling in the U.S.A. A large portion of his message to manufacturers can be heard in any of the presentations he makes to governmental or manufacturing groups or found on his agency’s web site (www.albro.com). Here’s part of Brosseau’s message.

Tracking the Trend The trend toward outsourcing is one that remains very evident today -- it’s a concept used by large and small companies, even Al Brosseau governments, because the desired task is delegated to experts. The manufacturers’ representative fits that description when it comes to outsourcing the professional sales force. Part of the reason for that is that niche marketing is critical today. To achieve effective niche marketing, professional salespeople are a must. Hence, the active role of the manufacturers’ representative. Brosseau goes on to detail the primary advantages of the professional, multi-line sales agency -advantages that have been well-documented in the past by MANA. •

Predictable and lower sales costs -- Brosseau explains that because commissions are established ahead of time, the manufacturer pays only that “pre-established percentage” that is based on results, i.e., after the sale. At the same time, the manufacturer experiences lower sales costs. “In the United States, a direct salesperson can cost, on average, $150,000 annually. If this salesperson generates annual sales of $2,000,000, his cost to his company is 7.5% of sales. A rep on a 5% commission will cost his principal (company) $100,000. And chances are the rep will increase sales and market penetration. Page 242


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Increased sales with complementary products -- The rep maintains that this is a very important consideration. “Today with the ‘rationalization’ of jobs, everybody is super busy. As a result, it is difficult to secure appointments (ask me, that’s what I do for a living). However, manufacturers’ reps make use of one product to sell or complement another. They offer a wider array of solutions and ‘unity of responsibility.‘ Reps are system sellers and get the attention of the customers better than single-line direct salespeople.”

Highly experienced sales personnel -- Brosseau maintains that “Today’s reps are sophisticated sales professionals. They know their industry and their customers -- within their territories -- like no one else does.”

Quicker access to markets -- Because of the manufacturers’ representative’s experience and deep territory knowledge, they know right away who will be interested in a manufacturer’s products, and they know where to focus their efforts.

Low-cost or free consultation -- According to Brosseau, “Your agent is the best person in the territory to advise the manufacturer. For instance, he knows in which exhibitions to participate, those to avoid or where to spend your advertising dollars. Reps can often provide other marketing services such as mailings, warehousing, store layouts, etc., and at a very low cost.”

Low training costs -- Brosseau emphasizes that the staying power a rep has in his territory can result in the following: “Consider that the average direct salesperson lasts an average of two years in a given territory. As a result, training of that direct person becomes a continuous, recurring expense. A rep, on the other hand, knows sales and the territory. The only training he needs is in what differentiates your product from the competition. “Another point to consider is that you cannot promote a rep! His territory is his livelihood. He has no intention of going anywhere else. What results is a substantial savings in training cost.”

Dependable sales forecasts -- Reps are well aware that they will be haunted by their principals if they are overly optimistic or too conservative when it comes to forecasting. An inaccurate forecast can result in customers having long delivery times -- or even worse -- no deliveries. “Then, there’s the pleasant surprise I’ve seen when reps reach sales levels that were much higher than those I or my clients had ever dreamt of.”

Marketing synergy -- Brosseau recalls that “It used to be that the companies that made all the marketing decisions carried them through. Times have changed. Now reps have their own newsletters, web sites, direct mailing programs, databases, etc. For instance, many of my clients rely on my database for the recruitment of new agents and many are familiar with my postcard program.

Is every call a call for you (the manufacturer)? -- Absolutely. “Sales remains a relationship business. As your rep calls on your potential customer, he builds his relationships with that customer. As a result, even if he might not talk about your specific product or company, he is laying the groundwork for you, your company and your products or services.”

The Disadvantages of Reps? •

Some maintain that reps are harder to manage than a direct sales force -- According to Brosseau, “Reps have to be led. With that thought in mind, oldfashioned, coercive management or ‘control freak’ managers should be on notice that they shouldn’t be involved with reps nor with leading-edge marketing. “An important consideration here is that the rep route is not for amateurs. In order to work with reps, one must know marketing, how reps work and how to support them.

Reps won’t think long-term -- “Reps have demonstrated time and time again that they are very successful at capital equipment sales, which require long-term planning and selling.” ï Reps complain too much -- “Sure, they can get frustrated and overreact, but it is also my experience that many principals prefer not to listen to their reps because they do not wish to change their methods, products or adapt to changing market conditions.

Reps are order takers -- “That is what they are meant for, however, there is more to it than that. Reps know their customers’ needs -- they work with the customers, and it is to everyone’s advantage that they promote or suggest your product at the most opportune time. Remember that pushing a product or trying to get orders for more than the customer wants is not professional.”

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NAFEM • MAFSI Principles of Decision Basically, that’s the gist of the message on this subject as it appears on Albro’s web site. Brosseau maintains, however, that there’s more that must be communicated to manufacturers, governmental agencies or others interested in learning more about reps or conducting business with them. “If anyone is interested in how to communicate this message, please feel free to contact me,” he adds. He continues that MANA also has a full range of communication tools that work to deliver the very same message. Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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BRIDGING THE COMMUNICATION GAP BETWEEN THE CORPORATE OFFICE AND SALES By Paul Pease At times, the corporate office and outside sales live in a world of ongoing information and communication conflict. Management warns ambitious salespeople who can drive new business results, but can turn off the aggressive attitude when it comes to dealing with the corporate office. Sales will deal with any problem a customer throws at them, but any problem the corporate office throws at sales is met with a nuclear response. Management wants salespeople to communicate more with the corporate office. Then, they punish salespeople for providing forecasts and feedback by hounding them for the orders and results. The salespeople (i.e., reps) react by sending in bad information, lower performance forecasts, and excuses for non-performance. These excuses usually boil down to pricing, delivery, quality, stock, customer service issues, lack of sales tools, or some other home-office problem that needs to be addressed. Now sales has turned the issue from a sales problem to a home-office problem to keep management from sticking their nose in sales forecasting. The finger pointing boils down to management yelling at sales, “Where are the orders?!” and sales firing back, “Why can’t you get your act together?!” Here’s what works: If you want salespeople to continue to provide you with information, you need to use that information to assist the sales process. Information from the field used proactively would include: Forecasts - to help with: 1. Production control scheduling 2. Resource investment a. Capital equipment b. Personnel c. Material 3. Joint resource utilization and team selling to help close a deal a. Shipping personnel from your company talking to receiving personnel at the prospect’s company to find ways to package, ship, and unpack economically b. The credit department of your company talking to the payables people of the prospective client c. Designers talking to marketing d. Quality assurance talking to incoming inspection e. Engineering talking to customer manufacturing engineering f. Of course, purchasing at the customer end and sales at your end are copied on all of these communications to keep them up to date on issues, desired changes, and remedies Use feedback in a proactive way: 1. Facilitate the team sales process as outlined in 3 above 2. Work on new feature development- highlights from the feedback could call for action requiring a new feature to be added that will help close the deal Lost order reports, used to look at: 1. Saving the current order 2. Market patterns that are changing and need to be adapted to 3. Digging deeper into why the client chose another source

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NAFEM • MAFSI Principles of Decision Salespeople should look at the benefits of a reporting system. With good information in the corporate office’s database, when a customer calls, corporate office people are up to date on the proposal process. This helps the customer get instant service and answers, and sets a good image for the company in the eyes of the customer. A salesperson providing good customer information can actually take a vacation and be covered by other personnel who now have good information to make sound decisions to help the customer. The benefits to the salesperson of getting more people at the corporate office involved in the team sales process through accurate and timely forecasting and rep feedback are well worth the time spent generating them. A summary of points that make the entire field sales-corporate office team less confrontational include: Management: 1. Stop punishing sales when they provide you with information. 2. Give them stretchable, but attainable goals. 3. Spend time with them in front of customers, but make sure you let them run the sales call. 4. Help facilitate the sales (and ultimately, the customer’s) messages back to the corporate office to guide improved performance for better customer satisfaction. Sales: 1. Treat the corporate office like you treat a customer. Give them the benefit of the doubt and help guide them through the process to improve customer service performance. 2. Provide information so you have a customer-savvy and market-savvy corporate office. 3. Be a team player, not a prima donna. 4. Know your business, not just your customers. See the big picture to be more effective both in the field and in dealing with the corporate office. The main issue that sales forecasting and reporting involves is trust. A successful system is one that is run by salespeople who can trust the people they provide the information to, and the people that are getting the information trust the salespeople providing it. Reprinted from Agency Sales Magazine, Copyright 2002, Manufacturers’ Agents National Association, 23016 Mill Creek Road, P.O. Box 3467, Laguna Hills, CA 92654-3467, (949) 859-4040; Fax (949) 855-2973. All rights reserved. Reproduction without permission is strictly prohibited.

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Product Training

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FACTORY PRODUCT TRAINING FOR SALES REPRESENTATIVES (PROFESSIONAL FIELD SALES FORCE TRAINING) As the industry matures, customers are looking for differentiation in both the products they buy and/or sell and the service they receive from their suppliers. The performance bar is always being raised. Since manufacturers and their manufacturers’ representatives constitute the closest alliance in today’s food service marketplace, it is clear that competent training for the representatives at the factory or some other suitable site must go to a new level. It is not sufficient to know just a few features and benefits. Today’s partners, the manufacturer and the sales representative, must become intimate with their products and training programs. If you do not have a training program, NOW is time to start! The following is a basic list of important factors to consider when developing a professional training meeting for your representatives. Background material and supporting documentation including details of each segment shown below and magazine articles can be found on following pages in order of use. Here is an outline for establishing a professional training program with your manufacturers’ representatives: I.

Selecting the sales management team

II.

Establishing the agenda with time frames

III.

Setting up meeting logistics

IV.

Implementing the agenda

V.

Supporting documentation

VI.

Gauging your meeting’s success

I.

Selecting the Sales Management Team

The best meetings are those for which attention is paid to the details. It should include a blend of information, training, and socializing. It’s not a job for a single person, but a multiple of key personnel. The people involved need to understand that they are in a very important position and that the effectiveness and thoroughness of the training can directly impact the success of the company. In most cases top sales management is the natural place to select the team that will present the product training session. When new or drastically revised products are being covered, it is also helpful to include the person(s) most directly involved in the development of the product. Other departments such as Customer Service and Technical Support should be included if their impact is material to the product(s) being presented. A team leader should be selected within the group. It should be someone who not only has the understanding of the meeting process but the time to monitor the progress of contributing departments to be sure all the details come together within the proper time frame. It is important to remember that the major objective is to impart knowledge in various forms to someone who can use it in the sales process. Train the Trainer; for greatest results with product training sessions it is desirable for the primary trainer to be someone who is trained as an instructor. Few if any managers have had this kind of training. The trainer and all factory personnel should also know exactly all details of the role of the professional representative and how these services directly impact your company in the marketplace. For more information, please call MAFSI Headquarters or refer to other chapters in Principals of Decision.

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NAFEM • MAFSI Principles of Decision The trainer should be fully versed on the products, their evolution, their place in the market, as well as the competition’s products. They must understand that he or she is training professional sales people not engineers. It is also important to include responses to what the customer sees as benefits to the competitive models. As insufficient information could cause a problem, there is also a danger in giving too much information. Factory personnel should be counseled in advance. Advise them that for a representative a factory visit and hotel stay is not a perk! They don’t need another reason to be away from home. They should be made to feel completely welcomed and that they are a valuable member of the team.

II.

Establishing the Agenda with Time Frames

The agenda is a key factor in determining the ultimate impact of your program. The agenda should be developed based on the scope and intent for the meeting as established by the team. The preliminary agenda should be distributed to the company’s Rep Council members for their input during the planning process. In the absence of a rep council, select a sample cross-section of reps (some veterans, new reps, etc.) for their review. For more on Rep Council’s please refer to the Rep Council chapter in Principals of Decision. Consideration should be given to the make-up of the attendees with regard to tenure and the objectives of the meeting. If the meeting includes “green” recruits and seasoned veterans consider starting the agenda a day earlier to bring the new people up to speed with the basics. Send a final draft to all attendees. Make the topics as specific as possible in order to build anticipation and encourage preparation. Each agenda item should include a timetable for starting and ending. The team leader should maintain control of the timetable as an observer in the room. A sample agenda includes: Introduction The highest-ranking executive should welcome the attendees, state briefly the intent and scope of the meeting and encourage active participation. A short history of the company and product evolution is effective when new representatives are in the majority. Start the Program The primary presenter should take over from here and set the groundwork and rules for the meeting. If this person also does the product presenting he should get started. Each section or product should include the names and introduction of factory personnel who interface with the representatives. Features and Benefits Features and benefits should be supplemented with “advantages” to ease the understanding of the product for the customer. Full documentation should be provided for all items. Provide as much hands-on training and group interaction as possible. Applicable Markets Provide information on specific markets and prospects that are impacted by the product(s) along with specific applications. Your representatives have very close ties to certain segments of the industry but a new product may require learning a new set of names and faces. Provide them to your representatives. This information should also include what customers are currently using in place of these products and provide solid reasons why they should change. Price Price comparisons should be completely objective including any additional discounting that may be available by your company and/or the competition. Detail the added benefits that may account for the price difference.

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NAFEM • MAFSI Principles of Decision Value-Added Items Sales add-ons, extended warranties, and a list of valuable options can help close a sale. However, all customers have their own view of what brings value to the equation. His is the only view that counts. If he/she doesn’t think your feature has value to him/her, then it doesn’t. And he won’t be willing to pay for it. Testimonials Copies of third-party testimonials on their letterhead are a good way of injecting recognized names of people whose opinions are respected. Q&A Sufficient time should be built into the schedule to allow for meaningful questions and answers. Q & A are necessary to help clarify and build the representative’s confidence to properly represent your products. If a clear, concise answer is not available it needs to be stated up front but answered and fully documented to the representatives before they leave and get back to work in their territories representing your products. Solicit and sincerely accept input, criticism, and new ideas on how to improve the training sessions. If they come up with ways to improve the process they should be considered as free consulting services. Take the ideas to the bank. Finally, encourage the sharing of success stories. During factory tours production staffers must be advised to pay particular attention to representative’s recommendations on manufacturing techniques. Representatives visit many old as well as state-of-the-art manufacturing facilities. They all have knowledge of other processes that may apply in your operation. It is suggested that tour groups be small enough to afford everyone the opportunity to hear the presenter first-hand. Audio devices can and should be used to improve the clarity and effectiveness of the communication. Breaks and Refreshments Understand that sitting in a meeting for several hours can be physically taxing. It is important to schedule adequate breaks to allow for stretching, telephone calls, and beverage intake. Social Interaction The best results of representatives working with factories are achieved when all parties know, understand, and respect each other. A social event with all peo