The Rep Conundrum: End-user Calls. Compensation?

Last week we were on a call with a manufacturer and the question arose of “are supply reps calling more on distributors or are they starting to call on end-users, contractors and engineers?” The question surprised us given our perception of the quality of the manufacturer but, it could also be that person’s perspective of reps or the reps in their territory.

Part of our response was “yes, quality supply reps are actually spending more time at end-users than manufacturer think because 1) they’ve been forced to, 2) they need to control their destiny and 3) they can’t be beholden to manufacturer POS leakage. Further, it is costly as they are being squeezed due to flat / declining commissions, increased operational expenses and higher demands on their time (think administrative support from the manufacturer.)

After the call, Gene Biben and I reconnected for a debrief and we discussed the topic. After all, whom better to discuss the issue of changes in the rep sales environment, coupled with compensation squeeze, than a 40-year industry veteran.

At the end of the discussion, we wrote up some thoughts. But the issue becomes:

• Reps are either forced to call on end-users / contractors to ensure survival (which is one of the reasons why there is agency consolidation / expansion).
• Reps need to be creative to improve their commission dollars given increased expenses, and hence need a better vehicle to “control / influence” the sale (defined as “gain brand allegiance from the customer.)
• Or just say no / don’t do and leave to the factory, or the distributor, to create the demand.

So, what were some of Gene’s thoughts?

Manufacturer Demands Increase

There is no question that manufacturer’s representatives and local sales forces now have more responsibilities than they did just a few years ago.

• Digital transformation (i.e., reports received electronically and CRM) can be great tools, but manufacturers are on different systems, use different formats, require different inputs and its more work for more people in the agency. But the data entry for order processing and access to information for customer support is better. Reps of today and tomorrow need the equivalent of a distributor ERP system. The old days won’t work.
• Although there are far fewer rep agencies in each market, manufacturers expect reps to drive specifications at users as a significant action along with expediting, sales, training, joint sales calls, pricing and handling other important issues.  Many representatives have added staff to include specialization. 
  • And with less agencies in a market, there is less choice for manufacturers. When conglomerates align with an agency, that further reduces choice. Smaller manufacturers are being left un / under-served. There is an opportunity for more agencies, but starting out with small, unknown, lines, is difficult. This is a reason why agencies are being asked to expand into a “new” territory. Perhaps it is a belief in their existing agency management team and their processes?
• Specialization may include sales associates that focus on specific products or users to include engineers, OEM’s, contractors, utilities, etc.  As we all are aware, sales calls require different training, and understanding of the customer’s business and needs.  Generalities are not usually appreciated, and knowledge becomes far more important especially with everyone still not working at full staff or at one location and as an industry being short-handed, which will probably be a long-term issue.

We often used to hear from specific distributors that the customer we were calling on were that distributor’s customer and not “ours”.  The fact is that manufacturers demand calls on the users that include samples and directing the customer to those distributors that support the manufacturer with stock and marketing efforts.  It is the local reps’ responsibility to solve problems with new products or methods the user finds worth-while. The manufacturer has put agencies in the middle (would they do that to a direct salesforce?) but the rep needs to figure it out. Not everyone will always be happy. The key is generating business and “spreading it around” somewhat equitably to make all somewhat happy.

Commission Percentages Remain Flat Regardless of Added Responsibilities

Hiring specialists and significantly increasing the responsibilities of an agency comes with a cost that used to be supported by the manufacturer.  Manufacturers had more customer service people, more trainers, some had end-user specialists that were regionalized, invested more in marketing and used their financial resources to support, or at least subsidize, efforts. Now many have passed that on to the local sales forces (reps).  Many demand marketing reports on results through various tools such as SalesForce or other CRM platforms (and if you didn’t know, for many reps, Salesforce.com is a “bad” word, equivalent with “unproductive work” and “incremental cost” to enable the manufacturer to micro-manage.).  They may or may not want to know about calls made on distribution, however, evaluations occur on the end users results, identification and documentation. 

The reality is the financial burden of these additional calls again fall on the local sales force.  Running engineering seminars that are typically “Lunch & Learns” (they eat and listen as “non-eating times” is called work or billable time) have often cost us over $500 per meeting.  We can get products specified; however, we cannot control where the products might be purchased.  While in theory there should be compensation based upon POS or spec credit, my former agency worked on a job with an engineering company after one of these lunches with a very nice order specified for our products.  The products were purchased in Florida with no commissions coming back to the agency. The factory didn’t even say thank you and the other rep cashed the check (and I’m sure other reps have similar examples.)

Here is the real issue, in the 40 years of my being in this business, commissions have at the very best remained flat.  The added responsibilities have not meant added compensation. Our commissions, or margins, have eroded. Which salesperson would stay at a company long term for the same, or less pay, while doing more work and delivering more dollars to their employer?  We had a finite number of customers (electrical distributors) that has grown to an infinite number of customers now.

Creative Compensation

There is a need for a discussion about creative compensation. New models should be developed. Companies that dare to experiment, perhaps innovate, could generate better performance. Would it work for all their reps? No, because each agency has a different model. The question becomes, “what is the right model to optimize the performance of that rep?” And if you can’t, and the current model and performance is acceptable to all, so be it.

Should Supply Reps Look to Lighting Reps for Commission Alternatives?

• Perhaps supply representatives need to consider a model that takes a page from lighting agents. No, it wouldn’t work for stock and flow, but could it work for some types of projects? After all, pricing consultants say that the key to increased profitability is charging for value, where you can, when you can. Lighting agents, for years, have grown their commissions in both dollars and percentages while also representing conflicting manufacturers.
• Why do manufacturers enable lighting agencies to carry competitive lines? Perhaps the better question is, “how do agencies satisfy the revenue needs of competing lines?
• Consider the overage model. It’s built on the concept of recapturing the investment of sales time … pre-sale opportunity development, training, design, engineering services, etc. The end-customer values the support and understands that there is a fee backed into the material. Should this be more acceptable or is the opportunity for margin expansion reserved for the distributor or the factory?

And there are other creative models that can be considered such as:

• Growth bonuses tied to revenue, perhaps tied to gross margin (if the manufacturer is willing to be transparent)
• Tied to regional goals
• Commission plus activity-based compensation
• Subsidies to support marketing and end-user initiatives
• Commitment to redesign customer service support … how to streamline administrative costs
• Target account compensation initiatives (distributor and/or end-user)
• Specialist support
• Retainers / minimum commission for new lines or new product offerings to support the “start-up” of an initiative. These can have phase-outs based upon performance.
• And if you want the rep to support other initiatives within a distributor (i.e. digital adoption, marketing, training, etc), perhaps all need some “skin in the game.”?

Other thoughts

Look at all the of the changes in our industry.  It used to be that a person would remain with their company for years and look to retire.  Today, people move all the time.  How do we depend on anyone other than ourselves?  Often people we report to are in their positions for less than a few years.  Relationship selling often is now between the local people (distributor, rep, end-user) and not the regional manager or anyone at national.  For an agency, protecting the local relationship is critical … this is our currency. that the definition of factory / agency relationship is undergoing change? 

Can we support each other for mutual successes rather than fulfilling responsibilities short-term?  Can we work with local salespeople to increase our margins and business?  We were able to a few years ago, but now it appears commitment are shorter termed for many reasons including the forementioned change in personnel. 

The president of a local distributor told a manufacturer recently he was having issues. The best strategic relationship he had experienced recently was on a large job where everyone kept in communication daily between the rep, contractor, distributor, and manufacturer.  He intimated this job could be a blueprint for any relationship on a job.  The job itself was worth over $2 million of a supply product; the order was LOST, yet the group worked together and, in his mind, could not have done more efficiently.  (Sometimes, all the stars just don’t align. The contractor didn’t get the job he thought he had.)

How do you specify products without supporting your local distributor who supports that product line?  Can you possibly work together when the marketing strategy is to sell everyone?  If that is the strategy, and it is accepted by all, no one should be surprised if the order is determined by someone else. Which is why reps are spending more times at end-users. But if the rep didn’t, who would?

A distributor loyal to a manufacturer earns their strategic support. But remember, “loyal” is defined by a manufacturer as “purchase volume or profitability”, not by activities and support. I know of a manufacturer that does specification work, yet every contract renewal they take the same business moving it around to 3 different distributors.  Is that what distributors are looking for in support?

We can find solutions together by compensation for services valued by manufacturers, and by distributors who find these services to their advantage supporting those manufacturers whose representation adds value for them.  This would ensure the actions desired will be taken in a professional and moral environment to hopefully raise our margins to those of others in the building  industry.  

Not saying we’re naïve and that, through kumbaya, we’ll all get along, but times have changed more dramatically from pre-COVID. Perhaps now is the time for companies to consider alternatives that will drive performance.

So, what do you think? Is Gene on to something? Let him know your thoughts.

• Distributors – do you want your reps calling on end-users / contractors?
• Manufacturers – is having this as a “new” / “enhanced” expectation fair without compensation?
• Reps – what percent of your time is now focused on end-user / contractor engagement? Are you seeing an ROI or is this a “need to” to accommodate factories? Or is it part of the “new rep model” and perhaps a change post-COVID? Are your compensation models equitable?

Gain Input

If you’re a manufacturer, perhaps gaining some “honest”, confidential, input from your reps would help? Ask us about our Rep 360 approach. Or we can also facilitate a Rep Advisory Council.

If you’re a rep, consider the reverse? Perhaps CMG can assist soliciting some open input from your manufacturers? Or conduct a Manufacturer Advisory Council (and it can be face-to-face or virtual, whichever is more convenient, perhaps more expedient?)