The value manufacturers place on their reps builds greater partnerships and profitability
Rep dollars and sense.
Independent manufacturers rep agencies have become more important than ever as the conduit between manufacturers and local markets. They are the sales professionals, brand builders, products trainers, problem solvers and relationship caretakers that touch virtually every segment of the distribution channel.
Reps are some of the biggest differentiators when it comes to protecting their business partners and customers while evolving within the competitive and economic challenges of today’s supply-chain environment.
“Regardless of the industry, or the service provided, today’s markets are fiercely competitive,” shares Tim Morales, founder and president of Mobile, Alabama-based Tim Morales & Associates. “What’s more, the influence of e-commerce has virtually eliminated regional net pricing, releasing unprecedented margin pressure. These conditions leave us all looking for profitable niches and in constant cost-control mode.”
Manufacturers and their rep agencies working together in that type of environment is a prime example of capitalism at work. Theirs is a system based on private ownership, opportunity, motivation and smart business practices. So, it’s only natural that rep agencies align their attention and resources with product lines they trust will offer channel partners a fair profit to build upon.
Stew Chaffee, CEO of Aston, Pennsylvania-based Rich-Tomkins Inc., notes: “Uncertainty plays a major role in our growth and success. If reps are concerned about reduced or inadequate revenue with a product line, it’s only natural that we turn our attention and resources to lines we know will offer a more profitable future. This isn’t a selfish sales strategy. Wholesalers, manufacturers, contractors — everybody — has to make money to stay in business. And it’s even more important for those who want to achieve growth.”
This type of ROI is healthy and so important to the longevity and partnership between manufacturers and their reps.
“Higher commissions and greater sales go hand-in-hand,” Morales explains. “It’s frankly a P&L expense that smart manufacturers want to grow. We live in a free-market society where what gets incentivized gets done. What isn’t, doesn’t. As counter intuitive as it may seem, paying higher commissions is good for business. Keeping commissions steady conveys the message to rep agencies that they can invest their time and resources in that client. It changes the motivation for the people on the front lines, and in many cases that means hiring additional business-development professionals who will be highly motivated to represent those brands. Manufacturers that invest in their reps are going to get results.”
Culture cultivates success
Since Bradford White became an employee-owned company in 1992, manufacturers rep agencies have been viewed as a key asset rather than as a line item expense. This was a mindset and a culture established by the late Bob Carnevale, who led the ESOP and served as president, CEO and chairman. That philosophy was ingrained within the sales team.
“We rely very heavily on our reps to execute our sales strategy. They are the eyes and ears for us in their respective markets, and as such we devote a tremendous amount of time into the relationships we have with our reps,” says Bradford White Senior Vice President of Sales Jim McGoldrick, who has been with the water heater manufacturer for more than two decades. “Our reps have been an integral part of our success, and we expect that will continue well into the future. It’s also worth noting that we wouldn’t have been able to achieve nearly the growth and success we’ve had without them.
“And Bob [Carnevale] was also a big believer in sharing in our success, particularly with our reps. One way in which we have shown our appreciation and something our reps look forward to is our well-known national sales meetings, which we have hosted eight of over the past 26 years. We have a lot of long-tenured reps and these meetings offer a family reunion of sorts. Another reason they look forward to these meetings is it has become a tradition at each one to announce a commission increase. In my 22 years with the company, we’ve never had a commission decrease. We consistently offer commission increases or bonuses to incentivize our reps to spend more time selling our line every day. Our reps are one of our biggest assets. Why wouldn’t we reinvest back into them?”
Culture was the theme of Dr. Gustavo Grodnitzsky’s keynote during the AIM/R 2018 Annual Conference. He discussed the distinct connection between a positive culture and an individual’s or organization’s ability to achieve their goals. Dr. Gustavo (as he is known) is a speaker, author and psychologist whose clients range from Fortune 1000 companies to small, family-owned businesses. His latest book, “Culture Trumps Everything,” was the basis for his highly regarded presentation to AIM/R members explaining how business leaders can use culture and perception to their advantage in building solid teams and partnerships.
As Dr. Gustavo outlined, culture impacts virtually everything every one of us does every day — without even realizing it. Leaders have an opportunity to shape their organizational cultures in ways that foster positive outcomes for their businesses, employees, partners and communities.
He shared three key takeaways that are central to the success of plumbing supply chain businesses and their partnerships:
Leaders are responsible for driving the culture within their company and how they engage with their channel partners. “Great leaders build unified cultures,” Dr. Gustavo emphasizes. “While there will always be subcultures of smaller groups within the organization, it’s important that they are aligned inside, not outside, of the overall culture.”
Human behavior doesn’t occur in a vacuum. Rather, it occurs in a context. If you change the context in which a behavior happens, the behavior will follow. “This is so important for leaders to remember,” he describes. “For example, if someone who is typically very loud and boisterous walks into a museum or church-type of environment, they typically become much quieter. Their personality didn’t change; the context changed, and they adapted to it.”
A culture is like a garden, and leaders must tend to it to achieve their goals. “Leaders are responsible for preparing the soil, planting the seeds and picking the fruit. The harvest they reap is the one they sowed,” he adds. “So, if results aren’t meeting expectations, leaders and business partners must look inside themselves and determine what they need to improve.”
Brian Burke, principal of Walled Lake, Michigan-based The Burke Agency, describes how one of their manufacturers created a culture to engage its reps.
“We represent a manufacturer that is at the top of its category, but even with their success, the owner still believes strongly that contractor training is the No. 1 thing that will continue driving sales across the country,” Burke shares. “Years ago, they designed a compensation program that provides various incentives for their reps to meet agreed-upon goals. It’s a great sales-oriented approach that also drives loyalty. This manufacturer pays hundreds of thousands of dollars to reps each year because they are successfully training and pulling in new customers — which means additional sales.”
Managing a profitable cost structure
Independent rep agencies’ operations have the same cost structure as virtually any other business. Their P&L is based on fixed expenses that regularly increase, such as facility costs and maintenance, healthcare, salaries, travel and much more.
While a 1% cut in rep sales commissions may not sound significant, absorbing even small cuts can have a major impact on profitability, and a rep’s long-term viability as a manufacturer’s partner. In many cases, that 1% can equal 15% to 25% of an agency’s earnings. That, in turn, sometimes forces reps to drop lines that become unprofitable. It’s difficult to justify continuing a partnership when the revenue stream has been markedly reduced.
Profitable rep agencies typically have internal goals of double-digit increases in product lines sales annually. Although that sounds like extra dollars for an agency principal’s pockets, it’s actually a far different scenario. There are a number of deductions that have to first be taken out of those commissions, including buying-group rebates, returns and the typical costs of doing business.
“It might seem easy for a factory to look at rep commissions as a line item that can be cut, but in reality, manufacturers should want that number to go ballistic,” Burke says. “When that happens, manufacturers know they’ve really incentivized their reps to meet sales goals, and the commissions they’ve paid out are providing them an extraordinary ROI.”
Steve Woodford, president of Woodford Manufacturing, has seen the results firsthand. “We are a niche manufacturer that requires above-average market share to be profitable,” he says. “That means producing good products, fast shipping, competitive pricing and having a superior rep force. I don’t think we could have achieved our market share without our dedicated reps.”
Woodford is known for personally visiting the company’s rep agencies each year — a practice he views as important in building win-win loyal relationships.
“We want to thank our reps in person and also learn more about what they are seeing in the field,” he explains. “They’re our eyes and ears, and we get better and more complete feedback in-person sharing a meal than over the phone or by email. The partnerships we’ve built have led to a conversion rate of almost zero.
“We realize that superior selling is a tough job and we respect our reps’ abilities. People sometimes think sales is just a matter of talking and entertaining. But it’s also about understanding customers’ needs. In our world, you have to be straight forward, honest and a world-class listener. If you oversell something, you’re in trouble. The best salespeople are the best listeners.”
It’s no secret that as the way commerce is done has shifted, so have the typical functions that manufacturers want their rep agencies to provide.
“Cultivating customers and building market share requires a significant amount of time,” Burke notes. “We have to be selective when it comes to the companies we’re working with because those sales don’t happen overnight. Reps aren’t being compensated for these additional services, which can also take away from the time and resources available for income generation.”
Morales adds: “Years ago, we processed orders. Our sales team would bring their orders into the office and we mailed or faxed them to our factories. Today, orders come to us in a variety of formats, and we must edit and format them before we enter them directly to manufacturers’ servers. We’re truly the face of our manufacturers more than ever. We’re answering more technical questions, conducting more training, addressing delays, pricing issues, returns and much more. While the benefit is we are even more engaged with our customers, most troubleshooting in the field is being shifted onto the rep agencies — which has broad ramifications, not the least of which is liability.”
Rep agencies are also reinvesting more than ever before in their marketplaces. They contribute to local trade shows, host customer events, present gifts and awards to customers, and conduct marketing and advertising campaigns to reach new potential business. A recent study shows about 20% of tradespeople are bypassing the wholesale channel, and that likely will grow in the coming years unless channel partners work together to turn that tide.
Manufacturers such as Bradford White continue to invest in facilities, product development and programs to support their customers. The beginning phase of a multi-phase capital improvement project was completed in 2015 following a massive expansion of its primary manufacturing facility. The company also has continuous improvement plans in place through 2022.
“We continue to be committed to the trade professionals, and are grateful they are supporting the manufacturers that support them,” says McGoldrick, who also is an active member of AIM/R. “We host reps and customers at our facility regularly, and we also spend a lot of time helping reps evaluate the best plan for their future. Our agencies are like family to us, and we want to ensure they continue to be relevant in this industry well into the future. We also strongly support AIM/R, which we think is a tremendous organization, and we encourage our reps to be fully engaged in the association and take advantage of the shared knowledge and benefits it offers.”
Building the right talent
The plumbing supply chain and its members have been built with the spirit of capitalism — and that will continue driving growth in these challenging and competitive market conditions. As long as leaders and organizations perceive a potential to achieve growth, they will amass the capital, create the right culture, strengthen the partnerships and circumvent any barriers that interfere with their objectives.
“We all want to hire the best talent in our market,” Chaffee says. “But if you want the best, you’ve got to offer competitive compensation and the incentives to retain them. Historically, there is really no comparison in tenure of an independent rep vs. factory sales. Our relationships provide manufacturers a valuable foundation in our marketplaces.”
As quality product development evolves and yields more efficiencies and benefits than ever before, many agencies have started fielding more specialized salesforces.
“There is a whole array of influencers who are choosing products beyond the distributor level, which is a massive change to our business model,” Burke notes. “Reps have gone from an era of primarily calling on distributors to fielding a full-market salesforce that includes contractors, engineers, architects, developers and showrooms.”
Chaffee adds: “We currently have five sales specialists who solely concentrate on those new arenas. Doing that required a major investment. But distributors — that used to have large outside salesforces — now often depend on their reps to provide specialized sales in the field.”
McGoldrick says there is a concern with the preparedness of many agencies, given the pace of change in our industry, which will only continue to accelerate into the future. “If there isn’t an embrace of change, and a willingness to make the necessary decisions and investments for their agencies’ future success, then those agencies become very vulnerable,” he says. “That’s why we spend as much time as we do with our reps on their succession planning, and why we are so committed to providing the type of compensation program that we do. Many use this as an opportunity to invest back into their companies.
“Stew [Chaffee] and other like-minded reps that are AIM/R members deserve credit for the progressive thinking that has allowed them to continue to be relevant and position themselves and their manufacturers for future success.”