Reps On The Rise
Griping comes as naturally to people in business as protesting a called strike does to ballplayers. Manufacturers, reps, wholesalers and contractors all feel from time to time as if everyone else in the supply chain exists only to beat up on them.
So let it be understood that I'm not picking only on reps in pointing to their mantra that goes, "Our principals keep asking us to do more and more for less and less." There's little doubt this is true. Just about every independent rep tells of increased duties while commission percentages drop or stagnate. It's just that everyone else in the channel has similar stories to tell of doing more for less. Vendors and customers constantly increase demands while getting ever stingier about compensating for the services rendered.
This is as it should be. There is a terrible beauty in the way free enterprise ruthlessly drives out extraneous expense. The result is greater productivity, which is the engine required to drive a dynamic economy.
Those who listened closely witnessed a refreshing perspective about this phenomenon at this year's annual AIM/R Conference, held April 27-29 in Naples, Fla. AIM/R represents the cream of the crop of PHCP independent manufacturers reps. Every year they put on one of the industry's most stimulating educational programs.
One interesting tidbit that came out of this year's conference was ventured by Joe Miller, executive director of the Manufacturers Agents National Association (MANA), which earlier this year took over managing AIM/R. Miller cited the results of a survey that showed over a period of time average commissions reported by MANA reps dropped from 6.9% to 6.4%. (MANA is an umbrella organization composed of rep associations from various industries. PHCP commissions tend to average below those in other fields.)
Despite that 7% commission decline, average principal compensation rose by around $20,000 a year during the same period. Reason? Reps operate much more productively than before. Miller credited wireless telecommunications for much of the gain. He recalled his days as a PVF rep when he'd often be pinned down in the office for the better part of a day awaiting critical phone calls. Mobile phones do away with a lot of paper-shuffling time.
According to Miller, demand is up and the future looks bright for independent reps, because:
- Costs are becoming prohibitive for supporting factory sales reps, now around $150,000 per year. Even divisions of Fortune 500 firms are starting to use reps. He named examples such as Caterpillar, GE and Timken.
- Globalization is increasing the number of foreign companies that want a piece of the North American market. They rely mainly on independent reps to gain a foothold.
- Outsourcing is the "in" thing in the business world's drive toward economic efficiency.
- Reps have raised their professional image, thanks in large measure to organizations such as AIM/R and MANA.
According to Miller, while demand is up, the supply of rep firms is down. Consolidation has impacted them every bit as much as wholesalers and manufacturers. Rep firms are increasingly fewer in number and larger in size. Meantime, barriers to entry are much higher than years ago, especially with regard to the amount of working capital and income cushion required.
Economics 101 teaches that when demand is up and supply down, prices should go up. Miller thinks reps in general are well positioned to negotiate better commission rates and contract terms from principals. Nobody in AIM/R sees this happening, though. According to Miller, it won't happen until reps begin "taking charge" (the Conference theme) with increased professionalism, and by more aggressively leveraging their advantages in pursuit of top lines.
Miller's remarks turned griping on its head. He acknowledges that business is tougher than ever, and that only the strongest will survive. Yet, those that do will realize greater rewards than ever. Case in point: those MANA reps who saw their incomes rise even as commissions declined.
Similar things can be said about wholesalers. Their relentless price competition wrings out costs and thereby increases productivity, defined as doing more with less. Most reps think they're working harder than ever, which may be true, but the real key is working smarter. That means utilizing all the tools of modern technology.
What holds true for reps is equally applicable to wholesalers. Some people in a supply chain will not be able to handle the pressures put upon them and they will fall by the wayside, their roles taken over by the more able. Those that do survive will be stronger and more prosperous than ever. Economic Darwinism isn't pretty, but it leads to greater good for greater numbers of people than any other system.