Manufacturers' agents or representatives are independent contractors who work on commission to sell products for more than one manufacturer. They are not under the immediate supervision of the manufacturers—typically called principals—that they sell for, so their relationship generally falls into client-customer patterns.
Manufacturers' agent firms range from businesses operated by a sole entrepreneur to considerably more extensive organizations armed with numerous salespeople covering specific territories. As of 2000, the Manufacturers' Agents National Association (MANA) estimated that there were 150, 000 agents operating in the United States. The typical agency was a corporation that employed six people (including both sales personnel and office personnel), MANA research showed. These firms, which are concentrated in major metropolitan areas but can be found in all 50 states, represent every conceivable product line, including goods produced in the automotive, plastics, electronics, food and beverage processing, apparel, lumber and wood, paper, chemical, and metals industries. Virtually any product that is made and sold can be handled by a manufacturers' agent.
Manufacturers' agents generally represent several different companies that offer compatible—but not competing—products to the same industry. This method reduces the cost of sales by spreading the agent's costs over the different products that he or she pitches. Consequently, manufacturers' agents view themselves as a cost-effective alternative to full-time salaried sales forces, and this is an evaluation that is shared by thousands of small- and medium-sized manufacturers in the United States. Indeed, manufacturers' agents are particularly popular among companies that do not have the financial resources to launch their own sales team. In addition, since manufacturers' agents are generally paid by commission, the small manufacturer incurs no cost until a sale is made.
ADVANTAGES In addition to the above-mentioned financial benefits that manufacturers' agents offer to small business owners, they also provide relocating or start-up firms with immediate front-line information on marketplace trends and demographics. By contracting with a manufacturers' agent, a company gains instant access to industry expertise or knowledge of a particular country or region.
There are other distinct advantages as well. For manufacturers with a narrow product line, agencies offer one of the best ways to access the market. Because they normally sell compatible products to a single market, the manufacturers' agent firms usually are well-connected with the manufacturers' principal market targets. This offers manufacturers immediate entry to markets that may be hard to reach with a direct sales force. In addition, rep firms can provide new businesses with ideas about where to advertise, comment on what the competition is doing, and give estimates of a given territory's potential.
DISADVANTAGES Consultants and business owners note, however, that while using manufacturers' agents may make a lot of sense to the small company that needs to allocate its financial resources carefully and learn about the marketplace quickly, there are drawbacks associated with the practice as well. Lack of control over the agent is easily the most frequently mentioned complaint that business owners cite when discussing rep firms. Since the manufacturers' agent is not an employee of the company, the company's ownership cannot dictate how he or she goes about business. Certainly, the small business owner can negotiate for certain things in his or her business dealings with the agent, just as any client can do with any vendor. But in the final analysis, the agent has far greater freedom to operate as he or she feels fit than do salespeople that are actual employees of the company.
Some critics also claim that since manufacturers' agents conduct business on behalf of more than one manufacturer, they are not always able to devote the necessary time to one single product line. Finally, some agents also may be reluctant or unable to provide service beyond the point of sale. Fundamental elements of customer service, such as start-up assistance and follow-up service, often must be supplied by the manufacturer even if the goods were sold through a manufacturers' agent.
Another concern frequently raised about manufacturers' agents is that they add to the cost of sales by acting as a middleman in the process. But as Bob Trinkle pointed out in Agency Sales Magazine, "reps are an alternative (or substitute) to direct sales. They should be looked upon as a form of outsourcing of the sales function." Therefore, hiring a manufacturers' agent should eliminate the need to maintain an in-house sales staff for a particular region or product line. In this way, the agent may actually help a small business reduce its administrative costs.
Manufacturers have many factors to consider when they being the process of selecting a manufacturers' representative. Small business owners should look for someone who shows an ability and a willingness to become knowledgeable about their products and applications, as well as someone who will respond quickly to calls and present the product in terms of how it will meet customer needs. A good agent will also represent the various product lines he or she markets in a just fashion, giving each line the attention it deserves, regardless of how much income it accounts for (this latter concern is especially acute for small and start-up businesses).
The best rule of thumb for manufacturers is to be patient and do plenty of preliminary research. After all, the choice is going to be the primary link between the company and its target audience. A poor selection can ruin a company; conversely, a good choice can help launch a new manufacturer to long-term financial stability. Given the stakes involved in this choice, then, MANA suggested in its Directory of Manufacturers' Sales Agencies that business owners consider doing the following when weighing their choices.
"Manufacturers should always recognize that independent reps choose independence because they want to do what they want to do, not what any one manufacturer wants them to do, " Harold J. Novick wrote in Agency Sales Magazine . "Therefore, the key to success with independent reps is finding that one high-performance rep who comes closest to doing what you want done in the marketplace now. Recruiting a rep with even one key characteristic missing may substantially reduce your market share possibilities in that territory. Finding the right rep creates a high probability for a true win-win situation, as both 'partners' have common objectives."
Manufacturers must remember that their rep firms are independent sales agencies that are not employees of any of its principals, but business partners with each of them. As such, the manufacturers cannot have the same type of direct control as they do over their own personnel. From a legal standpoint, it is important to remember that the manufacturers pay nothing to a rep until a sale is made. They also pay no withholding taxes or Social Security. Using manufacturers' agents also means that some of the manufacturer's bookkeeping needs will be taken care of by non-employees. This is an important distinction for the Internal Revenue Service, which frowns mightily upon arrangements in which companies disguise employees under the veil of independent agencies or contractors. When judging this, the IRS typically uses as one of its tests the amount of direct control exercised over sales reps. If regular reports are demanded of independent agents, the IRS can declare the rep an employee and require the various withholding taxes that apply.
Communication remains an integral part of the relationship between agents and their clients. Both parties need to keep the other appraised about their operations. Agents should let their principals know what they are doing for them in the field, regardless of the level of sales at that particular moment, while agents need updated information on matters such as product specifications and pricing. Ultimately, both parties simply need to recognize that a cohesive working relationship is in their shared best interests. In their dealings with representatives, manufacturers expect: loyalty; knowledge of the territory and/or industry; knowledge of product lines after a reasonable amount of exposure; quick response to suggestions; regular follow-up; and a fair share of the agent's time. Agents, meanwhile, have every right to expect: a fair contract that recognizes performance and rewards success and longevity; access to customer service, training, and technical back-up; a quality product; timely delivery; and a true commitment to build business in their territory.
"How to Work Successfully with Manufacturers' Agencies." Special Report in Directory of Manufacturers' Sales Agencies . Manufacturers' Agents National Association, 1994.
Gibbons, James J. "Recruiting Agents: Do it Right and You'll Never Have to Settle for Second Best." Directory of Manufacturers' Sales Agencies . Manufacturers' Agents National Association, 1993.
Marshall, Michael, and Frank Siegler. "Selecting the Right Rep Firm." Sales and Marketing Management . January 1994.
Novick, Harold J. "Rep Search and Selection: The Foundation of Outstanding Performance." Agency Sales Magazine. March 1999.
Trinkle, Bob. "Defining the Value of the Rep." Agency Sales Magazine. December 1998.