Last week we discussed why PCB and PCBA manufacturer’s reps need a better deal. This week we will discuss some ideas, suggestions, and ideas of what that better deal and that better contract should look like. We are looking for a win for both the principal and the rep.
Let’s look at the issues and some ideas for fixes one at a time.
Issue #1: Reps have to wait too long before they see the first dollar, sometimes up to ten months.
We need to come up with ways to pay the reps for accomplishments along the way. Here are some ways we could do that:
1) Pay the rep $50 for every quote from a qualified customer. According to research done on customer acquisition, it can cost up to $5,000 to get a prospective customer to even ask you for a quote. Using that as a benchmark, $50 is a steal. Think about it: ten new customer opportunities for $500! Heck make it $100 per customer opportunity and it’s still a steal! And the best part is the rep starts earning money immediately.
2) MBO, yes, the good old management by objective. Come up with a pay per objective plan. Set up solid and fair objectives that you want the rep to accomplish, and then pay as you go. Here are some examples of those objectives:
- Payment for when they bring in quotes (as stated above)
- Payment for first customer visit on your behalf
- Payment when they score their first order
- Payment when that first order is shipped, that is pay the rep when it is shipped to the customer, not the normal wait for the customer to pay the principal.
3) New customer incentives. Payment when the rep lands a new qualified customer. Pay the rep $500 when the customer places that first order. Then $500 when that customer reaches a certain predetermined level of business and so on.
4) Change the payment schedule. The most successful rep/principal relationship I ever witnessed was with a quick turn PCB shop that paid commissions on shipments. Because they were quick turn, the order shipped in less than three days. Their reps could actually book an order on Monday and receive payment on Friday! I spent a week on the road with their sales manager, visiting reps once and I never saw more motivated sales guys in my life. We were busy visiting customers from morning until late at night. Those were the happiest reps I ever worked with. Think about that. You are going to spend the commission money sooner or later anyway so why not change the method of payment into a motivational tool?
5) Let the rep share in the profit. If the rep is getting a 5% commission at the price you set, then offer her one third of any profit made over that price. For example, if your price is $10 per board but she manages to sell it for $13 she gets one of those extra three dollars. Talk about a turn on to really sell. She can be part of the deal; she can determine if she wants to make more money. And in this example triple her earnings. I had a friend who did this years ago and he created a tremendously loyal and motivated sales team. And here’s another stroke of genius he had: He paid his reps on time all the time. There was never a lag. And sometimes he even paid earlier than the scheduled payment was due!
Any or all of these ideas will work, and in the end, they will work for your benefit. All you need to do is open up your mind to treating the rep as your equal partner. And I can guarantee that your accounting department will hate these ideas. Help them figure out a system where they can successfully handle these motivational financial incentives because they are vitally important to the success of your company.
Issue #2: Reps are not treated as equal partners
Solving this one is easy. Start treating them as you would want to be treated yourself. Respect them. Keep them in the loop. Value what they do for you and your company and cherish, yes cherish, the relationship. The greatest rep-principal partnerships I have ever seen were when the rep and the principal respected one another to the point of mutual admiration and even friendship.
Issue #3: Thirty day termination clauses
What are you afraid of? These termination clauses are akin to having your divorce lawyer in the church at your wedding. They signal an expectation for failure even before the ink on the contract is dry. To the rep a thirty day termination clause represents a complete lack of faith in the possibility of the relationship working. It is too easy an escape hatch for the principal. Look, you either have faith that the relationship will work or not. And if you don’t from the onset, then why do it? Create a fair termination clause with enough time for the rep to be successful. And by the way, if you follow the advice given above, I can guarantee you will not need to worry about how quickly you can get rid of the rep but rather how long you can keep him around. Your relationship with your reps will be so successful that you will take comfort in knowing you have a long termination time.
I worked with a company once that wrote into the contract that neither party could terminate without sitting down face to face to talk about and try to resolve their differences. Imagine that! It’s only common sense.