Working with Manufacturers’ Representatives in North America
Introduction
In North America, many manufacturers (Principals) have elected to use Manufacturers’ Representatives(Reps) as an alternative to a direct sales force. Reps work under contract to be the exclusive
representative for each Principal for a specific geographic region (the Territory). One of the many benefitsof working with Reps is the instant access to their established sales and marketing organization with anexisting customer base and minimal upfront costs. To get the most benefits from working with a networkof Reps in North America it is helpful to understand of how they operate, their expectations, and their
responsibilities. An effective engagement with a Rep should result in improved level of service tocustomers as well significant benefits for Principals including growth in market share, sales performanceand brand recognition.
What Does a Rep do?
The Rep offers the Principal a focused staff with long standing relationships in their Territory. With alimited linecard of synergetic non-overlapping products, the Rep exclusively promotes each Principal’s
products and services both directly to the target customers and through franchised distributors (if any)
supporting them with training and joint customer visits (buddy calls). Reps also promote each Principals
products more broadly through a variety of marketing activities including participation in table shows andother regional trade shows as well as through the circulation of electronic and printed collateral such as
linecards and newsletters. In many cases, the Rep functions also include responsibilities for applicationengineering, marketing feedback, quality assurance, and credit/collections. Typically, the Rep’s solecompensation for these functions is the commissions that they are paid by each Principal for all sales anddesigns originating in the territory. This commission should cover all local direct and franchised distributor
sales activities. It should also include the split/shared commissions for sales that result elsewhere basedon activities originating in the contractual territory. Sometimes additional percentage points or a fixedbonus is paid for additional services or superior performance (see sidebar). Key advantages to using Reps
include:1. Paying Reps only when there are shipments – no up-front costs for startups
2. Immediate access to Rep’s existing customer base and distributor relationships
3. Instant established sales network with logistics in place through their existing channel
relationships.
4. Synergetic sales with other Principals

9/1/2017

Page | 1

The Rep makes the up-front investment in time and resources to pursue each opportunity in the
anticipation of sharing the benefits of their success as sales and shipments increase.
Additional / Alternative Compensation
Reward/Finders Fee –for reference design wins,
other new business that falls outside contractual
responsibility.

Sales Incentives – for promotion of focus
products some Principals offer a couple
additional percentage points.
Stipends – Supplemental fixed monthly payment
typically for missionary lines (with no sales).

Rep Operations
Manufacturers’ Reps come in all shapes and sizes – from the single person rep firm to the multi-region
super-reps. Each is run uniquely, but all drive toward the common goal of increasing sales throughpromotion of each Principal’s products and services. A Rep’s operations are flexible enough to adapt tothe market conditions. Each Principal has the opportunity to select a Rep that matches their culture.
Many Principals benefit from the entrepreneurial aspect that Reps use in their approach to the market.
The Rep is trained by the Principals and supplied literature and other collateral needed to promote theirproducts in the Territory. Access to pricelists, corporate presentations, sales portals, and other tools help
to facilitate the success of the Rep. Lead follow up and samples are also key tools to developing their
Territory. Periodic visits from regional managers and other factory personnel are welcome as long as they
are scheduled in advance to allow the staff to arrange customer visits.
Sub-Reps
Like most modern businesses, outsourcing has become a part of many Rep Firms business models throughuse of third party logistic tools, administrative support and even account management. When it makes
sense, a Rep Firm may bring in additional sales resources to cover special accounts or additional subregions. These resources are often referred to as Subcontracted Reps or Sub-Reps. This solution has
become more popular with some Rep firms where Principals want to limit the number of Rep
organizations that they work with by getting the Rep to take on additional territory. The Sub-Rep
arrangement allows the Rep firm to expand into neighboring regions without the cost of hiring a dedicatedsalesperson. Again, the Rep Firm gets instant relationships that the Sub-Rep brings. Eventually, some of
the Sub-Rep arrangement will turn into a merger.
Rep Expectations
To successfully promote the Principals products, the Rep will expect support in several key areas. These
include:1. Website that clearly showsa. The products being promoted with either full or abbreviated data
b. Section showing contact information for each Rep Firm (and Franchised Distributors)
c. New products and/or articles

9/1/2017

Page | 2

2. Literature, selector guides and/or flysheets – should also be available both in PDF format andhardcopy
3. Periodic training through one of the following methods:
a. Webinars
b. Remote location / Factory location training (Note Are All Sales Reps the Same?
traditionally, the Rep pays for transportation and theMany industry experts use thePrincipals pay for food and lodging)term Sales Rep loosely. It can
4. Franchised Distributors (where applicable)mean any of the following:a. Point of Sales (POS) Reports should be provide(electronic format preferred)
1. Manufacturers'b. Copies of quotations
Representative accountc. Interchange of any existing design registration info
managerd. The Rep and Principal should coordinate on special
2. Distributor accountpricing especially when there may be more than one
manager
Distributor pursuing business at the same account.
3. Independent sales person
4. Inside sales person
Rep Responsibilities
5. Direct sales person
Generation of new opportunities is a key responsibility of the
The responsibilities of each ofRep. At the same time, the Rep is tasked with managing
these types of sales reps areexisting opportunities – both direct and through franchised
different; however, used as a
distributors. The Rep is also charged with managing thegeneral term, this can lead toDistribution Channel including lead follow up, buddy calls, andsome confusion. For instance,
training.
Principals from Asia or Europe
Periodic reporting is available on request as is marketing
who are not familiar with
Feedback. Another key responsibility is tracking multiNorth American Reps may
regional opportunities. This must be achieved working closely
think that a Rep and awith the Principal, any distributors who might be involved andDistributor are the same.
their counterparts in other Territories that are involved.
The Rep must maintain the training of its sales staff both on
the Principals’ offerings and on the Rep’s sales tools. Another
responsibility is assisting with Regional marketing efforts,
trade shows, etc.
What are the Alternatives to Reps?
Direct Sales
A direct sales force offers the principal potentially the most focused and best trained sales force for theirown product range. Direct sales are completely integrated within the Principal and work solely by the
Principal’s internal guidelines. There is also sometimes more willingness for a distributor to work with adirect person versus a Rep as a Rep might have a line that competes with the distributor in other areas.
9/1/2017

Page | 3

One drawback with the Direct Sales model is that they are usually stretched very thin, often covering verylarge regions. This can either severely limit or dilute the effort of the Direct Sales person. Additionally,
Direct Sales persons have a fixed cost regardless of the level of sales whereas reps are “free” when there
are no sales. It is very common when Principals transition to using Reps that they often make their Direct
Sales staff the regional managers for the Reps and Distributors.
Stockists – The European approach
In Europe, Stockists/Agents or stocking distributors are thought of as performing a similar function to Reps
with the exception that they also have a distribution aspect to their business. Similar to Reps, Stockists
participate in the promotion and design-in of their Principals’ product but may eventually transition fromfactory commissions to reseller margins if their customer is interested in the distribution services thatthey can provide. When a piece of business transitions to distribution mode, the Rep commission usuallycease for that business. Some Stockists are experiencing difficulty with the distribution segment of theirbusinesses due to competition from the larger Global distributors whose presence has recently grown inEurope. The Global distributors are largely service oriented and due to economies of scale can operate atmuch lower margins. This puts the Stockists at a competitive disadvantage.
What Are Distributors and How Do They Work With Reps?
Distributors
In many cases, customers are unable to predict their short and long term component needs. For standard(catalog) products, the distribution channel plays a key role in the supply chain. The vast majority of
Principals are no longer holding inventory. They produce to demand. One of the key roles that
Distributors play is to purchase frequently used styles of components from the Principals which they, inturn, resell to end customers. A Distributor buys and resells. Their main profit is the margin that they
make from each transaction. Recently however, profitability especially on commodity products has been
declining due to market pressures. In addition, ASP (Average Selling Price) erosion continues as well as
the continued need to “split sales/commissions” with an out of territory partner. To compensate, many
distributors have introduced several complementary services including consignment, application support,
consolidated billing and even manufacturing assistance to augment this profit. It is important to note that
Distributors typically follow a non-exclusive model - often carrying multiple manufacturers for eachproduct type.
With franchised distributors, a formal franchise agreement is signed to assure a regulated mutually
beneficial relationship between the Principal and the Distributor. Providing a franchising agreement
assures that products will be handled and tracked per ISO policies. This franchise agreement typically
includes support for warranties on components sold to end customers, improved pricing and rotationrights in exchange for sales transparency through POS (Point of Sale) Reporting.

9/1/2017

Page | 4

Local/Regional Distributors
Small to medium sized local and regional distributors are franchised by Principals who are looking for
more focused distributor services. Typically, these distributors have fewer lines than the national
distributors and many have specific expertise or niches on which they focus. While most local and regional
distributors focus on business in their surrounding geographic regions in which they have branches, they
are typically not restricted by state borders and are able to sell to anywhere in the world. Fewer lines
often mean that they are carrying fewer of a Principal’s competitors. This can make a Principal feel moresecure since there is less chance that competitive info will be leaked to a competitor. On the other hand,smaller distributors tend to need to operate at higher margins and can be at a disadvantage whencompeting with national and global distributors. Also, the smaller distributors may be at a slight
disadvantage if they do not have locations in Mexico, Canada or the far-east. Sometimes however, theinternet and global communications have reduced the importance of this factor.
National/Global Distributors
Global/National franchised distributors such as Arrow, Avnet, Future, TTI, Heilind and WPG provide a hostof services including one-stop-shop, consignment, VPAs, consolidated billing and extended terms to key
customers. They can carry hundreds of lines. Their primary focus is on their key top lines. Due to thebreath of their linecards, their support for the remainder of the linecard tends to be more select andfulfillment oriented. They are constantly trying to find ways to improve their coverage for lower tierPrincipals. In some cases, the larger distributors have grown to a level where they collectively represent
50% or more of some Principal’s total sales. Strong account control is often realized due to low pricing,
multi-location service, broad linecard and extended terms. Management of relationships with these large
distributors often requires that the Principal have a dedicated national distribution manager.
Independent Distributors
Another category of distributors is the "Independent" distributor who buy and resell product from avariety of Principals without a formal franchise agreement. Many of these independent distributors focus
on sourcing hard to find items, sometimes reselling from “Grey Market” sources. Without a formal
franchise agreement, customers purchasing through these Independents are exposed to risks including
counterfeiting and quality issues. This type of distributor is sometimes known a “Kitter”. They often
purchase complete production kits based on an OEM’s Bill Of Materials (BOM). In some cases, they arethought of as an extension of an OEM's purchasing department. Some of these Kitters are "Small
Disadvantaged Businesses" and get allotments of business to fulfill for their customers based on
government agency sourcing guidelines. Another class of Independent Reseller is the broker or exporter.
Selling to these non-franchised distributors can impact the success of the traditional sales channel. If the
Independent distributor is offered discounted pricing without visibility of their end customers, this canresult in pricing confusion at an account being serviced in another region by a Rep or franchised
distributor. Sometimes, however, sales to an independent distributor is the only route because they may
have very high degree of account control that they demonstrate with certain key customers of interest.
9/1/2017

Page | 5

This usually results in a loss of commission for the corresponding manufacturers rep covering thesecustomers as channel visibility for sales through Independent Distributors is extremely limited.
The Rep / Distributor RelationshipSo how do Reps and franchised distributors work together effectively in North America? The Rep
promotes the Principals products to end customers both directly and through the franchised Distributors(buddy calls, training, QBRs, etc.). The distributors are required to provide monthly POS reports which
include information for each customer that they sell to - Customer name, part number, date, quantity,
resale price and end customer if their customer is a contract manufacturer. The distributor should be
providing both the zip code for their customer (which may be a Contract Manufacturer or a reseller) andthe end customer. The Rep uses this information to manage business through these Distributors. This
information is also used to compensate each rep for distributor sales in their respective territories. There
are a few Principals who elect to pay the Rep for POI (Point of Invoice) for a distributor's sales. The usuallyelect this alternative if they are new to using distributors or do not have the necessary infrastructure tohandle POS processing for North America. Some work in a hybrid model paying POI only on smaller local
distributor business while paying on POS for the national distributors. Regardless of preference, it isstrongly suggested that the POS reports should still be collected on a monthly basis to allow the principal
and rep to manage those accounts being serviced. This teaming arrangement between the rep andfranchised distributors has the following benefits:
1.

2.
3.

4.
5.
6.

7.

9/1/2017

More feet on the street - the distributors' field sales teams allow the rep to manage and covera broader range of customers. Rep/Principal and distributors can benefit mutually from theeach other’s existing customer relationships.
Distributors benefit from the local support of a focused Rep sales team for the principals thatthey have in common.
Principals get the benefit of distributor channel management including:a.
Knowledge of which distributor is strongest at a specific customerb.
Management of registration programsc.
Pricing management between competing distributors at a specific account
Quality - distributors get immediate local guidance from the Rep for any corrective actions /remedies required when quality issues arise.
The Rep advocates at the distributors for the Principal to get more mind share (since
distributors carry their competitors’ products too.)
The Rep follows up with the Distributor on new opportunities and helps to determine thecustomer type (OEM, a CM or a Reseller) and assure that the proper strategy is pursued forthat type.
POS Benefits:a.
Helps track distributor performance with sales of key products at target accountsb.
Sales history avoids conflicts with direct rep efforts, other competing distributorsc.
Assist with forecasts, stocking requirementsd.
Avoids price erosion / Prevents artificial competition
Page | 6e.
f.

Allows Principal/Rep to manage business across multiple regions including split
commissions
Able to manage year to year repeat business more effectively

Also, Distributors offer customers a variety of supply chain programs [bonded invenentory, on-site stores,
EDI, etc. as well as improved/extended terms, and other services.Some customers like to take advantageof these services and will not buy direct. For this reason, Reps and Principals like to team with Distributors
where they have created strategic alliances.
Contracts
To set the stage for successful partnering with a Manufacturers’ Rep firm, a traditional contract which
outlines the support and expectations that the Principal and Rep will need to meet. Additional terms forhouse accounts, termination clauses and commission rates and territory boundaries need to be covered.
Guidelines for standard Rep contracts can be found at www.era.org.
Conclusions
Working with Reps can lead to great increases in sales, profits, market share and growth in name brandrecognition. Dynamic Rep firms have succeeded in numerous industries to show high long term value inthe services they provide. The success of each Rep contract does depend on how well the contract iswritten and implemented. If the Principal successfully motivates the Rep by providing an attractive
agreement with strong mutual benefits, then the stage is set for success. If either party does not makegood on their commitment to the agreement, then the contract will be allowed to end either throughtermination or non-renewal and each will seek other Reps and Principals to team with. This system has
been working for over 100 years, however, it is ever changing due to many influences including technology
and globalization. Manufacturers’ Reps have continued to evolve with each change and continue to bean effective approach to the market.
About the author: Steve Alford is the president of Superior Technical Solutions Corp, amanufacturers’ representative company based in the northeast region of the United States. His
experience includes 10+ years in design, manufacturing and project management of electronics
products for a broad range of applications. Following this, Steve spent 4 years as a Field Applications
Engineer for a distributor and for the last 18 years as a manufacturers’ rep. He is also the president of
the Metro NY chapter of the ERA.

9/1/2017

Page | 7