"Manufacturer Struggles Over Age-Old Question: Independent Reps or Direct Salesforce" - 02/27/19 Edition
Stephen Says Column

Dear Stephen:

 I am the third-generation owner of a medium-sized furniture manufacturer. Sales are growing, and business is good.
 
 My team and I are in a bit of a pickle: Our business model has us using independent representatives to sell our product to the A&D community, dealers and end users. The idea, however, has been suggested to enlist direct sale people that are our own employees and position them in certain key markets. There is some support and some concern among my team and, frankly, I am unsure where I stand. I could ask McKinsey & Co and still may, but I thought why not ask you for free!
 
 I have heard you speak at many of the major trade shows and industry organizations, and I respect your point of view (you always have one!). Plus, I know you have experience across the industry, specifically in what it would take to recruit an entirely new sales force. You are clearly someone who understands both sides of the equation.
 
 I am honestly quite concerned about hiring direct sales reps mainly because if a recession comes along or just a market downturn (and sooner or later there will be one), I will be stuck paying all those salaries and benefits. I don’t want to make a short-sighted decision and find myself a few years down the line yearning for the days when I was just paying out commission to the independent rep groups. My only other cost with independent reps is I usually do contribute to their showroom space — but that’s minor compared to paying for the entire showroom expense. Imagine what that would be in New York City.
 
 I just got back from BIFMA where I talked to other business owners with similar concerns about how to grow the business. So tell me Mr. Viscusi, am I better off with independent reps selling my products with no cash flow worries or crazy benefits? Or do I hire my own sales force where I can directly control the sales calls people are making and be sure my people are only selling my products. Is there a formula that tells you when it is time to switch from one business model to the next? Does it vary from market to market? At some point many companies do grow and hire a direct sales force or have a combination of the two, but when? It seems like this is a question many of us have but is rarely addressed in industry associations, forums or even NeoCon. So I turn to you, our furniture industry Guru. What’s the answer?
 
 Signed,
 Can’t Decide — Independent Reps or Factory Reps?
 

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Dear Can't Decide,

 
 Wow, a fan! I like that. Plus, knowing my resume gives you big points!
 
 First, let me say I am not McKinsey or your accounting firm. It is a good idea to call one or both of these firms as they can look through the books and give you a much more specific idea of what your opportunity cost is going to look like. I do, however, have some practical, common sense thoughts about your question. Feel free to do with my thoughts as you wish.
 
 My answer is simple and the oldest cliché on earth. If it isn’t broken, don’t fix it. In other words, stick with your tried and true independent reps. Let’s face it, until the reps close a deal, they are basically an entirely free sales force. Moreover, consider this: Many of the best sales people in the industry own independent rep firms. They believe in their own abilities so much they want to “eat what they kill” (to use another old expression). It makes sense. Working in sales can certainly be lucrative but when working for even the most major manufacturer, there is a point where upward mobility will inevitably plateau. This is especially true in terms of income. The only way for a talented salesperson to compensate for this plateau is to open an independent rep group. This means your independent reps are the best of the best or the trainees of the best. Either way, these are proven sales professionals who can be trusted to close deals.
 
 Moreover, your worst instincts are right — the next recession is coming sooner or later. Cash is king, and you save the cash by only paying for sales generated. I do, however, see the temptation to move away from independent reps. On the manufacturer side, it can sometimes look like sales are steady but starting to slow in terms of growth. There is always a fear the reps aren’t working hard enough to sell your specific line. Maybe they are making more money on the other stuff, or maybe they’re just bored of your product. The anxieties can be endless when you fear your close partners do not have enough skin in the game. There are, however, ways to mitigate these anxieties with means that I have thought long and hard about for years.
 
 Here are a few Viscusi tips for working with independent reps:
 
 The trick is not to fire or threaten to fire the rep, nor is it to begin hiring your own salespeople. The key is simply to engage more with your independent reps on a regular basis. Be sure you and your VPs are in constant contact with the reps. Make sure they know how important they are to your business and prove this fact with the money. Pay commissions on time. Don't nickel and dime them. When your rep needs an extra discount to get an order in, split it with them or just pay out. Keep in mind only you know the manufacturing cost of an item. Keep it fair.
 
 Next, don’t let the dealers go around the rep and directly come to you. This is insulting and undermines the rep’s authority. Another thing independent reps hate is having to fight one another for split commissions. This often happens because the order is specified in one city or part of the country and then delivered to another. If you really want to be a national brand instead of a mom and pop small business, then you may have to double pay commissions occasionally. It keeps the peace and shows you take yourselves seriously. If you make it too hard for them, eventually the best reps will hightail it to find a better manufacturer, leaving you with only the weakest of the bunch.
 
 It is certainly a counterintuitive position for me to take. I have a vested interested in every company firing their independent reps and going direct. It would just mean more work when you inevitably bring me on to recruit this new sales force. That would, however, just be bad advice. I am not saying every independent representative is so great. Some independent rep owners are caught up, and others are too cheap to hire good outside salespeople. You need to spend time and energy in the field finding the best rep firms and then training and building a trusting relationship with them. Have the independent reps come to your headquarters and factory every six months for product updates, and make sure they meet the people they are dealing with everyday. Invite the owners, the salespeople and also the sales assistants. And while they are with you, pamper them and show appreciation. They are basically free brand ambassadors for you.
 
 Stick with independent reps, especially as we face uncertain economic times. Treat them like family, and your business will grow. Guess what? The Guru just saved you a lot of money!
 
 Stephen
 
 You can send your workplace questions to Stephen at: StephenSays@bellow.press
 
 Questions selected to be answered, will appear in this column. Please use the Subject: Stephen Says for all emails. Stephen Viscusi is a bestselling author, television personality, and CEO of The Viscusi Group, global executive recruiters located in New York. Follow Stephen on Twitter @stephenviscusi. Like Stephen on Facebook and follow him on LinkedIn.