Reps … Mega vs Medium / Smaller?

\"\"For the September issue of Electrical Wholesaling magazine I wrote an article for their Speaking Out section titled Mega Agencies vs Smaller Reps.  In an industry where it has commonly been stated that 80% of manufacturers who represent 60% of industry sales go to market through independent manufacturer sales agents, needless to say, the agency world is important. And the trend continues to accelerate as a number of major manufacturers continue to evolve to a rep model within parts of their sales model.  Why? There are the financial issues of a fixed cost vs a variable cost model.  Additionally, it is a coverage issue (a % of multiple people who are in the field vs sometimes 1 for a state / region) as well as support within distributors and connections with contractors, engineers, and other customers / influencers who have many relationships in the market (as they reside in the market).  And there are other reasons why a rep model may be \”the right choice\” (and some that suggest an alternative model … direct? hybrid? role of \”specialists\”, etc).
The challenge with all organizations, be they a rep, a distributor or a manufacturer, is managing a sales force. Roles of management, sales skills training, product training and more are very variable throughout the industry. In some instances \”mega rep agencies\” have evolved through acquisition (euphemism for succession planning in many cases!) A question becomes, \”Is sales management and sales training a core competency of these organizations to make them superior to other reps?\” They are in the \”people\” business and, as they seek to represent a manufacturer across their platform, a question of \”mega vs smaller\” develops for a manufacturer.
While some promote these mega agencies, and they can be appropriate for some manufacturers or may be the best solution within a geographic territory,  they are not the only, or sometimes the best, solution.  After speaking to over 50 rep organizations throughout the spring and summer, the rep world is alive and vibrant.
The following is the article written for Electrical Wholesaling and is republished with Jim Lucy\’s permission.  Of interest is, \”what do you think?\”
In an industry built on customer, influencer and channel relationships and where agility, local insights and stability are important, consolidation to gain an advantage remains an elusive goal for many. Ask yourself the following questions:
  • After years of distributor consolidation, why do the top five distributors only represent 33% of industry revenues?
  • Why is there not more manufacturer consolidation? And have those who grew through acquisition been actively supported by distribution? Many distributors talk about not wanting to be “leveraged.”
  • Talk of rep consolidation has led to some large agencies. However, they rarely represent the same lines across their entire footprint, and most manufacturers or distributors have not seen the benefit.

Size, in and of itself, is not a barometer of a “preferred” organization in the eyes of the customer. The business still needs to be earned. Scale may not be in the best interest of the customer. This is also the case in the world of manufacturers’ reps, where their customers are manufacturers and distributors.

In fact, many view the term “independent” as a culture that’s aggressive, committed locally and focused. Consolidation, for many, changes a culture and can lead to some passivity.

Mega agencies. Several “mega agencies” have emerged through consolidation. Some manufacturers and distributors say the incremental benefits have been questionable and perhaps only accrue to ownership.  While these mega agencies may put more salespeople on the street or hire more customer service personnel, line authorizations do not always transfer and incremental share and sales within the marketplace is not always realized. As a manufacturer, these are key metrics because the incidental benefits of interacting with one agency rather than two or more agencies are nominal.

While theoretically there should be more commission dollars generated and hence investable, neither distributors or manufacturers report significantly enhanced services from the rep. Most markets, however, are well served by the truly independent manufacturer rep — the small to mid-sized agency that focuses on a state or region.  These agencies know the players, and the key customers know the rep principals. These independent reps  are committed to “their community” and, in many cases, are investing for tomorrow. For many of them, their vision isn’t to be the biggest but to be the best in helping generate sales for their distributors and manufacturers.

We have spoken with many small to mid-sized agencies on behalf of clients and get the sense from them that the future of small to mid-sized agencies is bright. Most agencies have less than 25 employees and we’ve seen a definite break in size between companies that have less than 10 employees and those with 11 to 25 employees.

Small agencies. Smaller agencies need to be careful about over-extending themselves. They can sometimes take on too many lines, attempt to serve disparate customer segments, try to reach customers beyond where physically feasible, or offer more services than they can be appropriately compensated for (with incremental dollars). Unfortunately, some of these agencies represent lines where they “accept orders” rather than add value for the end-user, distributor or manufacturer. Their value may only be knowledge of local distributor personnel.

Focus for small agencies is the key. A few key lines get them into the door to then share their other lines. The most effective small agencies also know where to “partner,” when to acquiesce and how to be guerrilla sales and marketing personnel. Sometimes their biggest challenge is when salespeople (and principals) also have to play customer service and administrators.

Mid-sized agencies. Conversely, once an agency gets over 10 employees they often generate enough commission dollars to invest in their business and hence have a “benefit multiplier effect” that serves their three external constituencies. The slight increase in size helps take the business to the next level to allow incremental investments, especially in customer service, technology and end-user/influencer outreach.

These companies are creative, bring insights and value to their manufacturers, seek to serve their distributors with a high level of customer service while supporting them “in the field.” In fact, in talking with independent distributors, they prefer to work with mid-sized agencies as there is greater alignment of vision, business interests and local insights. We’ve seen progressive reps differentiate themselves in their market:
  • New agencies have been started by industry veterans and backed by strong manufacturers. These include individuals like Pete Kokuzian, formerly of Panduit, who started lighting agency Force Partners, and Paul Collins, formerly of Eaton Crouse-Hinds, who started Invictus Sales & Marketing.
  • Some agencies are passing the baton to younger generations and the younger generation is investing into the business and adding technology infrastructures.
  • Agencies hiring college interns to learn the business and create a sales personnel pipeline.
  • Reps investing in marketing
  • Interest in investing in technology tools to make doing business easier.
  • More of a focus on line evaluation and understanding their ROI on a line, and a consideration of taking on other lines to improve the profitability of their business.
  • A willingness to try new things.

Manufacturer view. In speaking with manufacturers, we’ve heard that many are finding that being a name brand on a line card with lots of name brands actually diminishes marketplace results. Rather than getting attention from the agency they become “just another line” and lose mind share and market share within the agency.

This loss of visibility translates into lost share within the marketplace when planning, end-user sales calls, marketing and customer service are put on the back burner due to even larger lines or the rep salesperson having too many “top” lines.

A changing business. Progressive manufacturers know reps need to formally have stability in their relationship. Some manufacturers who want to grow and want their reps to invest in supporting their line are providing longer-term agreements. After all, how committed to a relationship can you be when contractually it’s for only 30 days? Would you hire a salesperson with an expectation of firing them in 30 days?

We have seen some manufacturers negotiate minimum guaranteed, activity-based and goal-oriented agreements; develop joint business plans based upon local business metrics and market share goals; jointly fund marketing initiatives; and provide increased training support. Other manufacturers are integrating technology initiatives; actively listening via advisory councils; and are seeking input to streamline business processes to jointly improve service for distributors

Agency change and growth. While the aging of rep principals means some agencies will be acquired, closed or have some type of internal succession plan, we’re seeing that mid-sized agencies are having these discussions, are recruiting new talent that can be part of their succession plan, and are identifying ways for ownership to monetize their business. Also, we have seen manufacturers’ sales turnover result in people joining agencies and increased interest in starting agencies. More manufacturers are entering the market and are looking for representation to support their distribution recruitment to build their sales.

As a manufacturer, it’s important to have representation options within a marketplace. If the market was to migrate to a few mega agencies, how would your line be represented? How would a distributor have access to “choice,” or is the manufacturer market destined to become pre-determined by a select group of agencies?

The future of small and mid-sized manufacturers sales agents is bright. The marketplace, defined as end-users, distributors and manufacturers, needs a choice in suppliers. This means there is either enough agencies to support manufacturers seeking agencies or these manufacturers decide for a direct model. Manufacturers that prefer the variable compensation sales model have learned that more feet on the street is better, and that local, committed and invested knowledge executes best.

While one size doesn\’t fit all, and all have pros and cons, (yes, it does come down to the agency as well as, for a manufacturer, which agency doesn\’t carry your competition),

  • As a rep, what do you think? What differentiates you?
  • As a distributor with experience with small, medium and large rep agencies, what do you prefer? Is there a difference in service levels? If you had to make a recommendation to a manufacturer based upon agency size, what would you recommend?
  • As a manufacturer, why a mega agency? Why a small / medium agency?  Do you prefer to be top tier within an agency or \”one of the pack\”?

And yes, Channel Marketing Group does work with manufacturer rep agencies and has worked for NEMRA.

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5 thoughts on “Reps … Mega vs Medium / Smaller?”

  1. Very interesting article from a rep’s perspective for sure David, and one on which I have many thoughts & certainly a few questions. I have witnessed tremendous consolidation & evolution in the rep world over the past 25 years, and that’s certainly not over yet!
    Nice work, and I’m sure we’ll get an opportunity to discuss further at the NAED Eastern conference.
    Stay well.

  2. Thought provoking… there is much to think about. Further, I believe manufacturers are struggling to figure out how to manage their rep agencies.

  3. Mega Agencies as you implied are smaller, local agencies cobbled together under one banner. They offer manufacturers the ability to point to a map and say they have larger coverage, but also place the manufacturer another step further from individual salespeople and customers.
    The U.S. Army has modeled its management on the philosophy that any manager with more than 6-10 people reporting directly to them becomes less effective. It’s hard for me to imagine even the largest marketplace (Chicago, Detroit, Los Angeles, etc..) that could not be serviced by 6-10 people.
    The Mega Agency has more overhead, multiple layers of management and requires more lines to support such infrastructure which can dilute focus.
    Which model provides better sales assistance, Walmart or T-Mobile?

  4. David, well stated. Small/Medium rep firms play a vital role in our industry. The steady growth in demand for multi-line, independent, rep firms by electrical equipment and lighting manufacturers, bodes well for all independent rep selling organizations. We need firms of all sizes to meet the demand from both new and established manufacturers seeking the access to market they need.

  5. Good article on Reps below – I think it’s right on. Hope Manufactures are reading it and not just 100% focused on the cost of sales

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