What’s behind the growing trend of manufacturers dropping rep firms?
Behind the trend.
This article will undoubtedly ruffle some feathers, but I have a unique perspective on manufacturer representatives. My Dad owned his own agency (Gateway Marketing), and my agency (Wave Representatives) started with representation to kickstart our company, but we knew from the start that this business model was going away.
Here's why.
Times have changed, channel partners aren’t interested in getting a catalog and hearing about a dozen lines represented by your rep. There are fewer product categories due to consolidation, requiring reps to continually expand their line card to make enough MRR, resulting in a lack of [a] technical expertise. [b] time, [c] and resources.
But by far the biggest contributor to the demise of this model comes from the internet; digital selling is standard. Before my agency, I sold millions of dollars of enterprise storage solutions over phone and email, only meeting with my largest customers face to face.
When starting our agency, I knew that face-to-face meetings for everything wasn’t scalable, but over time, phone calls, emails, text and video meetings have become mainstream for doing business.
The shift toward digital selling is the result of a lot of factors, but the most relevant contributors are the; evolution from electronic to technology solutions, Silicon Valley start-ups entering into the space and the pandemic.
Overstretched Attention:
While Manufacturers like seeing big names leveraging a rep firm for traction, they later find that the majority of their efforts are spent keeping those “anchor lines” happy, resulting in neglect.
Follow-up:
Manufacturers worry that sales reps aren’t diligently following up on leads, potentially letting sales slip through the cracks.
Product Knowledge:
To sell effectively, you must know the product and its unique selling points to gain traction however, when rep firms have 10-20 “lines” to meet MRR requirements, they haven’t sufficient time to learn every product.
Introductions:
Manufacturers often feel disappointed by the number of quality introductions provided, falling short of their expectations when hiring the rep firm.
Line Card Selling:
Manufacturers worry rep firms prioritize growing their “line card” over selling existing products, constantly “pitching” their line card with end customers and partners, and alienating ecosystem partners because they only push what’s on their line card.
Line Card Fluctuation:
Manufacturers also have to deal with the reality that rep firms regularly swap one line with another, this constant change can disrupt any synergy gained with other ecosystem partners, hindering long term efforts.
Commission:
Paying commissions on everything within a territory sounds fine when starting out, but once a manufacturer is established, they struggle with paying on deals that the rep has never worked on. This leads to disagreements over commission eligibility, feelings of unfairness and resentment on both sides.
Data Black Hole:
Manufacturers struggle to leverage the full potential of their CRM data since rep firms legally operate as independent contractors, resulting in a loss of account, contact, activity data.
This requires a manual sharing process (excel) for gathering insights on deals. The lack of real time data and transparency hinders collaboration, breeds mistrust an makes it difficult to assess the true value and effectiveness of the partnership.
Communication and Transparency:
Manufacturers often feel like they lack visibility into the rep firm’s sales efforts and pipeline. Lack of proactive communication can further worsen the feeling of being out of the loop.
Loss of Relationships:
Since rep firms act as an intermediaries, manufacturers find that they end up lacking important contacts needed for long term growth.
This is due to the desire by the rep firm to retain ownership of important relationships to maintain their value, resulting in a loss of contacts if the rep firm leaves or is fired.
Coin Operated?
While, many rep firms work hard to bring in business and build regions for their lines, the nature of manufacturer representation will never allow them to maintain these relationships. That’s because they’re seen as a “temporary fix” until the manufacturer is able to fill these positions with direct hires.
Likewise, rep firms see their manufacturers as “lines”, instead of clients because they’ve experienced the negative effects of churn and need to constantly seek new “lines of income”.
Maintaining Channel Partnerships.
Channel Partnerships require continuity to achieve long-term growth. When a manufacturer makes changes in representation or a rep firm decides to drop a manufacturer for a competitor, it’s disruptive to systems integrators, and distributors who need a consistent point of contact for sales support.
This is another driving force behind manufacturers ending their use of rep firms.
What's a Better Alternative?
Having a high performance inside sales team has never been easier, with Wave you can hire, manage and scale your team.
All account, contact and activity data is synchronized live to our clients CRM, all salespeople are dedicated to a single client, and all business is done under the clients brand to build their business and support.
The advantage is you now have a long-term partner for building and maintaining channel partnerships, and regional growth goals. No line card selling, no commissions, no data black hole.
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