Manufacturers' Agents

Manufacturers' agents or representatives are independent contractors who work on commission to sell products for more than one manufacturer. They are not under the immediate supervision of the manufacturers—typically called principals—that they sell for, so their relationship generally falls into client-customer patterns.

Manufacturers' agent firms range from businesses operated by a sole entrepreneur to considerably more extensive organizations armed with numerous salespeople covering specific territories. Based on data from the U.S. Department of Labor, approximately 1.9 million individuals work as manufacturers' and wholesalers' representatives, but those working in independent organizations are a smaller number, around 150,000 based on estimates provided by the Manufacturers' Agents National Association (MANA). Kellysearch, a long-established supplier and service organization cataloger, listed 950 companies engaged in that business; total so-called "rep organizations" are much more numerous. These firms, tend to be concentrated in major metropolitan areas but are found in every state selling every conceivable product line, including goods produced in the automotive, plastics, electronics, food and beverage processing, apparel, lumber and wood, paper, chemical, and metals industries. Virtually any product that is made and sold can be handled by a manufacturers' agent.

Manufacturers' agents generally represent several different companies that offer compatible—but not com-peting—products to the same industry. This approach reduces the cost of sales by spreading the agent's costs over the different products that he or she represents. Consequently, manufacturers' agents view themselves as a cost-effective alternative to full-time salaried sales forces; reps' self-evaluation that is shared by thousands of small- and medium-sized manufacturers in the United States. Indeed, manufacturers' agents are particularly popular among companies that do not have the financial resources to launch their own sales team. In addition, since manufacturers' agents are generally paid by commission, the small manufacturer incurs no cost until a sale is made.

SMALL BUSINESSES AND MANUFACTURERS' AGENTS

Advantages

In addition to the above-mentioned financial benefits that manufacturers' agents offer to small business owners, they also provide relocating or start-up firms with immediate front-line information on marketplace trends and demographics. By contracting with a manufacturers' agent, a company gains instant access to industry expertise or knowledge of a particular country or region.

There are other distinct advantages as well. For manufacturers with a narrow product line, agencies offer one of the best ways to access the market. Because they normally sell compatible products to a single market, the manufacturers' agent firms are usually well-connected with the manufacturers' principal market targets. This offers manufacturers immediate entry to markets that may be hard to reach with a direct sales force. In addition, rep firms can provide new businesses with ideas about where to advertise, comment on what the competition is doing, and give estimates of a given territory's potential.

Disadvantages

Consultants and business owners note, however, that while using manufacturers' agents may make a lot of sense to the small company that needs to allocate its financial resources carefully and learn about the marketplace quickly, there are drawbacks associated with the practice as well. Lack of control over the agent is easily the most frequently mentioned complaint that business owners cite when discussing rep firms. Since the manufacturers' agent is not an employee of the company, the company's ownership cannot dictate how he or she goes about business. Certainly, the small business owner can negotiate for certain things in his or her business dealings with the agent, just as any client can do with any vendor. But in the final analysis, the agent has far greater freedom to operate as he or she feels fit than do salespeople that are actual employees of the company.

Some critics also claim that since manufacturers' agents conduct business on behalf of more than one manufacturer, they are not always able to devote the necessary time to one single product line. Finally, some agents also may be reluctant or unable to provide service beyond the point of sale. Fundamental elements of customer service, such as start-up assistance and follow-up service, often must be supplied by the manufacturer even if the goods were sold through a manufacturers' agent.

Another concern frequently raised about manufacturers' agents is that they add to the cost of sales by acting as another layer in the distribution process. But the sales function must be carried out, and costs incurred in engaging a rep will show up as in-house costs if that alternative is avoided. Rep firms in effect represent an instance of outsourcing of the sales function.

SELECTING AN AGENT

Manufacturers have many factors to consider when going through the process of selecting a manufacturers' representative. Small business owners should look for someone who shows an ability and a willingness to become knowledgeable about their products and applications, as well as someone who will respond quickly to calls and present the product in terms of how it will meet customer needs. A good agent will also represent the various product lines he or she markets in a just fashion, giving each line the attention it deserves, regardless of how much income it accounts for (this latter concern is especially acute for small and start-up businesses).

The best rule of thumb for manufacturers is to be patient and do plenty of preliminary research. After all, the choice is going to be the primary link between the company and its target audience. A poor selection can ruin a company; conversely, a good choice can help launch a new manufacturer to long-term financial stability. Given the stakes involved in this choice, then, MANA suggested in the print version of Directory of Manufacturers' Sales Agencies (it has since been automated) that business owners consider doing the following when weighing their choices.

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