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Ask either a manufacturer’s representative or an EMS sales manager about successful EMS-rep sales relationships and a majority of the time you’ll get negative comments. The EMS industry is littered with bad breakups. Usually the root cause is the fact that neither party fully understood what they were getting into. What drives a good relationship? What issues need to be better understood?
The Benefits of Manufacturing Representatives
The core benefit of hiring a manufacturer’s representative firm is the ability to pay for results instead of having a fixed sales cost whether sales are closed or not. This is made possible by the fact that the costs of the rep firm are covered by commissions from multiple principals. In efficient models, reps are visiting a single customer and selling multiple products. In most business models, the rep’s compensation comes from either commissions on new sales or commissions based on a combination of new sales and support of existing accounts.
Commissions are typically higher than those paid to a principal’s sales employees because reps do not make a salary. The system breaks down if a rep closes one account and then fails to continue to grow revenues beyond the initial deal or if the rep never closes sales beyond inherited existing accounts. It can also break down when a principal ends a relationship to cut off the higher commission checks of a successful rep.
Understanding EMS Challenges
While prototypes have a short sales cycle, the average EMS sales cycle can be as long as 12 to 18 months. There is normally a cross-functional decision team that involves middle or senior management. Both of these dynamics create disadvantages for reps. Like sharks who stop breathing if they stop swimming, rep firms are only viable if commissions are coming in. The most desirable principals have widely-needed products with short sell cycles that are typically sold to a common decision maker who is usually a buyer or an engineer. The rep visits likely customers on a regular basis and sells multiple products in each call.
EMS sales have none of those characteristics. Reps need to make multiple calls just to find the right decision maker and often existing relationships with an engineer or buyer impede a rep’s ability to move higher in the customer’s organization. On a positive note, an EMS project generates far greater revenue than many of the easier product sales. However, the rep only realizes that benefit if the EMS principal honors the terms of the rep agreement. If instead the EMS partner ends the relationship when the commissions start to build up, the rep has expended significant uncompensated time and effort for little gain. As mentioned earlier, the relationship can also break down if the rep closes one large account, collects commissions and stops expending further effort for new EMS sales.
Finally, there is the competitive challenge. The percentage of EMS related revenue has grown with the increase in outsourcing. Many rep firms avoid signing up EMS principals out of concern that representing an EMS firm could cost them EMS customers. This shrinks the pool of available reps or creates stealth sales people who only mention their EMS principal when a prospect identifies a need.
My company's commission structure is very attractive relative to EMS industry averages. It’s that way because the CEO came from the rep industry and understands that you get what you pay for. A higher commission attracts a higher caliber of rep firm and ultimately fairly compensates those firms for the longer sales cycle. Clearly enunciated performance expectations and commitments drive higher performance. Commissions continue as long as accounts are growing. Relationships end when they don’t. Both sides, cut margin expectations on price-sensitive accounts.
Making EMS-rep relationships work well, is not easy. Both sides need to modify their existing sales models and expectations to some extent. However, partnerships that work those issues out and do generate good sales, pay dividends on both sides.
Wally Johnson is vice president, sales and marketing at Spectrum Assembly, Inc. He can be reached at firstname.lastname@example.org.