Manufacturer Rep Firms Drive Growth With the Right Compensation and Sales Roles
Alexander Group continues a strong partnership with NEMRA (National Electrical Manufacturers Representatives Association) by recently completing a 2017 study on Independent Representative Firm (Rep Firm) sales compensation and sales role practices. The study answers key questions around:
What type of selling and sales support roles Rep Firms are using to drive growth
How Rep Firms pay and motivate various selling roles
What pay and role practices distinguish successful firms from those struggling to grow
What practices all Rep Firms should follow to get more out of their investments in sellers
The study showed clear differences between top Rep Firms (growing at double digits) and low and no-growth firms, struggling to barely outpace the prior fiscal year. In fact, top firms exhibit four clear traits:
They Pay At-Market Rates for Sales Talent: High-growth Rep Firms pay their sellers very close to market norms in Alexander Group’s (AGI’s) Distributor and Manufacturing studies. This is the case for base, incentive and total pay. By paying similarly to industries where they may compete for talent, they are able to attract and retain motivated sellers with the right skill sets. In contrast, low-growth Rep Firms tend to pay above market for sales managers and below market for all other resources. This type of pay may attract high-level sales talent, but it also makes it more difficult to hire skilled field, inside and specification resources.
They Utilize Significantly More Specialist and Support Roles: On average, high-growth firms have 3 times more specification and order entry resources and 30 percent more inside sales resources as part of their total selling teams compared to low-growth firms. They use these roles to drive more incremental sales without greatly increasing headcount in relatively expensive field and sales manager resources.
They Avoid Base-Only Plans: High-growth firms rarely use base-only plans for any selling or sales support roles. They rely heavily on goal-based bonus plans and profit sharing to motivate performance. In stark contrast, the majority of low-growth firms use base-only plans for the majority of selling roles. Base-only plans greatly limit a firm’s ability to drive performance and make it difficult to manage expenses if sales drop.
They Use Profit Sharing for Management Roles: The majority of high-growth firms employ profit sharing plans for sales managers, tying them closely to the overall success of the firm. At the same time, they favor goal-based bonuses for field and specification sellers who are closer to the sale. Only around 20 percent of low-growth firms use profit-sharing plans for managers.
The Path Forward
The AGI-NEMRA study provides invaluable insights for both Rep Firms and manufacturers who work with independent reps.
Firm principals who are not following leading sales role and compensation practices need to assess their current organization structures and sales comp programs to determine what gaps they have. They should then build out a short- and long-term plan to hire the right resources and introduce performance-focused sales compensation plans.
Firm principals in high-growth companies should determine a) if their current organization structure and sales comp plans can continue to drive above-market growth or b) if they need to course-correct in specific areas, including adding more variable incentive to plans, setting accurate quotas or employing new plan measures as growth strategies change.
Manufacturers should work with their top Rep Firms to determine if they have the right organization structures and sales comp plans to be successful. Manufacturers can also prioritize support and investment in Rep Firms that have the right roles and sales comp programs to drive growth and re-evaluate those firms with outdated and ineffective role and compensation philosophies.
John Drosos is a principal in the Chicago office. He helps lead the Manufacturing and Distribution practices. John has been with the firm since 2006 and brought with him diverse experience in strategy consulting, general management and technology consulting. John is a key thought leader on complex sales model transformations, global coverage strategies, productivity and analytics. He has also helped shape the firm’s talent recruitment and development practices, playing a key role in the rapid and consistent growth of our Midwest consulting practice.