How are manufacturers’ representatives typically paid?

How do sales reps get paid?

Manufacturers’ representatives, and all independent sales reps, get paid a commission for the sales they make in their area. The commission is based on the commission rate in their written Sales Representative Agreement with the manufacturer. Reps are paid only after the sale is made.

Since the manufacturer rep maintains an independent sales and marketing business, that business assumes responsibility for their operating expenses including employee benefits, taxes, advertising, auto, travel, technology, insurance costs, office equipment, etc. They are paid as 1099 independent contractors.

A true evaluation of the alternative, a factory-direct-salaried salesperson, is that what may appear as an $80,000-a-year total cost can actually be closer to $160,000-185,000. This increase is due to accounting for overhead expenses like commission, employee benefits, auto, travel and expenses, holidays, and administrative support. Manufacturers’ representatives eliminate the “soft costs” of personnel (i.e. phone service) and minimize a manufacturer’s legal exposure.

Representatives or manufacturer representative agencies pay the costs to select, train, compensate, discipline and terminate their own employees, further reducing the legal exposure of manufacturers. Each outside sales professional is backed up by an inside support person.

How much of the commission dollar do sales agencies actually keep?

Approximately 60 percent of every commission dollar a rep firm receives is paid out in direct salaries and compensation. The employment of personnel is the manufacturers’ representative’s primary overhead investment. Overhead in today’s rep firm also includes all the extra administrative services now being performed for manufacturers. These include expenses for communications equipment, travel and participation in sales meetings, trade shows and conventions. Unlike a distribution or manufacturing firm that can reduce or eliminate the purchase of supplies, materials and other items that compose the cost of sales, the manufacturers’ representative’s major cost cannot be curtailed so readily. People can’t be fired every time a dip in sales occurs.

Is it true that independent manufacturer reps make too much money?

Some independent manufacturer representatives earn more than others – sometimes, in fact, more than the sales managers who hire them. As self-employed business people, they assume the risks being an entrepreneur, and the profit motive can create high payouts. However, since the payout is tied directly to sales, higher payouts only increase their ROI on outsourcing their sales. Manufacturers reps cannot be successful without making the manufacturing company successful in the process.

Tags: ,
Previous Post

What is an independent sales representative?

Next Post

What are the advantages of selling with manufacturers’ representatives?

Comments

    • Quinn
    • October 11, 2019
    Reply

    Can a manufacturer rep bill for sales when no agreement has been made? We’ve had two referrals from a person we’re not even sure we want to work with. A few months ago we had one very brief discussion about commission or a distributorship. She was told we would think about this, and needs to create a commission schedule and agreement for her, A referral came from her. Without s contract in place we invoiced her company at a discounted rate so she could mark up her own commission. Weeks after production began she told us to bill the customer directly. She will not return calls or respond to emails. She recently invoiced for a massive commission we didn’t agree to. While we’re open to the idea, as a new manufacturer we do not yet have policies or commission scheduled in place for this yet. What can we do?

      • jas
      • October 19, 2019
      Reply

      Commissions are normally paid on invoices. Did you ship, invoice, and get paid? It is not clear from your question but sounds like the rep is billing you for referrals but not sales. Then you said you did invoice the company, so it appears some sales might have actually occurred.

      In every case we recommend that a written agreement be in place. It sounds like you don’t have that. And it sounds like you are not comfortable with several parts of this deal. I would urge caution, and potentially that you get legal advice, as we cannot give legal advice here. You want to find out your options for either getting this deal on sound footing, or how you can get out of it.

  1. Reply

    When using a Manufacture Rep Group in a specific territory., do they get paid commission just on the sales they initiate? Or any sale made in the entire territory? We have established business in a territory and are considering a Manufacture Rep group to increase sales. How do we handle commission on business that is not generated by them?

      • jas
      • July 29, 2019
      Reply

      The idea of getting paid on all sales in the territory is known as an “exclusive”. There is a lot of discussion about this top. Especially, please see our blog post at https://www.rephunter.net/blog/sales-reps-exclusive-territories/.

      In short, the contract that you enter into with the rep defines how you agree to handle exclusives. The rep is much more motivated when they get an exclusive. On the other hand, it might make sense for you to retain certain “house” accounts that you have existing relationships with.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.