Re: [spiers] contracts for sales reps
In a message dated 8/6/04 3:45:50 PM, g.paulazzo@comcast.net writes:
<
Is there a standard contract that we could use with sales reps? You
mentioned that there is a chapter in the course text, I don1t seem to have
the text. Is that what you gave out in class or are you referring to your
book?
Thanks,
Sandy>>
I put a "contract" template in the book, mainly with discussion points. A
key idea is the reps likeley do not want a contract with us, since we are not
proven. We finesse this with writing up notes from a discussion with the reps,
and sending the reps a copy asking if the notes do not meet with their
understanding, to let you know...this way you have it all down in writing.
To be in small biz we have to extricate ourselves from the legalistic
thinking so common to big biz.
Here is from the book...
So forget about a contract, but do draw up a “memorandum of understand-ing.”
This is a quick, professional document laying down your expectations
for this independent sales representative. Remember your independent sales
representative (rep) is also representing as many as a dozen other companies.
The independent sales representative’s “deal” with you may get confused with
his “deal” with another company. Sometimes this results in disputes that can
harm an otherwise good working relationship.
To avoid this problem, you can briefly discuss the following points:
1. The territory this representative will cover. Name the state or area, and
keep this in mind as you contract other independent sales representatives.
2. The dates this agreement is effective. Try to keep this no longer than a
year at a time. You will have many issues to discuss each year relating to
your agreeme the principle that you, in essence, pay commission on rev-enue.
If an independent sales representative writes a $1,000 order, and you
are able to fill only $800 worth of the order, naturally you pay commission
only on the $800 you ship. Now what if the customer only pays $500 on
the account (or nothing) before going out of business? My position would
be the rep must refund the commission, and some independent sales
rep-resentatives
would dispute that. Work this out in advance!
4. Whether all orders from a territory, regardless of source, will be
consid-ered
commission sales. Perhaps you receive in the mail to your office an
order from Pocatello, Idaho. Idaho is your Seattle independent sales
repre-sentative’s
territory, but you know the Seattle sales representative has never
set foot in that town. Will you give the rep commission on that order, an
order he knows nothing about? If not, you ought to inform the independ-ent
sales representatives of that plan.
5. Whether the independent sales representative will get commission for
orders he writes in unassigned territories. We think certainly.
6. What happens when a customer crosses territories to write orders? This
is a particularly touchy issue because it affects both ego and income. Some
people feel these are the two most important aspects in a rep’s life.
For instance, your Chicago rep has been making a presentation of your
line to the Spiegel catalog company. The Spiegel buyer, interested in plac-ing
an order, notices the product on display in New York at another rep’s
showroom. The Spiegel buyer places an order with the New York inde-pendent
sales representative. Naturally the Chicago rep claims credit, and
the New York rep says “prove it, we have the order to prove we did our
work!” The Chicago rep has had both ego and income bruised. This can
make for a very nasty situation.
Some buyers even exacerbate the problem by purposely crossing bound-aries
to place orders. A Chicago buyer needs as many orders as possible
written in New York to warrant the cost of spending a week in New York
at company expense.
Two possible solutions exist. One solution is to state flatly the principle
“he who writes the order gets the commission.” The other is to split
com-missions
when a buyer crosses the territorial lines. Since splitting commis-sions
is management intensive, and might still lead to some ill will, I
recommend the “he who writes…” formula. The most important point to
keep in mind is the way you handle this with one independent sales
repre-sentative
is the way you must handle it with every other.
7. Determine when the commissions will be paid, and the rate of commis-sion.
Generally, commissions are paid by the middle of the month follow-ing
the month the sale occurs. For instance, an independent sales
representative may write an order in January stipulating an April delivery
(or sale). You ship in April, and pay the independent sales representative a
commission by May 15. It is important to be prompt with this arrange-ment,
because many states have laws automatically doubling the commis-sion
due salespeople 46 days after the commission was earned. This
formula assures you do not violate the prompt-payment-of-commissionslaws.
Remember this is only one example; many industries use different
formulae and timeframes for reckoning commissions. As we mentioned
earlier, this is another point to discover in your research on the industry
you enter.
Independent sales reps are paid a commission on each sale. How much
and when a sale occurs is different in each industry. In the gift and
house-wares
industry, we pay independent sales representatives a commission of
15% on sales, garments 8%, and I have seen anywhere from 2-24%
depending on the industry. This means on a $2 sale, a commission of 15%
generates a 30¢ commission for the independent sales representative. If
you recall from the chapter on costings, a $2 sale represents $1 cost of
goods, and $1 gross profit. So the 30¢ commission comes out of a $1 gross
profit. This is the time to ask yourself, is it fair to give the independent
sales representative 30¢ for merely gaining an order, leaving you only 70¢
to pay for all of your expenses and to cover your risks? If you make no
profit, the independent sales representative still gets the commission.
Should we not look at ways of cutting the independent sales representative
out of the picture?
Many companies attempt this and ultimately fail. One way is to hire in-house
sales representatives. In-house sales people often mislead their
employers when reviewing prospects and performance. Being on the com-pany
expense account, they have no interest in economy. They all too
often pad the expenses. And, they may well pad orders, knowing if they
lose this customer, their job is more secure since the company is just that
much more reliant on keeping representatives in the field trying to gain
new business. Is the in-house representative really spending a “working
weekend” in Vail, Colorado prospecting new accounts, or is something
else going on at company expense?
Even if you are expert at managing a sales force, you will never motivate
and manage the in-house sales staff as well as the independent sales
repre-sentatives
do themselves. I’ve seen studies that show the independent sales
representatives are far more efficient than the in-house sales staff. Padding
expenses cheats only themselves; reps do not travel extravagantly, and
write more orders on each call because they represent more lines.
Finally, independent sales representatives speak frankly with you. If your
line looks bad, or if your new products are in poor taste, he will challenge
you. If customers complain, you will be informed quickly. The bottom
line is you simply cannot run a sales staff as efficiently as the independent
sales representatives run themselves.
Another way is to eliminate a sales staff altogether. Simply show your
products at the trade shows around the country, and hire local people at
minimum wage to take orders with you during the trade shows. This
might work for a while, in an extremely strong market, but customer serv-ice
will suffer and soon you lose touch with your customers; then your
sales will dwindle.
Since there is no alternative to the independent sales representative and
there is money in your budget to pay them; since they provide tremendous
value; and, since your competitors use them, you must use them, too.
8. Decide whether any sales targets or quotas will be established. At least
informally these are always in place. An independent sales representative will
have a vague idea in mind, an expectation, of what he can do with the
prod-ucts
he is representing. Ask your independent sales representative to annually
project his sales of your product. This serves two purposes. First, the
inde-pendent
sales representative commits to a number in which he has an ego
investment, a powerful motivator. Second, you can see how this matches
your expectations, and help in the planning of your company’s growth.
Earlier you determined the production capacity of the overseas supplier,
and from the independent sales representatives you determine the sales
potential. It is essential to the soundness of your business that these
figures
are within each other’s range. This exercise affirms you can reasonably
expect to sell what you can make, and you can make what you can sell.
9. Whether any incentives will be established for salespeople. The answer
is no, generally. The point in contracting independent sales representatives
is to avoid managing and motivating a sales force. On the other hand, you
might want to turn unreasonable independent sales representatives’
demands for concessions into market-builders for yourself. For instance, a
New York rep might claim, “Although 15% commission is standard, you
must pay us 20% because New York is a much more expensive place to
operate.” True in some respects, but other efficiencies like market
concen-tration
exist, making the advantages and disadvantages of operating in
New York a wash for the independent sales representative. Nonetheless, in
this instance you are being squeezed by your independent sales
representa-tive,
and you must respond. Ask the independent sales representative what
dollar value will be generated in New York. If he quotes proportionately
low, compare it to other markets and ask the independent sales representa-tive
why you should pay more for less performance. If he quotes propor-tionately
higher than other markets, agree to pay 15% (or whatever the
standard is in your industry) on sales proportional to other territories, and
20% on sales above the norm, calculated each calendar year.
In this way the independent sales representative is focused on building
sales for your product, yet is only rewarded for exceptional sales. As subtly
as possible, each year push up the base target to make the 20% commis-sion
level. Also, knowing New York is performing proportionally higher
than everyone else, mention this to your other independent sales
represen-tative
and wonder aloud why they are not quite up to snuff. Play one rep
off against another.
Working this aggressive angle requires you know the relative sales poten-tial
of each territory in the United States. This we will learn in the chapter
on financing.
10. Who will pay for samples, and in what quantities they will be avail-able?
This is tricky, because on one hand you do not want to give samples
away to the independent sales representative. The reps break, lose, sell,
give away and loan out samples forever, especially when they can always
get more from you. On the other hand, you want the independent sales
representatives to have enough samples to promote the product.
The independent sales representative does not want to pay for samples if
he can avoid it, and on an untested line may flat out refuse. If this is the
best independent sales representative for the territory, are you going to
keep looking for an independent sales representative over this issue?
Certainly not, and the reps know that.
How can you reconcile the independent sales representatives’ refusal to pay
for samples with your need to control the expenses associated with samples?
The standard practice is to “memo bill” all samples. A memo bill is an invoice
that states the wholesale value of the products delivered as samples, and
requires that the invoice be paid before any replacement samples are shipped.
There is no time limit on a memo bill. If the item is discontinued from the
line, the sample must be returned, or paid for. Naturally the independent
sales representatives will not pay any invoices, but with this stipulation you
are free to deduct the cost of disappearing samples from the commissions you
owe the independent sales representatives.
Some importers let the samples be billed at cost, which does promote the
practice of independent sales representatives and their employees buying
your products as samples for personal use. This can be beneficial within
bounds. Testimonials are powerful sales tools. If an independent sales
repre-sentative
says to a client about your product, “I have one in my home,” it will
often promote the sale. On the other hand, you want to limit this activity
somewhat. Remember, an independent sales representative earning 15% on a
$2 wholesale price might be tempted to order 1,000 of your items at $1 cost
on his own account and resell himself at the $2 price, netting an easy extra
$700. (1,000 items at $2 = a $2,000 sale, and a 15% commission = a $300
commission; to take that same order and buy 1,000 “samples” from you at $1
each and reship to his customer at $2 each generates a gross profit of $1,000,
$700 more than the $300 a mere commission would generate).
Therefore, include wording to the effect that “samples are available in
quantities adequate to the task of promoting the product.”
11. How will samples be shipped, and on whose account? Be low key on
this, simply saying the representative pays the freight as part of the memo
bill on the samples, to be deducted from commissions. If they object
strenuously, then compromise by agreeing to pay all surface freight for
samples. This is reasonable, but by all means avoid paying the cost on air
freighted samples. From an independent sales representatives’ point of
view, all samples need to be shipped Federal Express overnight service.
This is extremely expensive, and rarely necessary. If they absolutely need it
overnight, they can pay for it. You will be amazed at how rarely samples
are truly needed overnight.
12. Will export shipments be allowed? Try not to get in the business of
exporting imported goods. The paperwork involved quickly wipes out any
profit or fun. As we explained earlier, it is far better to have your products
shipped directly from the overseas factory to customers in third countries.
But in the event a Harrods buyer wants to place a small order with your
company, insist that the payment be in advance and the goods be deliv-ered
to a United States address. Most foreign buyers have consolidators in
the United States that gather these small orders for export. It is an expense
the buyer would rather avoid and make you pay, but with a firm policy
you can avoid the expense and leave it for them to pay.
This could be said of Canada and Mexico as well, except with NAFTA,
trade with these countries is becoming far more difficult and the paper-work
has been increased, so some traders have found it prohibitive to sell
to Canada and Mexico, or import from there.
Saturday, August 7, 2004
contracts for sales reps
Re: Licensed Merchandise
Re: [spiers] Licensed Merchandise
In a message dated 8/4/04 11:12:43 AM, gnkoh@aol.com writes:
I would like to import closeout Licensed merchandise from Orient.
Would there be a problem at US customs ?
Please advise ..
***Well, possibly if you do not have a license for such
merchandise...assuming that what you bought you did so at export prices, as
opposed to buying 1000
michi mouse dolls at Disneyland Tokyo. In every major city there are
mountains of "illegal" goods brought in, so who is to say.
More to the point, why bother with this? There is no shortage of this stuff
in USA... one "closes out" only what one can no longer effectively sell...so
you will succeed where the expert failed? Where and who are your customers?
Where is the repeat business so critical to building wealth? And as you
noticed, there is the element of illegality in it all. Finally, I can pretty
much
guarantee, whatever price you get overseas, someone else will get it much
cheaper.
Another possibility here is the factory has been in business 20 years making
"closeouts" for people who can be fooled into buying what they believe to be a
sure thing. People go looking for product in all the wrong places, cn't find
it, and settle for "designer closeouts." And of course when they get back to
USA, they end up at a swap meet right next to somebody with the exact same
closeouts, except the next door neighbor is still after 5 years trying unload
the goods.
There is no substitute for the product that is waiting within you...
John
Thursday, August 5, 2004
contracts for sales reps
Hi John,
Is there a standard contract that we could use with sales reps? You
mentioned that there is a chapter in the course text, I don¹t seem to have
the text. Is that what you gave out in class or are you referring to your
book?
Thanks,
Sandy
Wednesday, August 4, 2004
Credit Check
RE: [spiers] Credit Check
John,
Thank you and everyone for the information. We found some great and quick
responses by quickly calling the trade references listed for our new
customers. They all asked us to fax them with the information we were
looking for and gave us the information of who to put the faxes attention
to. One of the trade references was even interested in our product and might
become a customer.
We used the below format/questions for our fax and received many replies
within hours. Great turnaround!
Thanks again for all your help,
Paul
Atten: Accounts Manager
XYZ Company.
555 abc st.
PO Box 5555
Medford, NJ 08005
Thanks in advance for helping with this. We are Anzen Markets LLC., a small
manufacturer, and the firm below has made a request to do business with us:
Our customers co. name
Address etc.
This company has noted your organization as a credit reference. We would
appreciate information on the following:
1. How long has this company been a customer of yours?
2. How long does it typically take for this company to pay?
3. What is this company's credit limit with you?
We thank you very much for answering the above, or providing any other info
that might be relevant to their credit status.
Respectfully yours,
Jonathan Van Valin
Managing Director
Anzen Markets
Phone (206) 713-1237
Fax (206) 374-8293
Jonathan@AnzenMarkets.com
Paul Cifka
Anzen Markets LLC
www.whynotbe.com
Specializing in International Trade and Marketing
paul@anzenmarkets.com
206-310-6237 (p)
206-374-8293 (f)
-----Original Message-----
From: wileyccc@aol.com [mailto:wileyccc@aol.com]
Sent: Tuesday, August 03, 2004 9:10 PM
To: spiers@yahoogroups.com
Subject: Re: [spiers] Credit Check
"Never go COD, ever," I'm new in the baby apparel
business and all my competitors offer it (at this point I take credit cards
and
COD)... please advise.
I am jaded... at shows they say send COD.. why, is their credit bad? later,
when you ship it, they often refuse it, costing you freight back and
forth... credit card is better for a retailer than cod..so why cod?
I've never excperienced upside with cod...
John
Re: Licensed Merchandise
Hi,
I would like to import closeout Licensed merchandise from Orient.
Would there be a problem at US customs ?
Please advise ..
Thanks
JJ
Sunday, August 1, 2004
Credit Check
Re: [spiers] Credit Check
Hi John,
I'm curious why you say "Never go COD, ever," I'm new in the baby apparel
business and all my competitors offer it (at this point I take credit cards and
COD)... please advise.
Thanks!! Mary
Mary Morrison
Mooncakes/Tiananmen Trading, Inc.
Coral Gables, FL 33134
Tel: 786.552.1311
Fax: 305.774.4633