Can distributors and independent sales reps both work for me?
We are looking at adding distributors in addition to our territory independent sales reps. How do you structure commissions for revenue generated in the territory through distributors? Is the rep paid the normal commission, say 10%? Or is the commission reduced since in most cases the price to the distributor is more deeply discounted? Or is the rep paid nothing on revenue generated through a distributor in his/her territory?
Having spent 25 years as an independent rep I have encountered most any arrangement that you could conceive of. I would say it is fairly normal for a company to pay let's say 10% on retail sales and 5% on sales to a distributor. I encountered a few times when a manufacturer kept a house account or two but those were in cases where the account was a large one that had been doing business directly for years.
My suggestion would be to let him service and set up distributors but at a smaller commission rate. The frequent contact is good at keeping the distributors happy and since there is less time and effort involved it is profitable for everyone.
Clearly defining the market/customer base i.e B2B enterprise sales to be managed by Sales reps and the Distributor managing the B2C segment. Incase the said distributor is not penetrating the market well and your sales reps are getting the leads and they close the same without conflict then its fine but if the distributor identifies the same lead, then conflicts could arise and product price undercutting could be possible and at that time , you/management should take a judicious call on who the order should go. Your cost of customer acquisition should be lower in Direct vis a vis a Channel/ Distributor model.. A channel model helps you penetrate markets faster and deeper
Barry...I agree with Jeff. You don't want distributors as independent agents as they'll be able to monopolize and that would slow growth and the movement of your products.
Example: I bid contracts to the Government as a reseller and I have to get my OEM quotes from distribution and they receive the deep discounts first and then mark-up their margins and then I have to mark-up my margins...But if they had the option to bid they could mark my quote up higher and bid lower and possibly win...Which I would eliminate this scenario because I wouldn't sell the product and no other reseller would either...The distributor should only be focused on building reseller down lines/channels to move your products because they make their money by default (aka: marked-up discounts from the OEM)...If they're not focused on this then I would get a different line of distributors...
Barry ...First, define what the 'independent sales reps' are. Are they representative companies or individuals? If they are rep organizations (companies), they setting up distributors within their territory should be their responsibility. Traditionally, independent sales rep organizations are paid 8% - 12% commission on their sales.
Second, distributors are not paid a commission. Typically, distributors earn their income based on discounts they receive from you and how much they sell your product for. Discounts can be a flat percentage, based on quantity of product bought or dollar volume of their purchase.