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Is a manufacturers' rep cheaper than a salesperson?
A manufacturers' rep is usually cheaper until a territory sells several million dollars a year. A rep is paid commission, typically 2–10% on parts, only on invoices your customer pays. A salesperson costs salary, burden and travel from day one, often $130,000 or more a year, and commonly takes six to twelve months to start selling.
What does it cost to sell a territory?
Set the sales you expect from the territory and what a hire would cost. The lines cross where a salesperson becomes cheaper per dollar sold.
Typical 2–10% on parts
- Rep cost a year
$75,000$75,000 - Salesperson cost a year
$178,750$178,750 - Breakeven sales
$4,958,333$4,958,333
5.0% of sales vs 11.9% of sales
Rep, paid on sales Salesperson, salaried
A rep costs less until the territory sells about $4,950,000 a year. In year one a new hire costs $156,250 and, after 9 months of ramp, brings in about $375,000 of it. A rep is paid nothing until an invoice is paid.
What should a rep agreement cover?
Agree on all of it in writing before the rep quotes your line. Even-handed terms keep good reps.
ClauseWhat it settlesCommon practice
Territory
What it settlesThe geography, the named accounts, or both. Say whether it's exclusive.
Common practiceName house accounts you keep and pay no commission on.
Products
What it settlesWhich of your processes and product lines the rep sells.
Common practiceNew lines added later need a written amendment.
Commission
What it settlesRate, what it's calculated on, and when it's paid.
Common practicePaid on invoiced sales, after your customer pays. Say how tooling, freight and returns are treated.
Split commissions
What it settlesWho is paid when the buyer designs in one territory and orders from another.
Common practiceA fixed split, such as 50/50, written in, saves the argument.
Order acceptance
What it settlesYou accept or reject every order. The rep can't bind you.
Common practicePrices, terms and lead times are yours to set.
Term and termination
What it settlesHow long, and how either side ends it.
Common practice30–90 days' notice, and commission on orders placed before termination.
Post-termination
What it settlesCommission on programs the rep brought in that keep shipping.
Common practiceA defined tail period. Several states have rep protection laws; check yours.
Conflicts
What it settlesThe rep discloses its full line card.
Common practiceComplementary lines help you; directly competing ones need your consent.
How do you choose a manufacturers' rep?
The questions that predict whether your line will sell.
- Which buyers do you call on every month, and in which industries?
- What's on your line card, and does any of it compete with us?
- Which of your lines grew most last year, and why?
- How do you hand an RFQ to us, and what do you need back, and by when?
- How do you report: quotes out, won, lost and why?
- Can we talk to two manufacturers you represent?
Questions about reps
What commission do manufacturers' reps charge?
Commonly 2–10% of invoiced sales for manufactured parts, lower on high-volume production and tooling, higher on engineered components that take design-in work. The rate is set in the line agreement.
When does a manufacturer pay the rep?
Usually monthly, after your customer pays you, on the invoices for that rep's territory. No sale, no commission.
Why would a rep sell my line well?
Because the rep is already calling on the buyers. A rep carrying complementary lines, such as stampings and machining, is in front of the same purchasing and engineering people every week. Your line rides along on visits they're already making.
Can I use a rep and a salesperson at the same time?
Yes. Many manufacturers keep a salesperson for house accounts and a home territory and use reps elsewhere. The agreement's territory and house-account clauses make it work.
Where do the clause guidelines come from?
They follow the clauses the Manufacturers' Agents National Association recommends for rep agreements. Have an attorney who knows rep law review yours.
Get RFQs matched to your shop
Apply with your processes, materials, certifications and open capacity. SSG routes matching RFQs to you with drawings and a DFM check attached, and is paid only as commission on orders you invoice.