If your wholesale business uses or plans to hire independent sales representatives (also called manufacturers’ representatives) to sell your products, you know how integral they can be to helping your company expand its sales territory — and grow its profits. But in order for your relationships with independent sales reps to be fruitful, you have to know how to inspire and motivate them.
Since independent sales reps are independent contractors, the usual motivational tactics you might apply to in-house sales reps or other employees won’t work. In fact, micromanaging independent sales reps to try to control how they do their jobs could cause problems with the IRS, since independent contractors by definition must be free to decide how they want to work.
To get the most from an independent sales rep, you’ll have to do some “selling” yourself to keep your reps engaged and giving their best efforts.
Why Use Independent Sales Reps?
Independent sales reps offer some key financial advantages for a wholesale business.
First, since they’re independent contractors, you don’t have to provide employee benefits or withhold payroll taxes.
Second, independent sales reps work solely on commission, so you don’t pay them anything unless they make a sale. Third, they already have experience in your industry and existing relationships with the customers you want to reach, so you don’t have to spend a lot of time and money getting them up to speed.
Of course, these cost savings can be moot if the independent sales rep doesn’t deliver. How can you effectively motivate someone who works for your wholesale business remotely, possibly hundreds or thousands of miles away?
Best Practices for Motivating Independent Sales Reps
To keep your independent reps motivated, follow these best practices:
1. Pay competitively
Like most salespeople, independent sales reps are strongly motivated by money. Unlike in-house salespeople, they’re representing other clients selling products similar to yours. If you want them to work harder for your business than they do for their other wholesale clients, a good commission structure is essential.
Commissions for independent sales reps selling wholesale products vary widely. For products with a fixed price, commissions are typically a percentage of the product’s price. For product sales, Rep Hunter estimates between 7 and 15 percent. It could be even higher, though: marketing blog Launch Grow Joy estimates the average commission is 10-20 percent.
For products with variable pricing, commissions are typically a percentage of the gross margin. (This reduces any temptation the rep may feel to underprice your product just to get a commission.) This type of commission generally ranges between 20 and 40 percent, Rep Hunter reports.
Things to consider when setting your commission structure include:
How long is the sales cycle?
How difficult is your product to sell?
How much post-sale customer support/account management do you expect reps to provide?
If customers tend to re-order your product, give a higher commission or a bonus for first-time sales to new customers, which are more difficult than simply fulfilling repeat business.
2. Provide plenty of support
Who will an independent sales rep work harder for — the wholesaler that provides sales and marketing materials, offers sales training and responds quickly to the rep’s questions, or the wholesaler who offers no assistance and never returns their calls? The more help you can give your reps, the more motivated they will be.
3. Deliver on your promises
Do you ship your products to customers on time and in good condition? If products arrive late, damaged or not at all, even a massive commission won’t be enough to convince an independent rep to risk their good name selling your product.
4. Pay on time
Pay your independent sales reps promptly and accurately to earn their loyalty. If your commission checks take months to arrive, the rep will turn their attention to more lucrative clients. If you need some extra working capital to cover your independent sales reps’ commissions, plan ahead for ways you can access the financing you need. Fundbox offers quick access to credit so your business can stay on top of those commission checks.
5. Respect the rep’s time
Good independent sales reps want to spend their time selling, not sitting on a weekly conference call with your in-house sales team. Streamline reporting requirements for independent reps — let them share their numbers by email or online instead of calling in — and they’ll be more motivated and productive.
6. Make sure you’re aligned and agree on a contract
Never hire an independent sales rep without first agreeing on a contract with them. The contract should lay out your expectations, deliverables and commission structure. You can avoid many problems and bad surprises later if you and your rep have aligned expectations up front.
You can ask your lawyer about contracts for working with independent sales reps, or you can find sample agreements for independent sales reps at self-help legal websites such as RocketLawyer and Nolo.com. Your industry association may also have sample contracts you can use as templates.
You can save money by drafting a contract yourself based on a template, but you should always have an attorney familiar with the industry review and approve it before you use it.
Once you know how to motivate independent sales reps, you will find they can be a smart solution to expanding your wholesale business.