Managing Sales Representatives in the Semiconductor Equipment and Materials Industry, Part 3

by  John C. Housley

In our previous installments, we looked at how to choose a representative, how to define a representative, what to expect and what to look for when things may go bad. Today, we discuss when is the time to choose to stay with the rep or go to a company direct sales force.

Often, the rep is the first to make contacts and start a company or product out in a particular territory or market segment. After that prospecting and mining work is done and the territory becomes successful, the next major thought that enters the principles mind is "gee, why should I continue to pay the rep all those commissions, we can go direct and save a lot of money. The customers know us now and loves our product, we no longer need the rep."

Sometimes, this may be true, if the volume of sales in the territory become more than the rep can or is willing to handle. It may require more technical knowledge or the customer may need to communicate directly with the factory for technical or security reasons. However, many times this need for greed on the part of the principle is very faulty thinking for several reasons:

  • Never believe that your product is so great that the rep can't switch from you to a competitor and do the same for them as he did for you.
  • The cost of commissions to the sales rep may indeed be cheaper than the cost of one of your direct people. Rep companies tend to be small, homespun affairs that maintain a low overhead.
  • That rep probably owns the relationship. To drop the rep may anger the wrong person at the customer and cost you the business, regardless of how well the customer likes your product.
  • What are the chances that you can get as good of a salesperson to take over the territory?

So, if it is not really time to change reps, try negotiating a lower percent commission for the increased volume. Add some of your technical field people to help call on customers with the rep to build up one on one relations with the customers. Today, as in the past, a company never sells anything to another company . . . people sell to people.

I know of a recent interesting case in the semiconductor equipment industry. For about ten years, this large OEM company used a rep firm to sell two lines of their products in the U.S. territory. This rep company took the U.S. sales from 0 to over $300 million per year in about ten years time. The U.S. was the only territory in the world where the principle had a market share that was #1 (at around 42%). This was a very successful relationship for all concerned.

The OEM decided that it was time to go direct and tell the rep good by. After all, just look at that 6% commission that could be saved. So, over the past two years, the OEM phased out the rep company and took the territory direct with their own people. Today, it is estimated that this OEM has a market share of around 17% and sales are under $200 million per year. Everyone loses, except the competitors. In addition, I feel sure that their direct sales group is costing the OEM closer to 10% of sales. A net loss for almost everyone.

Often, technical companies believe that the world buys their product simply because it is so well engineered, performs so well, or is so technically impressive. Warning: HIGH TECH EGO MANIA. Very often, it is still the one-on-one personal relationship that sells the product.

When it is time to move from the rep to the direct force, make the rep a positive part of the change. Give the rep firm a long term consulting agreement to help bridge the relationship building period. Make them feel that they are still part of the team. Give them awards and plaques for their past contribution. This is an investment that will pay off big for years to come.

In part 4 we will discuss things that principles do that drive the rep sales force nuts.

‹‹ John C. Housley
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