Protected Manufacturer Representative Agreements
Part 2: Protection Solutions
One common concern among manufacturers’ representatives is that they could get let go after months or years of hard work, but before significant commissions are generated. This concern is justifiable particularly where the brand is relatively new without an established customer base. A rep must labor long and hard in order to generate the first customers and purchase orders. Or, if the supplier provides a great product offering and executes well, and the help of the rep leads to booming sales, the brand may be an attractive target of acquisition by a larger, more established competitor. During an acquisition, the sales organizations of the acquiring and acquired companies must be consolidated, and usually the direct sales team or rep from the acquiring company survives, while the rep from the acquired supplier is terminated.
One solution that can protect the manufacturer representative working with a small start-up supplier is the insertion of a clause that provides commissions beyond termination in the event of a change of ownership of the supplier. The rep may get six to twelve months of commissions after the termination if results of a change of ownership in the start-up supplier.
On the other side, vendors are looking to exercise control over their own fate. Manufacturers expect some control to extend over the sales organization. When sales is internal and composed of direct employees, hiring and firing is relatively straightforward. When sales is a network of manufacturer representatives, control may be limited. A vendor should be allowed, within the representative agreement, to add new reps and to terminate those reps that do not live up to expectations. All representative agreements allow for termination under various scenarios. A vendor should make sure that it has the ability to sack a rep both for cause and for convenience.
A manufacturer representative agreement should include a clause allowing for “termination for convenience.” In this case, the manufacturer may end the agreement without providing cause. The vendor then has the flexibility to change manufacturers’ representatives if conditions warrant a change.
But a representative will not appreciate the constant fear of termination for no reason at all. But they are encouraged to sign a “termination for convenience” clause if a provision is added to the agreement that adds commissions beyond termination. The period for extended commissions is often 6 months, one year, or proportional to the length of service of the rep.
Seasoned manufacturer reps and vendors agree that representative agreements should be written with special attention to balance. Balanced agreements help build trust between the partners. That trust adds to the productive energy applied by both partners.
Entering into a new representative relationship can be an interesting experience. By inserting protective clauses into the agreement, both partners can increase their chances of success and smooth any issues when the agreement comes to an end. Ensuring balance and fairness in the agreement further increases the opportunity for a great representative relationship.