involved.
Establishing A representative firm owner needs management
a Rep Firm
Copyright © 2007
Article by Dr. Salim Hajje Ph.D., Strategy Consult-
ant Business Unlimited -
Start-up Costs
So you want to unleash the entrepreneur lurking
inside you and start a representative business?
Have you thought it through thoroughly? Do you
have a plan? Have you considered all the costs
and therefore the risks? Before any good builder
begins a project, he first lays out a plan and
counts the costs lest he run out of money and/or
materials and look like a fool. So too does a wise
entrepreneur lay out a plan and count the costs
before launching a new venture.
What are the cost factors and actual cost items
involved in establishing a representative firm?
The answers to that question are very complex,
but this series attempts to outline those costs
and remove some of the guesswork surrounding
the cost factors related to a firm’s start-up.
Any financial plan must be designed with the
costs appropriate for the city, state and/or re-
gion where your company is located and the
availability of facilities, services and personnel.
There are many variables and intangibles. We
have attempted to list those factors that should
be considered as you plan and implement your
new venture.
Cost Factor: Levels of Experience
The costs associated with one’s experience or
lack thereof seem obvious, but they defy quanti-
fication. The costs of learning on the job vary as
much as individual intelligence levels and desire
to succeed. Of course, tangible costs can be de-
termined for classes taken, seminars/conferences
attended and many forms of continuing education
(e.g., to learn new management techniques, im-
prove sales skills, make contact and network with
fellow reps, receive training on new software,
etc.), but don’t overlook the cost of the time
The Secret Guide Series™ Establishing a Rep Firm
(administrative and organizational) know-how as
well as sales skills. Possible start-up costs can be
estimated via a series of questions about each
category of knowledge and experience. First, ask
yourself these questions about your administra-
tive and organizational skills.
1. Do you know how to organize your time when
you have 30 balls in the air at once (unlike engi-
neering or other fields where you can concen-
trate on just one or two projects)?
2. How good are your time management skills?
There may be a cost factor associated with pur-
chasing learning materials or attending a seminar
on this vital topic. More money is wasted due to
poor time management than any other cost fac-
tor.
3. Are you proficient in the use of computer
software to produce spreadsheets, basic commu-
nication (letters, quotes, etc.) and electronic
communication? Do you know how to use sales
automation (including opportunity tracking) soft-
ware and a presentation program? If not, you will
need to hire that expertise or spend time and
dollars to acquire the needed skills.
4. Do you understand the administrative and
accounting aspects of the business? Will you need
to attend classes on management and finance?
Will you need to hire an office manager with
these skills?
5. Do you know how to use the Internet to find,
choose and book low-cost travel arrangements?
6. Do you know how to assemble and present a
genuinely professional proposal?
7. If you will not have a secretary or assistant
immediately, or ever, can you perform basic of-
fice tasks? Can you organize your office to oper-
ate effectively and efficiently?
8. How experienced are you at negotiating con-
tracts, both with customers and principals? This
activity will have a tremendous financial impact,
both initially and throughout your “life” as a rep-
resentative.
9. Have you ever had experience managing peo-
ple? You may incur the costs associated with at-
tending training classes. Keep in mind that many
Copyright © Business Unlimited 1
 representatives fall short in this area, but in most
cases it is because they give greater priority to
other aspects (pressures) of the business.
These questions pertain to your sales skills and
experience.
1. Are you a “techie” (engineer) turned sales-
person? If so, have you had frequent contact with
customers, or will this be an entirely new experi-
ence to you?
2. Do you have any experience as a representa-
tive? Have you worked for someone else or must
you learn on the job?
3. Do you understand how to deal diplomatically
with a principal who doesn’t support you prop-
erly?
4. Have you participated in “fundamentals of
selling” courses?
5. Do you have relationships with customers and
potential customers for your chosen area of prod-
uct concentration?
6. Do you know how to qualify a prospect? Do
you understand the importance of this process?
7. How good are your presentation skills?
The answers to these questions significantly af-
fect the costs to establish and operate a repre-
sentative firm.
Your product and industry experience is another
key factor. Do you know the products you are
proposing to sell? Or will you incur the costs in-
volved in traveling to the principals’ locations to
gain your start-up knowledge? (You should as-
sume that once your firm is up and running, regu-
lar visits to principals’ facilities will be an ongo-
ing expense. Even though some manufacturers
are conducting “virtual” meetings, you should
assume that an annual factory visit is a wise
move. Do you know the needs of the customers in
your chosen industry well enough to help them?
Do you know on whom to call (e.g., engineering
personnel, executives, purchasing agents)? Re-
member that there are tremendous costs associ-
ated with false starts or calling on non-decision-
makers.
Cost Factor: Customers
The variety and scope of your targeted customer
base, your knowledge of individual customers and
The Secret Guide Series™ Establishing a Rep Firm
their knowledge of you can all have a significant
influence on your start-up expenses. How well do
you know the industry in which you want to sell?
What is the current economic status of your in-
dustry in your territory? Is the future outlook
positive? What types of customers do you intend
to call on? Are those companies moving in or out
of your territory? Are they expanding or downsiz-
ing? Are they merging, being acquired or shopping
for their own acquisitions? Don’t shy away from
taking a good hard look at your targeted cus-
tomer base and territory. You may identify facts
and trends that cause you to change or fine-tune
your customer focus. At the very least, you will
be better-prepared to serve your customer base
because you will know more about it.
In your chosen industry, is your territory more
heavily weighted with one type of customer than
others? If so, how will that affect your sales
strategies — and your income stream? For exam-
ple, if you are selling electronic components and
your territory is a high-technology design center
where very little production actually occurs, you
are going to spend a great deal of time tracking
your designs through production. Without evi-
dence that your design is actually being used by
the customer, you will not be paid your commis-
sion.
Do you already have established relationships
with at least some of your targeted customers? If
not, you’re probably going to invest a lot more
time to become known to customers and to land
a first sale. Do you have a solid grasp of the
needs and issues of your individual customers?
(And do you know how to tap your relationship
with existing customers to find new lines?) In ad-
dition to your personal contacts at customers, do
you visit their web sites and/or read their litera-
ture and annual reports? You can’t sell solutions
if you do not understand your customers’ prob-
lems and plans. And you can’t sell prospective
principals on your value as a rep if you do not
have in-depth knowledge of your (their) custom-
ers.
An Agency Opens The Door, And Then What?
Over the course of several years of experiences,
a number of challenges have been identified that
reps have to be aware of. In addition to increas-
ing their awareness, however, it’s incumbent
upon these reps to possess the wherewithal to
Copyright © Business Unlimited 2
 overcome these challenges if they want to reach
future goals.
Here’s a sampling of some of the factors that
reps must consider as they adjust to their inde-
pendent rep status.
Business Sense
Most independent manufacturers’ representatives
can boast of fairly successful careers in sales.
After all that’s where they gained the experience
and the accompanying confidence they needed to
go off on their own. But it won’t take long for
the rep to realize there’s more to this game than
just calling on customers.
An important ingredient to add to the mix is the
need to become a complete businessperson.
What does that mean? In part, the rep must know
what it takes to run a small business. In addition,
however, he had better be aware of the exis-
tence and implication of various local and re-
gional regulations under which the agency will be
operating. The rep must also possess the skills
needed to manage a business — even if it is a sin-
gle-person operation. In short, the rep should
take it for granted that he’s going to need to be
a “jackofalltrades” and master of many at the
same time.
Business Sense Coupled with Financial Sense
Too often the beginning rep has an unrealistic —
or more properly an untested — sense of what it
takes to initiate an agency when it comes to the
needed financial investment. A business plan can
go a long way toward providing the rep with the
guidance he needs to steer a prudent course as
he experiences hoped for growth.
Serving More than One Master
It won’t take long for the rep to gain an under-
standing that his principals and his customers
carry equal weight. Add to the business mix the
fact that the rep has got to keep himself profes-
sionally and financially satisfied at the same time
he’s satisfying his manufacturer and customer
constituents. For instance, consider the level of
communications required with some manufactur-
ers that only want to be contacted when there’s
news of a big order. Contrast that with the manu-
facturer that wants regular communication con-
cerning just about all of the rep’s activities. At
The Secret Guide Series™ Establishing a Rep Firm
the same time, reps today are finding customers
are no longer as available to them as they were
in the past. The pressure on customers has re-
sulted in many of them relying on their voice and
email for contact. Add to that the fact many of
them simply aren’t as available for entertain-
ment as they might have been in the past. As a
result, it’s up to the rep to determine the best
methods and the level of communications to keep
in touch with his principals and customers.
Time Management
For many, the opening of the agency’s doors
represents the first time an individual is com-
pletely in charge of how he spends his time. How
does the rep get everything done that has to be
done while still maximizing his selling time in
front of the customer? Who provides the legal,
accounting and technology services that he’ll
need to keep his business running? Unless the
new rep can allocate his time properly, there’s
the danger he’ll be distracted with tasks that
keep him from achieving his major goals.
Adding Lines
The majority of the reps we contacted for this
article hit the ground running when they opened
their agency doors. A good number of them came
from marketing or sales departments with major
manufacturers. For one reason or another, manu-
facturers decided to downsize or sharply cut their
outside sales force. After talking with their for-
mer employers, many of these reps found them-
selves well armed with their first line. This
worked well for them because they knew the
product, the manufacturer and the culture of the
manufacturer. As a result, they could represent
the company well in the field. But then the ques-
tion arises “How do I get additional lines that
complement what I’m already doing?” Many have
found the answer to that question to be a major
concern. Regularly employed by reps are the
tools of word of mouth, networking, asking cus-
tomers if they know of available lines, participat-
ing and visiting industry fairs etc… . Some ap-
proaches work well, some don’t, but the rep
doesn’t rest easy until he’s reached a
“comfortable” level of lines to represent. We
emphasize the word comfortable here because if
there are too few lines, compensation won’t be
at a level to provide the income the rep is look-
Copyright © Business Unlimited 3
 ing for. If there are too many lines, the rep will
hardly provide the service the manufacturer will
require if his line sits at the bottom of the rep’s
line card.
Compensation
Several reps have recently voiced the opinion
that if reps were known at one time as “five per-
centers,” then those days are long gone. Changes
in the business environment have caused the rep
— especially the beginning rep — to become more
creative and more demanding when it comes to
compensation. The rep’s main concern is that he
be paid for the work he performs. If that work
takes the form of functions other than simply
order taking, so be it, but from day one, this is
something that should be negotiated with the
principals. If it is not, then resentment grows as
the rep finds himself required to perform more
and varied tasks and he’s only paid when the or-
der comes through. What we’re talking about
here is agreed-upon payment for “pioneering”
work, marketing and consulting services, etc.
Keep in mind the axiom “the rep isn’t worth
what he’s paid, he’s worth what he negotiated.”
Advertising/Marketing/Branding
How does the new rep get out word of his agency
to principals and customers? They belong to and
attend the meetings of a variety of business asso-
ciations and organizations. In addition, they de-
pend upon wordofmouth, and they network with
and explore business opportunities through busi-
ness acquaintances developed over the years.
And cold calls remain a staple of their business
activity.
All of these efforts, however, should be geared to
creating the agency image or brand in the mind
of both manufacturers and customers. Whenever
either of these constituencies thinks of a product
or service, it should be the goal of the rep to
have established his or her agency name in the
minds of potential principals/customers.
Establishing a Rep Firm — Start-up Costs
Cost Factor: Principals
Your contract with a given principal will have a
great bearing on your initial cash flow. If the con-
tract calls for a termination (longevity) clause
The Secret Guide Series™ Establishing a Rep Firm
(more and more are), then as a new representa-
tive you may not receive commissions for several
months, even though you will be required to
spend time and money developing the territory.
Note: Most longevity clauses are awarded only
when the termination is without cause, and gen-
erally the maximum length of protection is for
120 days and only for firm orders accepted at the
time of termination and during the subsequent
termination notice period (usually 30 days).
Therefore, you must project when that first com-
mission check will arrive.
The payment terms to which you and your princi-
pals agree will also significantly affect your ini-
tial cash flow. Most commissions are paid in the
month following receipt of the customer’s pay-
ment to the principal. The promptness of pay-
ment by both the customer and the principal is
vital to your survival. Be prepared to face many
delays and excuses from both parties! Also be
prepared for the inevitable — dishonesty and a
total failure to pay in some instances. It is in your
best interest to be diligent about checking a prin-
cipal’s payment history with other representa-
tives before signing on. On the up side, there are
many principals who not only pay on time, but
pay in the month after shipment (invoicing).
Your commission structure is another important
variable in your start-up and operating costs. Two
important questions are: For what will you be
paid? and Will you be paid a bonus for exceeding
forecast? Much time and expense can be devoted
to chasing non-commissionable items such as en-
gineering services, special products and software.
Such efforts can, of course, lead to product sales
and commissions, but you must count the cost
before you expend valuable resources.
If a principal’s business is such that the design,
purchasing and/or production functions are han-
dled in more than one location, be sure you un-
derstand how and what you will be paid for your
contribution to a sale resulting in a split commis-
sion. (Note: If principals motivate and pay their
regional sales managers on the same basis as
their reps, you’ll have allies in those regional
managers when it comes to tracking your split
commissions. If you collect, they collect!)
Whether or not you are eligible for bonuses when
exceeding forecasts can also determine how and
where you expend your major selling efforts. An-
other factor to consider is whether you will be
Copyright © Business Unlimited 4
 adequately paid for what many reps often refer
to as non-selling tasks, e.g., managing distribu-
tors in your territory, assuming some (or all) of a
principal’s customer service function and con-
ducting research and development activities.
The entire issue of support from your principals
has a sizable impact on your bottom line as a rep-
resentative. Do your principals provide good and
responsive technical support ? If not, you’ll lose
business, spend endless hours ($) on the phone
($) and suffer a diminished reputation with your
customers and prospects. Do your principals’
technical support people have a positive attitude
about supporting you? You must win their respect
by showing a willingness to learn their products.
Do your principals offer satisfactory product
training? If not, you’ll log many hours either
studying their manuals and web sites ($), on the
phone with the factory ($) or losing business be-
cause you cannot help your customers solve prob-
lems.
Do your principals provide sound documentation?
Or will you be digging through poorly written
manuals or calling the factory to get answers to
elementary questions? Note (and a caution): You
owe it to your principals to tell them if this area
needs improvement. However, keep in mind that
some people, especially techies, dislike hearing
bad news. Be diplomatic — say the nastiest things
in the nicest way!
Do your principals produce quality products? Are
they ISO 9000 (or later) certified? A large cost
factor in any representative firm lies in the ex-
pense of chasing poor quality. How many hours
will you spend winning back an unhappy cus-
tomer? Remember that quality is more than just
mechanical and electrical functions. It involves
every aspect of a company, from correct labeling
and invoicing to a product that works and works
as advertised.
Do your principals operate a toll-free telephone
number? Do they allow their representatives to
use it? We believe that representatives should
have access to toll-free calls. The toll-free lines
exist to provide better customer service, and in
most cases, the representative is the first line of
contact with customers. Here’s another caution:
Don’t insist that your customers go through you
for everything. It can slow down a process, anger
both your customers and principals, and need-
lessly burn up your time ($). Be certain, though,
The Secret Guide Series™ Establishing a Rep Firm
to “train” your principals to inform you of all ac-
tivities in your territory, and do the same for
them. You may be the first representative who
does, and that alone will give you more of each
principal’s mind share.
Do your principals allow reps access to their web
sites and/or databases so you can check inven-
tory, availability, order status and shipping infor-
mation? And how state-of-the-art are those web
sites? Are your principals using their web sites to
full advantage to market their products and fa-
cilitate the sales process?
Do your principals make truly meaningful visits to
your territory? Time and money can be consumed
rapidly by the well-meaning executive or sales
manager who feels compelled to make “x” num-
ber of calls in your territory, whether needed or
not. A well-organized visit by a factory sales
manager or executive can impress your customers
with your and the principal’s interest in them,
but you must plan and call the shots. If you take
the initiative, you can determine the most cost-
effective way to use this valuable sales tool.
There is one more principal cost factor that is
less tangible than those already listed, but it can
be costly. Do not overlook the impacts of the
“competition” of representatives in other territo-
ries. If a principal has a high-quality representa-
tive sales force in other areas, you and your firm
will be judged against a pre-determined stan-
dard. You should assume your start-up costs will
be higher if you must reach that level of quality
rapidly.
Establishing a Rep Firm — Start-up Costs
Cost Factor: Geography
Geographical variances to be considered include
facilities and services, travel costs and time.
The costs of many items vary from state to state
and city to city. Even within a given territory,
costs can vary by as much as 25 percent. Do your
homework and compare facilities and services
costs for: office and storage space, travel, secre-
tarial help, utilities, legal and accounting ser-
vices, graphic arts and printing services.
The cost of travel is a function of the size, popu-
lation and available market density of a specific
area. For example, to cover the middle east
adequately, a representative must either have
Copyright © Business Unlimited 5
 multiple offices, have access to good transporta-
tion, plan his time extremely well, be very profi-
cient in the use of the telephone, or perhaps
have access to or own a plane.
The low-cost alternatives are to start out with a
smaller territory or be inefficient and drive to
remote locations. In a highly concentrated terri-
tory, such as Saudi , one or two offices can serve
the region well. In other highly concentrated ar-
eas, Lebanon , it can be impractical to operate
from a single office . In seeking economies to
attain adequate geographic coverage, beware of
locating an office in a home (yours or a salesper-
son’s) unless the conditions are just right. For
instance, there must be a dedicated business
telephone and Internet lines, but there must not
be any crying children or barking dogs.
Cost Factor: Industry Differences
Start-up costs will vary from industry to industry
and product to product. For example, commis-
sions on components are generally lower as a
percentage, but the selling effort may be less
and the sell cycle shorter. At the other extreme
is selling to the government. The sell cycle may
be years, but once selected, the vendor has a
very solid order. Another important consideration
here is the use of distributors. In some industries,
it is taken for granted, but in others it is depend-
ent upon the strategy of individual principals.
Cost Factor: Connectivity (or Lack of It)
Simply put, if you are “connected” in your indus-
try and your territory — through prior business
relationships, local networking and trade associa-
tions — your start-up experience will be easier
and your income will grow faster than if you are
starting out as an unknown. Many reps enter this
business from manufacturing, distribution or an-
other related field, and they bring with them
valuable prior experience with the customers
they want to serve as reps. Another source of
insight and information may be your competitors.
It is common for reps who are “connected”
through local and national trade associations to
freely and gladly share tips, information and ad-
vice about everything from the best cell phone
program in your area to what’s happening with
one of the territory’s biggest customers. Do not
discount the importance of your connectivity!
The Secret Guide Series™ Establishing a Rep Firm
The absence of it can be a barrier to your initial
and long-term success.
Establishing a Rep Firm — Start-up Costs
Some Advice and Recommendations
The best advice is to run lean and mean! Mini-
mize expenses, but don’t run so leanly that you
fail to appear (and be) professional. To survive,
you must watch your expenses and keep fixed
costs low. Here are some start-up ideas to con-
sider:
• Use a shared office facility with good secre-
tarial services and an available conference room
… or … consider establishing a virtual office.
(Remember the advice from a previous section
about the problems to be avoided in a home of-
fice.) With today’s technology, you may find you
can run your business and keep up with all types
of communications from almost anywhere.
• Keep up-to-date on new technology, and use
it to improve your communications capabilities
and lower your costs. Invest in sales automation
software that includes an opportunity tracking
function. Use the Internet and the information
available on web sites (your principals’ and oth-
ers) to operate more efficiently and to continu-
ally update your knowledge.
• Whenever possible, lease high-priced equip-
ment, and ask your accountant about the pros
and cons of leasing your car(s).
• Give a part of the business to your employ-
ees. It will motivate them to help the business
grow, and you may help keep salaries lower. An-
other caution: If you pay poorly, you will have to
resort to hiring either poor people or rookies.
Young, enthusiastic people can be a plus, but
adding at least one “gray hair” with experience
to the staff can provide you with in-house coach-
ing for other employees.
• Before you establish compensation plans for
your employees, review the various options avail-
able so you select the plan(s) that will serve your
firm best.
• Make expeditious use of the telephone and e-
mail. Many reps are giving up their land lines and
now using cellular phones exclusively.
• Plan your territory travel wisely. Don’t criss-
Copyright © Business Unlimited 6
 cross the countryside just to be responsive. If you tion for referrals. Look for professionals who
ask, a day or two delay is often satisfactory to know and understand the representative business
the customer or prospect. as well as the complexities of establishing one.
Make it clear that you are a start-up and do not
• Invest in a time management course and use have significant resources. Some accountants and
what you learn. lawyers will take the chance that you will bring
• Plan your work and work your plan. them future business and so will not charge ma-
jor fees for business start-up requirements.
• Use entertainment wisely. If you wish, you
Your planned expenses for dues and fees should
can arrange meetings so that you won’t be obli-
include banking fees (checking, loan interest,
gated to buy meals. When your business grows
etc.), insurance, trade association dues, local
and becomes profitable, you can use this selling
business organization dues, publication subscrip-
tool more extensively.
tions and local trade show expenses (ask your
principals to supply equipment and even share
Start-Up Expense Items booth rental costs).
Your minimum start-up cost categories, excluding
salaries, benefits and other items related to em-
ployees, will include expenditures for office and
administration; company image; automobile; le-
gal and accounting; plus dues and fees.
Office and administration expense items can
include: furniture; telephone's) purchase and
installation; voice mail service; personal com-
puter hardware and software; a facsimile ma-
chine (or a fax card for your computer) and a
copier (or a combination unit with a scanner
and computer printer included); filing cabinets
(do it — be organized); shelving for product lit-
erature, etc.; test equipment (industry-
dependent); a postage meter; post office box
rental (if you choose this option); and a bulk
mailing permit (depending on anticipated vol-
ume). Other options to consider include a per- Good Work!
sonal digital assistant (PDA) and compact disk Now if you’re serious about Establishing a Rep
(CD) burner. Don’t forget to figure in the cost Firm ;
of any training needed for you (and your em-
ployees) to use your new equipment and soft- you really need to know more about how Dr.
ware. Salim Hajje, strategy consultant can help you
To establish your company image, you should reach your goals.
also budget for graphic arts design services and
production of letterhead and envelopes, business Its where top professionals go to become
cards, line cards, stickers (for principals’ bro- successful...
chures), company resumes/brochures and folders
for literature. With current computer printers, Please contact me at 03-394325 / 04-41 60 61
you can produce many or most of these items in-
house, but you elect to have some items pro- consult@business-unlimited.com
duced by a printing company. Your purchase or www.business-unlimited.com
lease of an automobile for business use should be
an example of moderation — in price and size. This is truly a risk-Free call
Dr. Salim Hajje Ph.D.
In seeking legal and accounting services, ask
other representatives and/or your trade associa-

The Secret Guide Series™ Establishing a Rep Firm Copyright © Business Unlimited 7