The Rules of Engagement

Any time two parties enter into a business relationship there are two sets of expectations and two different points of view to be considered. If the parties are not clear about what their expectations are, there is a much greater chance for misunderstanding. Even with contracts in place, situations can change and disagreements arise. We've seen many instances where there was a lack of clarity between the parties from the beginning of the business relationship. The inevitable result is frustration and anger, or, in simpler terms, less money and more stomachaches.

How many of you have either hired a rep group or begun to sell on behalf of a manufacturer without a contract in place or at least a written agreement regarding such things as showroom fees, house accounts, charge-backs, out-of-territory orders, or terms of payment? Too many, we expect.

How many of you manufacturers have received a bill from a sales rep for a show fee that hadn't been made clear at the beginning? It's not that you mind paying the $750 fee, perhaps, but you don't want to get the bill the week of the show. Here's a shocker: Manufacturers and sales representatives can have very different views about their obligations to pay show and showroom fees.

How many of you reps have looked at a post-gift show commission statement and been surprised to see no commission for an order one of your key accounts wrote at the manufacturer's booth? Here's another shocker: Manufacturers and sales reps can have very different views on commissions.

There are two components of agreements between manufacturers and sales organizations: the Contract and the Rules of Engagement. Setting explicit ground rules for them is essential to an effective, and amicable, business relationship.

A contract is a legally binding document that outlines the responsibilities for both the manufacturer and representative, and the details of the terms of compensation. It can be a relatively simple document that won't require a legal team to scrutinize and approve it. Manufacturer and sales rep associations often provide standard contract templates for their members.

However, we're not so naïve as to suppose that a contract will assure that there will be no conflicts. Having a contract will only reduce the chances of a misunderstanding. We also know that there are as many types of agreements as there are manufacturers and sales representatives. But all these different contracts share similar components.

Here are some components that should be common to all rep contracts. At the very least, they are a starting point for what not to omit:

• Territory Covered
• Commission Rate
• Discount Policy (as it affects commission rate)
• Samples Policy
• Payment Terms
• Independent Contractor Status
• Direct Order Policy
• Show Order Policy
• Show Fee Policy
• Agreement Termination Policy

There is much more that can be added to such a contract, and your legal counsel will have specific recommendations for your situation.

The Rules of Engagement define the working relationship beyond the legal terms of the contract. They are composed of Moral Absolutes and Other Absolutes that both parties must adhere to. Moral Absolutes include treating the other party with respect, being honest and forthright, and being willing to terminate the contract if differences can't be resolved.

Other Absolutes deal with more specific behaviors.

The manufacturer agrees to:

• Supply product and a company FAQ sheet.
• Provide account lists and sales reports.
• Send invoice copies for all orders on a timely basis.
• Share all sales leads.
• Send notices about all press exposure.

The sales representative agrees to:

• Become fully knowledgeable about the product and its intended market.
• Present the product and the company in a way that is consistent with the manufacturer's wishes.
• Present the product to all accounts for which product is suited.
• Follow up all sales leads in a timely manner.
• Forward all out-of-territory leads.
• Provide a photograph of manufacturer's merchandised area within the rep's showroom.
• Present any changes in showroom fees or space allocation at least 60 days prior to a show.
• Allow access to sub-reps for sales training, account list review, motivation training, and other tools to support successful selling.

Both parties agree to:

• Inform each other of all sales objections received.
• Return calls within 48 hours.
• Expect the rep organization to write (choose a number ) orders per month.
• Intervene when a minimum number of orders is not achieved.

These are only examples of the sort of rules to include. Implement those that serve your situation best and those with which you're comfortable.

Implementing the Rules of Engagement in addition to the contract will help make everyone responsible to their partners and to the process. And we'll all be better manufacturers and sales representatives for it.