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By Jeff Mac
Bob Dylan had it right..."the Reps they are a changin'"...or something like that anyway. The last couple of years have been a whirlwind of change in our industry.

Independent manufacturer's representatives have served a role in the distribution of products and industries as varied as furniture and electronic parts. The rep's responsibilities may be as simple as the merchandising of a wall of cables and accessories, or as complex as having the responsibility for everything regarding distribution in a territory. In audio most companies have used independent reps in one form or another.

Rep business practices have remained almost unchanged for the past 100 years. A rep goes to a customer, shows samples or literature to them and asks for the sale. What has changed radically has been the structure of the companies doing this.

The business model for the rep rides a ragged edge of feasibility. Our average margin before expenses is just above 5% and professional salespeople are not a commodity item. The Harvard Business School maxim of $1,000,000 in sales per person is not tenable. The formula looks more like it takes $2,000,000 to support a field sales person.

This seems to make the independent rep model doomed to fall victim to the "volume business" conundrum. Since what we sell to our manufacturers is time, knowledge and relationships with the dealers, we are caught in a classic Catch 22. How do we carry enough lines to generate cash to field enough people without dividing our efforts? Military strategists counsel that a war be fought on only one front. As reps we daily fight it on many.

The political changes in the marketplace have forced us into a gut check. To be heavily invested into a single company for revenue means that we can focus our efforts tightly on that brand but it also makes us dependent on that manufacturer. How do we find the balance of size and strength to best balance our business?

There are several approaches to growing to a size that can take advantage of economies of scale. Very few of these include a tightly focused business model in a single market unless you are in the largest markets in the US. Southern California and New York may be the only ones that fit this model.

So how do you approach diversification in a way that is intelligent, fosters growth and allows for some stability?

One approach would be to operate in a single region but to develop your business into other marketplaces that share technology or approaches. Operating a Commercial Audio rep firm alongside a Consumer Audio rep firm is an example of this. The reps are discrete but they share admin and management allowing cost benefits.

Another approach is to rely on internal distribution. Several large companies (notably Sony) push rep firms this direction. This approach is especially effective in territories that are sparsely populated as the rep can take business that was direct in house at a higher profit margin. If not carefully handled it can create competition with the dealer.

It requires a much larger expenditure of capital, as the inventory requirements are much higher. These distribution agreements tend to be limited to the territory the rep firm covers. The benefit of this is it allows the rep firm to deliver a much more value-oriented service to their dealer as they are functioning as field rep and source for the product. There is always the danger of retaining a dealer as a distribution customer that should be direct with a manufacturer for profit reasons. This is a temptation that must be avoided.

Another approach is to expand the territory covered. The rep firms become larger and more stable and have more resources to throw at the sales effort. Expenses are higher as more field people are required, but there are economies of scale to be had in administration and management.

Finally there is the possibility of consortiums or co-ops of reps forming together to increase their market power and coverage of the marketplace. These groups do not share the economic benefits from a personnel standpoint but can often combine their purchasing power to lower some costs and increase their political power.

There are examples of all of these approaches directly in the Pro/ Commercial Audio space today. They are merely examples of the consolidation that is spreading across our industry. It is no surprise that the independent rep is finding it necessary to do the same thing. The only real surprise is that it has only started to happen in earnest in our industry in the last 10 years.

I cannot claim any real originality. Techrep Marketing has very intentionally grown itself regionally with coverage in 12 states through the middle of the country. We have a solid regional distribution wing within our company at the request of several of the manufacturers that we work with.

Why am I doing this rather than being content with the playground I started in? Because I believe that the small rep firm is an endangered species. Consolidation is riddling every end of our industry. I merely choose to consolidate rather than be consolidated.

Jeff Mac is President of TechRep Marketing, www.techrep.us