Managing commissions – as the distribution landscape evolves, what are reps doing to track?

Bob Dylan once wrote, “the times they are a-changin'”. Reps, don’t be like Ron Burgundy; listen to that song.

And change is ever-present these days in the distribution and manufacturers’ rep landscape across the United States. Distributors and reps of all sizes continue to expand markets and cross state lines. This expansion has direct effects on the most essential report for reps – sales and commission statements.

The age of transfer reporting

For commission-side reps, what once seemed like a simple process – reps sell product to distributor, manufacturer ships product to distributor, rep gets commission on invoiced product via sales reporting – has, these days, become quite the labyrinth of accounting processes and procedures. The main confusion driver in this labyrinth is often DC-to-branch, branch-to-branch, or DC-to-contractor transfers that flow across state lines or rep territory boundaries.

Distributors opening greenfield branches in new states or strategically acquiring distributors in new markets have exponentially led to increased reporting due diligence across all parties in the supply chain. Because the manufacturers’ rep model is established as it is, agencies can only get paid on what is reported to the manufacturer, either through straight purchase orders or transfer reports.

Transfer reporting is where things get sticky for reps and where they really need to have a clear-cut process for managing their manufacturer sales reporting. Here are some key elements all reps need to identify across their territory as they home in on commission accuracy:

• Have you identified the corporate headquarters location of all distributors in your territory?
• Do you have a DC and branch listing for every distributor in your territory?
• Have you cross-referenced your line card against that of every distributor in your territory?
• Have you identified every distributor outside your territory who has a high likelihood of entering your territory?
• Have you surveyed your contractors on their buying habits around your specific product lines?

When multiple reps are responsible for a distributor’s territory, they all play vital roles in the relationship between distributor and manufacturer, whether it’s stocking recommendations for the DC, programming negotiations and strategic planning with executive leadership, education for the sales and counter teams, or contractor joint sales and pull-through efforts. Additionally, each rep will guide the distributor in upholding pricing integrity in any given market while also providing aftermarket sales support. All these efforts are essential to the health and success of the supply chain, and all reps want to be compensated for them.

What is the solution to sales reporting accuracy?

A straightforward way to ensure compensation is given to all reps in a distributor’s territory is a clear, upfront plan between distributor and manufacturer on how transfer reports are provided. Distributors cannot assume all the reps with whom they work are getting paid by a manufacturer. However, manufacturers cannot pay reps on data they never see. Since most manufacturers are paying reps on invoices into the original ship-to location, a clean process for accurate rep commissions can take different forms:

• POS-based transfer reports showing a transfer from the DC/branch to a Zip Code offer the most accurate reporting. As previously stated, territory lines are blurred daily, and POS reflects the product’s final destination.
• If a distributor’s system isn’t set up for POS, then a transfer from the origination DC or branch/location to a Pricing Branch/Location is the next best thing. This still ensures a higher level of accuracy

Ship-to, Bill-to, POS… this information is highly relevant to manufacturers and their reps because contractors have more choices than ever when it comes to buying partners. Whether they buy from a brick-and-mortar branch/location, through e-commerce operations, or through vendor-managed inventory, transfer reporting transparency and accuracy from distribution to manufacturer has myriad benefits.

When reps and manufacturers can see where the product is flowing, they can:

• Build and track strategic plans with distributors in more meaningful ways.
• Help the distributor better understand a new market as they expand operations.
• Communicate with other reps in the territory to ensure all goals promised to a distributor's executive leadership are executed. This allows everyone involved in a strategic initiative to maintain accountability.

When reps are compensated accurately for their efforts across the supply chain distributors may find them extra motivated to move product.

What reps need to understand

If they aren’t already, reps need to be hyper-focused on learning their distributors’ supply chain models and reporting structure moving forward. As distribution networks grow, reporting may become more complex, and reps need to be equipped with the skills to dissect and comprehend any report a distributor or manufacturer throws their way. The simplest comprehension tool is usually Excel; a step up from this would be a powerful BI software. In today’s world, reps can also look to build AI models for reporting analysis and reconciliation. The accounting team at each agency should take the lead on these initiatives.

Reps also need to understand that their cash flow can change as distributors grow their territory. The home-based/corporate location rep may see the initial influx of commissions on their work at the DC and with corporate leadership. Still, they need to be prepared for potential commission transfers, as reps who pull through sales and branch efforts at other locations move product. This is where reps need to network with one another at events like the annual AIM/R conference and execute a distribution plan together as these situations arise.

Additionally, rep principals need to train their sales teams to engage in branch- and location-level conversations about sales reporting. This is often the first place a discrepancy between a rep’s commission statements and a distributor’s actual purchases/sales will be found. A territory rep can then work with a branch/location or corporate purchasing to pull more accurate reporting and communicate inaccuracies back to the manufacturer.

Like anything in this world, a strong communication plan among all partners in the supply chain and a commitment to transparency can prevent many disruptions downstream. Accurate and transparent sales data helps all parties – distributor, rep, and manufacturer – work together to plan strategically and ensure the best possible efforts for contractors.