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How flexible are typical commission rates for consumer electronics reps when their customers require cost reductions?

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Barry,

If I understand your question correctly, you are saying that you want to cut the reps commission when their customer wants concessions or a price drop of some kind?

This kind of thing should be negotiated in your contract/agreement with your manufacturer's rep ahead of time - not after a sale is in progress. If you try to cut someone's commission after the fact you will damage your relationship with the rep who you need to get you into retail.

One way to do it is to base commission on margin but then of course you'll need to reveal your cost to the rep. You could also base the commission on a tiered sell price structure i.e. if an item sells for $100 you get 3% but if it's $95 or less then you only get 2% etc.

However, if the margins on your item are so slim that to make it in retail placement you have to cut the rep commission then you may not have a product ready to be sold to chains. Normally on a CE item you will need 3x MINIMUM from cost to retail in order to place your item i.e. if the item retails at $29.95 then your cost can be no more than $10.

I did 10 minutes of research on the products you are selling and without changing your value proposition somewhat you'll have a tough time getting those placed at retail. I can't figure out what is unique about your product in relation to what's in the market already - this should have been in my face as soon as I hit the homepage of your website. The retail chain buyers will assume that your product is being bought "off the shelf" from a China factory and will attempt to source it themselves.

My best advice for you would be to find a CE manufacturer's rep who is currently placing items inside Best Buy, Target, etc and pay them to tell you what needs to happen in order to make your item viable for national retail. Choose someone who has placed something in your category. Ask them about margins and even commissions.

All the best,

John T Clark






John,

Thanks so much for your message. Your understanding of my question is essentially correct.

I've had to deal with situations where commissions were reduced after a PO had been placed and as you note, that changed the dynamic of the relationship. As a result, I like to put things out on the table so there are no surprises later.

I've been working on signing up reps and some have requested 10% commission. While I have no objection to that rate initially, my concern is what happens when cost reductions are requested and the 10% rate is not sustainable. I've suggested a tiered model similar to the one you noted but that's when there's a disconnect.

Your suggestion regarding how to go about product placement is appreciated. That will give me a better understanding of how best to proceed.

Thanks & best regards,
Barry Miller

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