Contract for a clothing sales rep pt. 2
In this post I’ll tie up a few loose ends from part one and address some issues from comments left by visitors. But first, Tish amends the entry with:
Thank you so much for your help. I have already ordered your book! When the rep says USA she means all accounts she has established in the USA or any out of the country accounts that wander in at the Trade Shows. We have no “in house” accounts she gets 12% on it all ,since she brought it in. Estimate 2007 is 3.6 mil. The only exclusion would be Overseas rep’s we will hire in year 2008 and internet sales on discontinued items. What do you mean by In House accounts? Thanks again, Tish
First, a house account is an account that the design house acquired themselves or it could be a very large customer who goes directly to the manufacturer for special consideration such as private labeling arrangements. Often house accounts are legacy accounts that the designer acquired before they ever had reps. Lastly, house accounts are often accounts that come from areas where a company doesn’t have a regional sales rep and even, given accounts that sales reps don’t want to manage or service.
Miracle thinks that DEs make a mistake by not encouraging house accounts, or they make a mistake in passing them off to reps once they hire some. Personally, I can understand why some designers don’t want to deal with them. If you have a good rep, I can see the value in having a rep to service those accounts. If you’re spread thinly, it can be worth it to pay somebody to do it for you. Ideally of course, you’d get to the point where you could have a sales manager employee who would manage house accounts as well as manage your other reps too.
With regard to Tish only having one sales rep for all US sales, I think this is a grave misstep. Maybe one rep can manage sales for the line now but if the line continues to grow, this is unlikely to remain the case. If Tish signs the contract for three years, the line may be locked into just the one rep for that time period. The line will need more reps but they won’t be able to hire any. This will stifle their growth and could prove to be their undoing.
Now for the issues left in comments.
What does shipping guarantees of 85% mean?
A hint of what part of this may mean is found in The Entrepreneur’s Guide. Just because you take orders for something doesn’t mean you’ll actually produce and deliver it. Refer to the whole section on drops and why those may be necessary. Similarly, there’s the section on markers, meaning that for whatever internal reasons, you may not cut the full order. Then, there’s colorways. Some colors may not make the cut due to insufficient orders. Likewise, you may have problems making delivery due to problems with a contractor, in house production or whatever. These are all reasons beyond the control of the sales rep and while these reasons may be a problem for you, the sales rep generated those sales in good faith for you and they deserve to be compensated. This is one reason you can’t just throw out a bunch of styles willy-nilly to see what sticks, thinking you can painlessly drop whichever items don’t make the cut. A sales rep could be unlucky enough to sell the pieces that get cut and all their effort was for naught.
Then Karen writes:
I’m still trying to get my jaw off the floor about the 120-day termination. Man, I work on contracts all day at my day gig, mostly for very well paid doctors and surgeons. Standard termination is 30-60 days. Why 120 days in the apparel industry?…Maybe that’s what I need to do as a side business, is to draft sales reps contracts.
First, a 120 day termination clause is fairly standard in most circumstances due to the nature of the beast. For example, there’s always a window between the time a sales rep may have approached an account with product offerings and the time that product is delivered. Remember that reps only earn a commission on products that have been delivered. Since most of the time products are sold before they’re manufactured (orders determine the cuts), there will be a lag between the sale and delivery. Also, a rep may have approached an account and sold them on the line but the buyer may not place an order until just before the selling window closes. For example, if you’re selling in February but the selling window doesn’t close until May (for August delivery), the rep who generated the lead deserves to be compensated. Even if the rep doesn’t work for you anymore, it is only fair. The 120 day termination clause is an attempt to capture the commission on those sales a rep may have generated interest for but for which they didn’t actually write the paper. Lastly, if you wanted to draft sales rep contracts, I’m sure you’d have some takers here.
JC Sprowls writes:
Guaranteeing commission to pay out based on 85% of the shipped value I think is reasonable. But, I think the rep needs to be involved in the collection process if you’re guaranteeing their earnings when yours are not. An example would be when accounts are 30-days past due. I consider this to be a reasonable request since they introduced the slow payer to you.
Again, in the section on sales and marketing in The Entrepreneur’s Guide, you’ll find these guidelines. One of the things that makes a rep a “good rep” is that they are vouching for the buyer. A rep who writes a lot of bad paper wouldn’t last with anyone. While a rep cannot be held responsible for the vagaries of a buyer’s business, reps network with each other, develop relationships with buyers and much of a rep’s value is what they learn through the grapevine; which accounts bounce boxes, which ones are slow pay, things of that nature. These are just part and parcel of what constitutes a good rep. Not only is a rep acting as an ambassador of repute for you to the buyer, the rep is vouching for the credit worthiness of the buyer. This is why reps will not accept purchase orders from just anyone. Then, the other thing is that reps are often not paid their commissions until the buyer’s check has cleared so there’s the element of self interest. A rep won’t want to fiddle with a slow pay account because their commission will be similarly delayed.
In the case of Tish though, I don’t think this is as much of a problem because Tish mentioned that they were selling to department stores. As I mentioned before (several times), manufacturers who sell to department stores often have a factor who guarantees payment within a specific window (usually 30-45 days) and similarly, the factor is deeply involved in certifying the credit worthiness of the buyer. As most of us know, if you don’t have a factor and are selling to big boxes, you can sit on receivables for 6 months. The downside of factors of course is the cost. This is why department stores may not be the best accounts for a DE line. If it were me, I’d want to be certified or at least meet those standards but I wouldn’t sell to department stores unless I could get payment timeliness guarantees.