I am perplexed by the financial relationship of Technology Suppliers and their SalesReps.
The backbone of a market economy is the Law of Supply and Demand. It is the most fundamental economic principle. What is the next economic principle? I have no idea. When I encounter a puzzling financial situation, I apply the only economic law that I know. It's Supply and Demand
For more than a decade there has been an increase in the number of Technology Suppliers, while the sales resources to sell their products and services has declined. Many suppliers are fabless chip companies, while others develop products using new technologies. Did the number and size of the electronics/technology rep firms increase to meet this demand? Apparently not. I continue to see an endless stream of postings that read, "Company looking for sales reps in (name of territory)."
Suppliers know full well that Manufacturer's Representatives provide immediate and effective sales representation. Additionally, a supplier can go to market at no-cost or low-cost. In the Linkedin Group, Technology Sales & Service Reps, a popular discussion is "Reps are free," which is a quote from the CEO of a young technology company. Utilizing manufacturer's rep firms preserves precious cash and the variable-cost rep model enables the supplier to survive the valleys of our cyclical technology industry.
In the last economic downturn, rep firms got leaner - and they remain lean. The reason, I am told, is that rep compensation is still lean, i.e. lowered commissions, sliding commissions, split commissions and delayed commissions.
Here is my quandary. If the number of Suppliers went up and the number of SalesReps went down, why didn't rep compensation go up due to the imbalance? Note: If anyone believes that distributors picked up the slack, I would like to hear from you. We all would.
Is there another economic principle that I don't know about? Keep in mind that I only know one economic principle - the Law of Supply and Demand.
Two years ago, I attended a forum held exclusively for Electronics/Technology Rep Owners. The purpose was to share ideas to improve rep businesses. I was surprised that reducing expenses dominated the discussion. Increasing compensation was not discussed. I concluded that Rep Owners have been squeezed so hard, for so long, that they view the supplier compensation models as de rigueur. As they say, "You can't fight City Hall." If a rep owner did, a supplier may choose another rep firm.
Collectively, Manufacturer's Representatives have the Supply (SalesReps) that Suppliers (Principals) are Demanding. Why then, is compensation defying the Law of Supply and Demand? How did this happen? What will it take to re-balance Supply - Demand - Compensation in the Electronics/Technology industry?
Please share your insights and expertise. It upsets me when laws are broken.