Know-How Exchange : Strategy

For many years I ran a profitable rep agency. I still am, but with a recent relocation I am rebuilding -- but want to keep it small.

Are they going to be employees, or sub -reps? If they are employees, you will have to pay 1/2 of the FICA-- and other taxes. A lot of reps expand with sub-reps over employees-- unless the lines can support them. And they do-- I chatted with a guy with a line of water heaters-- all agencies he knew were making 7 fig's -- and all had a team of employees.

If they are employees, and they are working on a base, it really depends on the base. A higher base would mean less commission. I once worked on a base-- and 10% of the commission. I was paid mileage and expenses and health insurance. You can work them with a base for a limited time (3 mos is typical) and wean them to straight commission.

Subreps are straight commission-- an 80/20 split -- and they handle their own expenses and mileage. They are also -- as independent contractors allowed to take on other-- non competing lines. And you should spell that out in an agreement-- non competing. But then, you run the risk of dilution of focus.

With independent sub reps you can give them performance and activity goals-- but you can't dictate hours as you can employees.

As far as benefits. Today most small employers offer health insurance, etc with the employee contributing most of the payment. Just having it available is a good benefit -- vs finding it on your own.

Are you going to pay mileage and expenses? That would swing the commission rate too. You don't have to pay the full IRS rate-- they will file a 2160 (I think that # is correct-- its been while since I did this) -- where the IRS gives them credit for unreimbursed business expenses. I would put 35K business miles on my car. When I closed my agency I had the territory built up and they decided to hire an employee to replace me. They are paying a silly 12 CENTS a mile!! But they give her an additional $250 wear and tear on car allowance.

Typically, with employees-- since there is so much driving in this job, I advise you check DMV records. If you hire someone with a poor driving record and they do something stupid on your time-- you are exposed.

Whatever you decide put it on a spreadsheet. Make sure it's livable.

Sell Well and Prosper tm

GREAT feedback from CarolBlaha. She's in the trenches and knows what it takes to run a rep business.

The one thing I'd add is that your reps need to be able to estimate what they'd be earning if they do a reasonably good job ... or an exceptional job. That means you have to figure it out first and present them with the scenarios of what they'd have to do to achieve their earnings targets ... and they have to be reasonable.

You don't want to go through all the trouble, time and expense of recruiting, hiring and training someone, only to have them disappointed that they aren't earning enough after they do all the things they were supposed to do. Best to deal with this up-front, so expectations are reasonable all around.

Carrol is right on....
I coach and mentor rep firms and her advise is exactly what I would pass along...

We don't provide any benefits. Here's what we do.

-The rep gets 80% of the commission earned
- If a rep brings us a company to rep for, then he/she gets to keep 90% of the commission he/she earns from that company

So, basically we're keeping 10-20% of the commission. Why? Because I want to cover my costs and let them feel they don't have much to gain by leaving....plus I know all these people really well

Michael