Australian Newsagency Blog

A blog on issues affecting Australia's newsagents, media and small business generally.

Why suppliers sell to other shops in town: understanding the cost of wholesaler reps

Mark Fletcher
October 9th, 2018 · 5 Comments

Small business retailers, including newsagents, get understandably upset when they see products they ordered from a rep who visited in another shop near to theirs. Their preference is that suppliers do not do this.

It makes sense in a small town for there to be product differentiation between local retailers.

Today, however, I want to unpack the supplier rep cost base so you can think about why it might happen.

A rep on the road has a cost to the business of around $100,000 made up of salary, maintained vehicle, on-costs such as work cover, insurance and related as well as any incentive for performance.

A rep is on the road, on average, forty weeks of the year allowing for annual leave, other leave, training, meetings and times when retailers don’t want to see any reps. While the 40 is a generous number, let’s go with it.

Forty weeks is 200 working days, or 1,400 working hours after allowing for breaks.

A rep needs to earn at least $71.42 in gross profit per work hour to cover their costs to the business let alone other business costs.

However, reps and suppliers tell me that rep travel time accounts for around 30% of work hours. This takes the work hours in a year to 980. At 980 work hours a year, a rep needs to earn $102.05 in GP to cover just their cost to the business.

The reality is, given business overheads, the cost of a warehouse, marketing and other costs, a rep would need to earn between three and five times this in GP to cover the business costs.

What I have written above is based on discussions with wholesalers in a range of retail channels including one wholesale business owner who took their ten full-time reps off the road and went to a purely online model of service after doing a deep dive into the costs their business model.

Given the slim margins in wholesale, usually considerably less than in retail, I can see a rep needing to write between $2,500 and $5,000 a day in wholesale business to cover their costs and the business costs.

The objective of this post today is to have you consider these numbers next time you see a rep in your shop. Consider what they have to make and how they might go about making that.

While it does not justify them selling to a nearby competitor, it may explain why it happens.

With more wholesalers moving to an online only model, there is an opportunity to purchase from this type of business, one less livelily to walk a few steps up or down the street to sell to a competitor what they just sold to you. It is not the answer, but it could be one answer.

Next time you get angry about a supplier selling to a competitor, think about their business and what you think they could do differently to benefit your business and their business without causing the anger it has caused. Talk to them. That conversation could benefit both businesses.

15 likes

Category: Newsagency management

5 responses so far ↓

  • 1 Colin // Oct 9, 2018 at 7:16 AM

    Ditch the reps and get some motivated agents.

    Almost all our best performing brands are supported by efficient websites alongside dedicated agents who appreciate the local performer and will not sell to any Tom, Dick & Harry. They know the true value of repeat orders.

    5 likes

  • 2 Jason // Oct 10, 2018 at 3:20 PM

    Wait, who in their right mind would think a rep exists just to pop around and show them products and not show them to anyone else?

    0 likes

  • 3 Graeme // Oct 10, 2018 at 8:43 PM

    The World attitude is Free Trade this is why we were deregulated. the consequences are obvious.

    1 likes

  • 4 Mark Fletcher // Oct 13, 2018 at 1:27 AM

    The cost basis I outline is the same for agents. The goal of my post was to share real world data so retailers can understand the costs of someone walking through their door.

    0 likes

  • 5 Colin // Oct 13, 2018 at 9:14 AM

    Not true for SA. The agents I know are flexible on hours, are effective for more than 980 hours per annum and certainly do not disappear for 12 weeks a year.

    These reps may operate permanent showrooms, they make prolonged 3 to 5 trips to regions outside the city. They employ staff. Crucially, they represent more than one agency.

    They are professionals who accumulate complementary agencies. When they make visits they make multiple orders. They judge their customers not just by the size of a single order. They look at the bigger picture of who is successful and ambitious, where is a brand best placed, how to optimise sales over the region, not just in one mall.

    These agents are fought over by the suppliers. Their knowledge of the local market is second to none.

    Finally, these agents are not averse to reviewing their supplier relationships. Underperforming, inflexible suppliers are ditched.

    The agents I refer to outperform reps on every dynamic.

    0 likes

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