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This post provides guidance on using retail CPG brokers and product reps, and is organized as follows:
- Should I hire a broker?
- How do I find a broker?
- How do I manage a broker?
- When do I fire a broker?
Should I hire a broker?
It depends on (1) how big your team is, (2) how fast you want to grow, (3) how many retailers you want and who those retailers area, (4) what kind of cash you have to support your operations and (5) the complexities of working with a retailer that take time/investment to learn. I have used brokers and also gone direct.
- (1), (2), (3). I would use reps to augment my efforts because either my team is small or it just me and I want to grow fast (and I have the investment to do that), so using brokers as an extension of me is a big plus. Also, brokers might get me in faster because they know the buyer already and sell products to them (assuming I get the right brokers for the category…sometimes is a bit trial and error to find the right broker). If I want to control the pace of growth (either because I do not have the investment to support fast growth or my product’s category is not a fast grower), I might stick with direct or use a limited number of brokers.
- (4) I can hire my own sales staff now with a greater impact on my cash flow or use a brokers with much less immediate cash flow impact and pay out later as sales flow in. It gets back to what kind of investment I have to support my growth
- (5) Good brokers also help you with paperwork, navigating retailer vendor systems and getting sales data on a weekly basis, especially with the major retailers.
How do I find a broker?
Sometimes it’s not easy finding the right broker. It’s a bit of a trial and error. Start by obtaining referrals, if possible, and interview the prospect by finding out which lines they currently represent. Referral sources include other companies, LinkedIn groups, Internet search, tradeshows and associations you can join related to your products. There are some existing large brokerage companies that have pretty broad coverage of channels and retailer. Find magazine or trade journals related to your products and look for ads from brokers or brokerage companies. I have asked and gotten referred to brokers from the category buyer at the retailer. I have used brokers from large national companies and sole-proprietar companies with great results from each, so the size of the brokerage company does not determine capabilities or success, in my experience.
It’s important to know if they currently rep any direct competitors, because the broker might be in the position where they can influence the buyer to add shelf space to one competitor at the expense of another. I got caught in that situation without knowing it for almost a year, when I learned the broker represented a direct competitor. I kept wondering why we could not land that retailer. He was clearly protecting the current line at our expense.
What about a broker’s experience and access to the buyer. Well, it makes sense you want one with both, but I have had mixed results. I have had brokers who have been in the industry forever and know the category, buyers and retailers, and they did not do jack for me! Others with much less experience or access are the best performers I could ever hire. Really the only way to know is a bit of trial and error and just plain business experience, where you learn how to read people via what they say, don’t say, do, don’t do. This allows you to make decisions about whether to hire a certain broker or continue to work with them, if you already hired them and are seeing mixed results.
How do I manage a broker
You always want a written agreement in place that defines the following:
- the geographic territory, the channels and specific retail chains;
- sales materials that will be provided to the broker;
- the compensation, whether the broker can hire sub-brokers
- exclusivity or not
- the term (usually 12 months);
- and, the usual other standard contractual terms.
I like to have an appendix to the agreement that defines the territory, channels and retail chains and the compensation. That way, when accounts are added or taken away based on mutual agreement, it’s just an addendum to the main agreement executed via the appendix, which can be done through mutual agreement via email. You then print off the email and add in to the file. It just makes it easier than having to re-execute the entire agreement again with new signatures.
The general elements from which I work with and manage the broker are as follows:
- Create all the selling materials and supply it to the broker. Don’t let them create or modify selling collateral, unless you pre-approve it. It’s your company, you know it, and you need to own it and keep control of how your sell and promote to retailers through your brokers.
- Clearly define what new retailers you want your broker to target and what they need to do to grow sales with existing accounts (which products to push, their pricing, merchandising, and promotions). Set goals and objectives with timelines so that you can critique the broker. You can put in your agreement with the broker (which I may or may not do depending upon the broker and the account).
- Keep on a regular schedule of communicating with your broker so you stay top-of-mind with them and to catch problems or issues as they arise.
During the sales phase of acquiring a retailer, I like to get weekly updates from the broker, making sure there is movement – did they make calls to introduce the product…when is the meeting…what does the retailer need? I don’t like to hear that they have not gotten to things yet.
Getting your products into the retailer does not end the broker’s responsibilities, even though some think so. The fun work is making the sale, but the hard work is maximizing success over the long haul by doing things like facilitating purchase orders and fulfillment, ensuring that out-of-stocks stay at a minimum, obtaining weekly sales data and participating with you in analyzing it, communicating opportunities to you about in-store marketing and other tasks.
There is some balance between what the brokers do and what you do. If you are a small company, your sales might be a very small percentage of the broker’s compensation. They are less motivated to give you their undivided attention. And, you can’t really blame them. You really need to talk through your and their expectations in the contract process and get a sense for what this balance is.
Sure, if you are pulling well into the 7 figures in sales from one retailer, the broker should command your attention! But if your sales are in the 4 figure range with a few small distributors and that broker has 8 other lines to manage, take a seat in line. When you are small and growing, you might have to do more of the work yourself, like retailer paperwork that the broker would ordinarily do, or providing extra copies of sales materials that the broker might ordinarily print off. I find that if I am proactive and enthusiastic in doing some things like this, it rubs off on the broker as well and they will come around, especially if I am growing.
In my experience, brokers are generally paid according to the following:
- Natural/Specialty channel: 5-12% plus a monthly fee of $500-$1000. The monthly fee may be waived by certain brokers depending upon your volume;
- Club, Mass, Grocery channels: 5%;
- Drug channels: 5-7%;
When do I fire a broker?
You discontinue working with fire a broker if they can’t make progress with selling you into a retailer. Most of the time, it’s a mutual decision between you and the broker. If they can’t make progress, then why would they want to waste their time? When is the time to do this? It depends on the retailer, but in general, I want to give the broker 3 months to secure a meeting. You have to give them a chance. But, this is a general rule. The retailer might not review the category for another 6 months, or, some retailers are notoriously late adopters anyway, so it might be a year.
You might eventually discontinue working with brokers when you get big enough that it pays for you to hire staff to handle the retailer directly. And, rarely, you fire a broker because they are dragging their feet and don’t use best efforts to sell your product or some other infraction. I’ve only had to fire a few brokers, of all the ones I’ve worked with.
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