What are the key elements to effectively managing broker commissions?
You need to be able to monitor and track activities, easily handle payments, and have process in place for communication and training. A trade promotion management application is essential to managing broker commissions.
For some food manufacturers, brokers are the lifeblood of their sales force. Brokers work on behalf of food manufacturers to market products, develop strategic connections that can lead you to the right marketplace, and help determine the right price. A good food broker markets your products to get maximum sales volumes. Brokers and the right broker commission process can be crucial to your business.
Benefits of Food Brokers
Let’s talk through some of the benefits of using brokers.
- Increased Sales – Food brokers are driven to increase your sales because the more deals they make, the more broker commission they get. Using a brokerage can be more cost effective than having a dedicated sales team.
- Extensive Knowledge & Connections – A broker has in-depth knowledge of local markets. Their experience and connections allow them to easily market your products to potential buyers and help get your products on the shelves at minimum cost.
- Lower Rates – Brokers have several clients, which allows them to charge a lower rate compared to the cost of having dedicated salespeople. Broker agency clients, in essence, share the broker agency’s overhead costs, allowing the agency to be reasonably priced.
Food Industry Disruptions Affecting Brokers & Manufacturers
We’ve talked through some of the benefits of having food brokers. Now, let’s dive into some of the disruptions that are creating friction between food manufacturers and brokers.
- Broker Consolidation – Broker consolidations are having a negative impact on manufacturers’ foodservice sales. These consolidations can leave a manufacturer without any representation. If a larger agency purchases one of your brokerages and that acquiring agency represents competing brands, you will likely lose representation. Or maybe the newly combined organization is so caught up in all of the changes taking place that the manufacturer’s business is put to the side. So, the sales focus the manufacturer once had is gone.
- Merchandising Fees – Amazon and Whole Foods have implemented a merchandising fee. They have put these fees in place, so brands can ensure their products receive proper attention. Unfortunately, many times the retail broker is the one hurt by this new merchandising fee. Food manufacturers can either
1. Pay both the broker’s fee and the Whole Foods fee
2. Reduce the broker’s commission and pay the Whole Foods fee
3. Eliminate the broker when it comes to Whole Foods
With Amazon leading the way in modern commerce, it may only be a matter of time before other companies start to follow suit.
As the food industry continues to evolve, we will start seeing more disruptions affecting food manufacturers and brokers. So, how do food manufacturers stay ahead of the game to manage relationships and broker commissions as changes take place?
Effectively Managing Broker Commissions & Relationships
Challenges come into play when it comes to broker commissions and relationships. To overcome the obstacles, you need to be aware of them. Here’s a breakdown of some of the typical broker commission challenges food manufacturers face.
Broker Commission Challenges
It can be quite difficult to monitor broker activity if you’re using an outdated system or process. You need to be in control of what your brokers are doing on behalf of your company. If you don’t have a good communication workflow or access to robust reporting, you may be allowing more activities than you agreed upon. Monitoring the activities of your brokers is key to ensuring they comply with your contract. Food manufacturers face monitoring challenges when they don’t have the visibility into the broker’s activities — putting their bottom line at risk.
If you’re using Excel, Word or a homegrown solution to track your brokers selling activities, you’re creating additional [manual] work for your team and possibly making costly errors. When you make payments to brokers based on the percentage of products sold, you want to track their efforts accurately.
When working with a broker, you’re probably not their only customer. While they are out selling and promoting your product, you are responsible for managing the broker’s commissions and payments. Management of broker commission payments can get confusing if you have multiple products and different commission percentages. Unless you are careful, you can end up paying the broker more or less than what he or she should receive.
Communication & Training
Lack of communication and training are areas that can cause a rift in the relationship between manufacturers and brokers. If you require the broker to use one tool to manage trade spend activities and another to communicate with you about those activities, then you’ve just created more work for the broker and your internal staff. Also, if you don’t get brokers appropriately trained on using the tools, there will be a disconnect for them and the potential to create additional problems and concerns that may result in broker commission payment issues.
What’s the Solution?
First, let’s clarify what the solution is not. Don’t create spreadsheets and documents, put them in a file and think that will suffice to manage and process your broker commission activities. Physical or computerized files are so cumbersome and provide dismal reporting capabilities. And how are you going to make sure everyone that needs access has it and have the right permissions? It’s challenging to do and requires a lot of manual work and resources, which leaves a significant margin for error and negative impact on your ROI.
What is the solution? A trade promotion management (TPM) application is the best way to manage your broker commissions, and the process is so much easier than doing it manually. Here’s a checklist of what you should look for in a TPM solution to manage your broker commissions.
- Contracts – You need a system that creates broker contracts that include products, distributors, and percentage payouts.
- Data Feeds – You need a TPM solution that allows the transfer of sales data to via a data feed.
- Auto-Calculations – You need a system that matches broker commission contracts against the sales data to calculate the commission based on the deal.
- Auto-Payments – You need a system that automatically issues payments to the foodservice broker based on automated calculations.
- Exclusions – You need a solution that automatically backs out any exclusions based on the contract.
- Communication – You need a system that lets you easily communicate with your brokers to resolve issues and keep things moving forward.
- Analytics – You need a solution that provides detailed reporting each month highlighting the broker’s activities.
The right trade promotion management solution will give your team the freedom to focus on the things that matter most and not be bogged down with time-consuming activities prone to human error. Also, choosing the right company to help train and provide support to your brokers is critical to helping both parties succeed.
Helping Brokers Succeed
Trade spend can get overwhelming, and it is easy to feel like you’re not in control. In a recent case study, a veteran broker for foodservice distributors was new to the manufacturer side of the business. This disconnect resulted in high pending claims, which meant high dollar amounts were not getting processed and paid and deductions were increasing.
Blacksmith Applications set up a dashboard so the broker could get a birds-eye view of the claim activity and provided one-on-one training. The dashboard reports allowed her to quickly see the high dollar pending amounts so she could address them more quickly. She was able to update and correct contracts swiftly and seamlessly. She was able to resolve $162,000 in pending claims.
Brokers are Important
Broker commissions are a lot to manage but don’t underestimate what a broker can do for your company. Their connections can get your products in front of decision makers. Make sure you have the right trade management system so that you pay their commissions timely and accurately.