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Adding manufacturer's rep relationships to consulting business

Adding manufacturer's rep relationships to consulting business

Adding manufacturer's rep relationships to consulting business

(OP)
I'm a consultant. My expertise is in precision machine design and optics. I primarily serve the semiconductor and aerospace/defense industries, although I've found increasing interest for the same but involving extreme conditions such as refractory furnaces. My projects typically involve new product development or transitioning processes from the lab to production. At that stage in development, the parts and assemblies involved are low volume, high complexity; lead time and performance are more significant vendor selection criteria than cost.

I work with my client's purchasing group and vendors for procurement, but they often turn to me and my network of resources to source them and meet the project's goals. I have a number of trusted shops that I have worked with over the years. There is no financial arrangement between us; I refer them the work because I know the job will get done right & on time. The jobs are still competitively bid.

It's long been a part of my business plan (that I have yet to write down) to grow beyond sole reliance on my output. One way is to establish manufacturer's rep relationships with the shops I use. As long as the relationship is open and above board, I don't see a conflict. I have used manufacturer's reps myself as an engineer within a company; you know you're paying his fee indirectly, but it's worth the value he brings.

I'd appreciate any advice or thoughts on how to proceed. There are a number of client- and vendor-facing issues to consider:

CLIENT FACING

Relationships must be disclosed.

Jobs must be competitively bid (although this is rarely on just a cost basis).

VENDOR FACING

How to initiate the discussion. I'm no that shy, especially given the amount of business I've brought them over the years. But I'd like to know how to approach it.

How do I get paid: Flat fee? Commission?

Is the commission for just the project work I bring? Or - if I introduce the client to the vendor - for all work done in perpetuity? Or for a fixed term, say one year from receipt of first payment from the client to the vendor?

When do I get paid: A fixed term after the vendor gets paid for each PO? Or a monthly or quarterly payout? The first option seems easier to manage and track, at least as business details get ironed out.

Most of my questions have been financial, primarily because I will still be involved and on the hook operationally, i.e., it's my project and I'm responsible for everything going together and working. But I would appreciate your insights & recommendations in this area as well.

Thanks,
Rob Campbell, PE
Imagitec: Imagination - Expertise - Execution

RE: Adding manufacturer's rep relationships to consulting business

My feeling is that if it is above board and all persons involved know what's going on - you are OK.  Not uncommon.

That becomes part of your compensation!!  You might be able to reduce your rates slightly...

RE: Adding manufacturer's rep relationships to consulting business

I've had consulting relationships with three manufacutrers that I have recommended.  When I write a report for a (non-manufacturing) client that mentions one of these products I ALWAYS put in a disclaimer that "MuleShoe Engineering has a business relationship with XYZ Manufacturing and owns stock in the company, but is not receiving any payment from them for the work represented here.  Every effort has been made to ignore that relationship in the following, but it is up to you to decide if this recommendation has been influenced by those relationships".  My clients have appreciated these statements and have often purchased the equipment recommended.  If the manufacturer tries to give me a commission or "finder's fee" I refuse.  One manufacturer sent me a check and I just endorsed it to my client and told them it was a discount on their purchase order (it was $10k on a $3 million order, I never worked for that manufacturer  or recommended them again).

On the other side I feel that you need to be absolutely squeaky clean.  I get paid for "engineering" work (as opposed to "sales") I do for them.  I've written programs.  I've run lab and field tests.  I've written journal articles.  I've developed documentation for a patent application.  I get paid my normal hourly rate for these activities.  I figure that doing a field test on a product gives me a deep understanding of the capabilities of the product and helps me better understand where it fits in my usual client's operations.  I have rejected commissions, retainers, and any other real or apparent reason to cast my main business recommendations into question.  When I turned over the $10k check I mentioned above, my reasoning was that it would be pretty stupid to risk an ongoing $200k/year relationship for $10k.

I'm not sure that your situation is all that different from mine.  A big part of why people pay me as much as they do is that more often than not I can recommend someone to solve their problems, and the people I recommend are people my clients are happy to do business with.  I wouldn't risk that reputation for anything.
 

David Simpson, PE
MuleShoe Engineering
www.muleshoe-eng.com
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RE: Adding manufacturer's rep relationships to consulting business

I have been an "engineering sales rep".  I always told the client - "Here - these are three highly recommended mfgs"  I do get paid by these certain "guys" and I know I can guide you on the product use.

Your call.  Pick one of the other two and I can't really help much.  If I am "good" they will stay with me!!

That is above board.  Your call!!

Or set up a rep relationship with all three and say "I rep all three"

What do you want - "Quality, Price or Delivery date??"

Pick two out of three!!

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