OVERAGE BY HANK BERGSON, FORMER PRESIDENT & CEO, NEMRA - Energy Watch News


OVERAGE BY HANK BERGSON, FORMER PRESIDENT & CEO, NEMRA


Overage it’s a word that exists in our business, loved by some and hated by others. It is frequently a topic of conversation or a word that works its way into those industry seminars many of us attend.

Overage has been around long before I started in the electrical industry some 50 years ago. Why has it continued to persist despite its controversial nature? To my mind the answer is both simple and at the same time complex. To some it smacks of greed “get as much as you can”, to others it is part of the return on investment on a job, to others it’s a point of envy driven by their self-perceived position in the channel of distribution and some feel entitled to a larger share of the “profits” immaterial to the services provided in securing an order. The complexity is staggering and filled with all the human emotions that money or the lack there off create.

To me the answer to overage is rather simple. “Overage exists because manufacturers allow it to exist”. Peculiar to the lighting specification business most manufacturers feel that the commission earned by their independent sales representatives is adequate compensation for the time, effort, expense and sales expertise that goes into securing a lighting package specification and holding that specification thru delivery, installation, and payment. Frankly nothing could be further from the truth, the hard and soft costs borne by the independent lighting representative frequently far exceed their commissions. Thus, the need to recover those costs and receive a profit for their efforts. Most manufacturers have no clue what the Independent Representative has to do to “get the order” and furthermore they don’t want to know, they just want the order!

Couple with this the fact that some manufacturers encourage overage because they share in the overage dollars if they are billed as part of the cost of the product by splitting by some percentage the overage with the representative.

Want to get rid of overage? Raise the commissions!

Today some of what used to be overage has taken on the form of billable rep services such as layout engineering, training, product set-up and programing or other value added services provided by the rep as part of the lighting package but the goal is the same an appropriate return on investment for the Independent Representatives services in securing the specification, warding off the value engineers and getting the order.

Bottom line the problem, if there is one, has never been the size of the pie it is strictly the argument about how it is divided. Overage is here and will probably stay here as a tool for the customer to get the products and systems they specify.

HENRY BERGSON ASSOCIATES, LLC – Provides consulting services to independent representative firms, manufacturers and electrical representatives’ networking groups. hank@hbergson.com

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One comment on “OVERAGE BY HANK BERGSON, FORMER PRESIDENT & CEO, NEMRA

  1. David Gordon says:

    Hank, we’ve found the same thing in our workings with manufacturers, distributors and reps / agents. Supply reps are learning more about overage as they have gotten into the lighting business and have had to do some design work for medium sized projects. Some have had to do overage to protect their manufacturers who have good products but are priced so low vs the market that the price would be “embarrassing” and position them as too low … almost cheap and hence the quality representation. In this instance, essentially, the manufacturer doesn’t know the market (or has too low gross margins for themselves). You are correct. Manufacturers don’t understand the role of the rep / agent in the sales process (and the issue is that it is a process, not always a transaction) and hence don’t compensate appropriately. If they had direct sales, their sales costs would be much higher.

    And, distributors typically don’t understand the agent sales process to understand the need (at times) for overage. Distributors feel that the manufacturer should compensate the agent appropriately.

    As you said, it’s been around for over 50 years. Perhaps be around for another 50?

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