Expert: Eric Hofer - 12/14/2009

Question
QUESTION: Can you tell me how an Alcoholic beverage broker is typically compensated?
Do they get paid only a commission? How are commissions structured, are they typically a percentage of sales? Does the percent vary based on types of product sold?
Do they get reimbursed for expenses? Do they have exclusive rights to an area or accounts?


ANSWER: Frank,

Sadly I don't know this term.  Is this a middle man between a manufacturer and a distributor?  Is this a term you've seen?  Is there something special vis-a-vis alcohol that requires a specialist broker?

The experience I have: so softdrinks, beer, wine, spirits is that the majors grant exclusive deals for territories, do it themselves or they might go through networks.  Smaller groups tend to club together into coops.  

The term broker is unusual to me in this instance.  A broker usually comes in 1 time to facilitate a deal; territories however are worked over time.

For what it's worth....

The local company funds themselves in terms of expenses.  Commission apply in circumstances where somebody else fronts the capital and then handles the billing; hence the commissionee is paid out for sales completed (and debited on products returned).  Commissions are usually paid to sales reps working territories for either a distributor or a manufacturer.  In these cases, expenses are usually picked up by the person fronting the capital and doing the billing.

If you're looking to put together a system managing sales reps, contact the people at www.salessuite.net; they offer a rental based back office system and training programmes that could be helpful.



---------- FOLLOW-UP ----------

QUESTION: In the alcoholic beverage business there are alcoholic beverage brokers. They represent the supplier and I believe they have a specific geographical area to work within. It thinking about it a broker always represents the supplier and selling in conjunction with the wholesaler. I just don't understand how they get paid.

I have a small alcoholic beverage distributor and a current salesperson is leaving and wants to put together a deal to broker the brands we sell. I believe in that case he needs to deal with the suppliers or, he can become an independent contractor and sell for a commission. Would an independent salesman get reimbursed for expenses like gas or would that be his expense being a 1099 employee?  

Answer
Again, I've not heard "broker" used in this way as it means a 1 time only deal (like a real estate broker) andd then the person is gone.  If this is the case, then I'd expect the broker to eat the cost fo the deal - usually the broker works on a fee basis - eg. 5% of the overall deal (for placing the deal) perhaps with a limit (e.g. 100,000 USD).  A broker for example makes an introduction and you then sign the deal directly, with the person falling away.  I can see that there must be people that know many distributors and make introductions; but for what you're describing, it sounds more like your CR (customer/sales rep) wants to go to an independent selling organization or contract...

Now, with independent contractor, I have a LOT of experience.  In this case, the guy (and or his team), take over sales territories and send back orders (to you or a distributor).  If this is what you're going to do you need a means to manage the orders, the fulfilment thereof, etc. to be sure that you don't get hit with "trade loading" - and that when there are returns, the selling organization returns the commission paid.

How you pay depends upon what you can validate and your level of trust!  For example, the cost of transport is usually paid for by the selling agency - who gives you a guaranteed route / stops per week and has a fixed fee per visit made plus a commission.  Again, tracking that visit was made is a challenge.  

What we've done is to supply handhelds and an order taking system along with "tags" in the field that prove that the CR actually visited the account.  I think www.salessuite.net can do this; and they also route the orders to the specific distributor.

In this scenario, you're paying a fee to a company.  There's no 1099.  The person is not your employee - but instead his company are facilitators who receive commission checks.  Their performance btw is checked from time-to-time.  You pay commissions hopefully not on orders, but confirmed invoices (which might be difficult for a distributor); and you have clauses to claw back over-sold / stale items returned.

You might, btw, also be expected to provide up-front money to secure accounts - and/or enter into trade agreements.  The CR Organization might broker these - and you would then make that company accountable for performance on the deal, eating any excess - or having to continue deals that don't deliver as per promise.