Pictured Above: Triangle Ag Services, a precision ag company based in Fort Benton, Mont., prefers looser subdealer relationships without contracts. They offer their subdealers equipment discounts rather than commissions or sales targets. Photo courtesy of Triangle Ag Services.
As some markets for precision farming equipment tighten due to saturation or components now coming pre-installed on new implements and tractors, dealerships are looking to extend their sales reach.
Tapping into a distant market usually means investments in a new location, staff and marketing. However, by building a relationship with a precision subdealer, dealerships can gain access to distant or difficult-to-crack markets while avoiding some liability and upfront costs.
Margins on precision equipment sold through a subdealer can be smaller than if sold directly by the dealership. But if the sales wouldn’t have been possible otherwise, the partnerships are worth consideration.
Precision Farming Dealer caught up with several precision subdealers and dealerships to examine how the relationships are structured, what they offer and how to best avoid common pitfalls.
How are subdealers selected? Do they approach dealers to become subdealers or vice versa? What sort of agreement, contractual or otherwise, is set up between the two parties?
These are the likely questions a dealer asks themselves before hunting for these sorts of opportunities and, as one might guess, the answers vary.
3 Precision Subdealer Pitfalls to Avoid
A developed and defined business relationship with a precision subdealer can be a lucrative opportunity. However, there are words of wisdom to consider when setting up and maintaining these partnerships.
1. Know your subdealer. By taking on a subdealer, a dealership is choosing someone that partially represents them, and by extension, the brand of equipment they are selling.
Travis Routh general manager of L&D Ag Service in Hartland, Minn., makes sure to select confident subdealers that he can be sure will represent him and the brand confidently. He also wants to be sure that the subdealer will be in business long enough to support their equipment sales.
“We like to work with someone who has experience or a pretty high level of technical skill already,” says Routh. “You’ll want to work with people who won’t get in over their heads quickly because you may get stuck cleaning up the mess. For instance, if a subdealer sells $40,000 worth of precision equipment to a customer while having no idea how it works, all of a sudden you’ve made less money but have to go take care of it anyway.”
Ensuring that the subdealer is familiar with all the components they’re installing is a good way of protecting oneself against this issue.
“If they’re a farmer, make sure they’re using the equipment themselves on their farm,” says Routh. “If they’re an implement dealer, look at their reputation for customer service.”
Terry Johnston, marketing director and territory manager with HTS Ag in Harlan, Iowa, says contracts include language that protects against subdealers who may to resell precision equipment a second time.
“Associate dealers need to represent us and our OEMs well,” he says. “Their customer service has to be good. We don’t want to be connected with anyone who has a bad reputation, so part of our agreement states that our subdealers can’t be resellers themselves. We want to know, at all times, who is selling our equipment. This isn’t a pyramid scheme.”
Adopting a tech-savvy farmer is a natural fit, but working with one that’s too busy may be another potential stumbling block. Farmers using precision equipment often all need support at the same times, planting and harvest. If a subdealer is also a farmer, they’ll be busy too. Dealers may want to know about a farmer’s specific workload before bringing them on as a subdealer.
Lance Petersen, a farmer and subdealer for L&D, says that the amount of acreage he covers and the division of labor on his farm are two factors that make that this a manageable challenge.
“Everyone else’s busy time is my busy time too, so it can be a little hectic,” he says. “But, my dad does work full-time on the farm and it’s not like we have 3,000 acres. I just make sure that my customers come first, then I get back to my own work when I have the time. Realistically though, it’s sort of always been that way.
2. Spread out. Setting up a subdealer too close to home can create an unnecessary competitor. However, working with one too far away may make attending trainings and shipping equipment costly and complicated. Each dealer has their own comfort levels.
“We don’t like to have any subdealers closer than 60 miles to us, most are 80 plus miles away,” says Routh. “Most of them are still within a day’s standard shipping though and can easily enough drive out to pick up parts in an emergency.”
HTS uses a few subdealers a little closer to home base, but Johnston says that a diligent focus on non-competition is crucial.
“Some are very close to us, a few miles away, but most are in Missouri, South Dakota, Nebraska or Iowa,” says Johnston. “Generally speaking, the farther they are away from you, the better, but it is possible as long as you have a very solid working relationship to work with nearby dealers.”
3. Make it worth the subdealer’s while. If a subdealer’s sales volume reaches a certain point, it may be unavoidable that they become a full dealer through an OEM. By making sure the relationship isn’t one-sided, the it can be maintained for long periods of time.
“Our core group of subdealers is fairly solid right now, but in the past, we’ve had a few roll over and become full dealers themselves,” says Routh. “We’ll help get them started by carrying inventory, training them and investing time, but once they hit a certain sales target they’ll start up on their own. It doesn’t happen too often if you’re careful. There isn’t a lot of upfront investment in the subdealer relationships, but if they become full dealers, they go from being your customer to being your competition. That’s another good reason to choose subdealers well outside your territory.”
Jonathan Kimm with Churchill Equipment in Montana, a subdealer for Triangle Ag, says the level of service continues to make it worth the dealership’s while to stay part of the subdealer relationship.
“It will be interesting to see how much our precision business continues to grow and how long it will be sustainable as a subdealer relationship,” says Kimm. “There are a lot of advantages for our dealership to keep it like it is though. For instance, with any warranty or trade-in, I don’t have to worry about the paperwork. I just get an invoice from Triangle Ag. We don’t have to invest heavily in a large inventory and we don’t have to worry about meeting Trimble or Ag Leaders expectations from a dealer standpoint. It makes life a little easier.”
Working with about 14 precision subdealers, HTS Ag, an independent precision farming dealership in Harlan, Iowa, says each relationship arises uniquely.
“There’s really no set profile on how we find them, we have everyone from equipment to seed dealers, large and small farming operations, agronomy providers and short line equipment resellers working with us,” says Terry Johnston, marketing director and territory manager with HTS Ag. “It’s really a hodgepodge of people.”
Although their subdealers come from all sorts of backgrounds, HTS Ag keeps the agreements uniform. They prefer a very close and sustained relationship with their subdealers even referring to them as “associate dealers.”
“We have formal agreements with our associate dealers we sign annually,” says Johnston. “It’s a commitment that spells out what their commission structure is, what we’re responsible for and what they’re responsible for, such as sales volume and commission. We like to set expectation for both sides.”
HTS Ag provides their associate dealers with product services, in-person and over-the-phone training and support, assistance with sales quotes, upgrade consultations, access to dealership service packages and marketing strategies.
“We help out a lot with the quoting process which is an important service,” says Johnston. “If they have a planter that needs technology or a steering system, we can assist with configurations, cost estimation and installation support. If they need a marketing strategy, we help them with things like a radio or newspaper ad script or holding customer events.”
Johnston notes that often, the dealership is approached by prospective subdealer candidates that see a technology demand in their area.
HTS Ag Services, based in Harlan, Iowa, works with 14 precision subdealers. Terry Johnston, marketing director and territory manager with the dealer, says each relationship arises uniquely, but they’re kept uniform by an annual contract. Photo Courtesy of HTS AG
“They call us because they’re trying to figure out something for their customers, but they can’t provide a type of product we carry,” Johnston says. “For instance, unless they sell a minimum amount of that equipment, they may not qualify to become a full OEM dealer themselves, so we’re a natural fit at that point.”
“Other times, we take a more proactive approach by identifying territory that seems underserved and actively try to locate a possible partnership in that zone.”
Locating an area that may have a service gap gives HTS Ag the opportunity to fill it themselves or through associate dealers. Sometimes they just ask the vendor where they have holes in their service nearby, Johnston says.
“You have a choice that way, you can fill it yourself or find a complementary business in the area that you may be able to recruit as an associate dealer and start a relationship,” he says. “Just find out where the gaps are and make some calls.”
Travis Routh, general manager of L&D Ag Service, a single-store shortline equipment dealership in Hartland, Minn., has ongoing business agreements with 6 subdealers. Some he’s been working with for 15 years and others for only about 5 years.
- By attending subdealers’ field days, a dealership can train their staff and also connect with their end users.
- Subdealers with farming backgrounds may get busy at the same time of year as their customers during planting and harvest. Smaller scale farmers may be a better choice.
- If a subdealer eventually becomes a full OEM dealer, it’d be better if they were 80 miles away rather than 5.
Routh says the subdealer relationship reduces liability on both sides of the table because subdealers don’t have to invest in a large amount of inventory, and dealerships don’t have to invest heavily in territory expansion.
He says after 35 years, L&D’s reputation in precision equipment sales and service helps bring prospective subdealers to the dealership more than having to headhunt them personally.
“Sometimes they’re dealers themselves looking to expand, other times they’re even farmers who just have an interest in selling to their neighbors,” says Routh.
This was the case for Rush City, Minn., farmer Lance Petersen, who farms 740 acres about 2 hours north of L&D. He started working with Routh in the early 2000s when he had a yield monitor installed in his combine. A few years later, as Petersen started branching into auto-steering and product control applications, L&D decided to see if they could work together.
“At the time, I was also working with a local seed dealer on helping to set up yield monitors,” says Petersen. “Locally, there aren’t too many precision dealers up here unless you’re going through Deere or Case IH. But a lot of the farmers like the Ag Leader setups more. As we were doing more and more business, L&D decided to just set me up as an outside sales guy or precision subdealer for my area.”
Although Petersen says Ag Leader products account for 90% of his sales, he also sells and services Raven and Trimble equipment as well.
“We do a lot of steering and planter control set-ups and also a lot of liquid fertilizer system installs on planters,” says Petersen. “We also have quite a few guys running on the Department of Transportation CORS (Continuously Operating Reference Station) RTK network so we do some troubleshooting with that as well.”
In addition to unlocking territory that may have not been accessible to a dealership, subdealers with a farming background may have tighter farmer-to-farmer connections that can result in more sales.
Growing up as a farmer in his market, Petersen is intimately aware of what’s available and what his peers are after.
“Locally, we didn’t have anything for service or tech support and we’d been running Ag Leader monitors on our farm for 10 years,” he says. “I was able to start up a few guys running monitors on their combines and that turned into ‘What can you do on my planter for me?’ and ‘What can you do on my sprayer?’”
Routh keeps his subdealer relationships informal, offering them equipment discounts rather than sales targets and commission. He does have certain broad performance expectations, though.
“We really don’t have anything on paper like a contract, but we do make sure that we’re not working with someone who’s just looking for discounted equipment and we confirm that they’re actively selling,” he says. “We seem to have two types of subdealers though, one group hardly ever talks to us and they take care of themselves except in extreme circumstances, and the other group that rely on us more for our troubleshooting and expertise.”
L&D offers frequent customer trainings throughout the year and always makes sure to invite their subdealers so they can get some face-to-face time and update them on the newest firmware. They also extend an invite to subdealers when L&D staff attends a precision field day demonstration or OEM sponsored training.
By offering over-the-phone help and training, some man hours are diverted from the dealership to support subdealers, Routh says. But the longer a relationship lasts, the more proficient a subdealer will become, making the partnership much easier to manage and turning it into a low investment revenue source.
“Subdealers are an important source of revenue,” he says. “It’s hard to quantify exactly how much they add, but it’s a significant portion of our total sales volume.”
Tapping New Markets
Triangle Ag Services, a precision farming dealership based in Fort Benton, Mont., also prefers the looser arrangement of offering subdealers a discount, rather than other incentives. Triangle Ag uses subdealers to access markets that may have otherwise been out of reach.
L&D Ag Service, a single-store dealership in Hartland, Minn., has ongoing relationships with about six subdealers. They’ve been working with some for 15 years and others for only about 5 years. Photo Courtesy of L&D Ag Service Inc.
“There are little pockets of row crops tucked in between the mountains that are just really hard to get into without being there because the farmers can be very cliquey and often all do the same things and make the same upgrades together,” says Brent Heiken, Triangle Ag’s precision specialist.
The dealership offers their subdealers training, in-person assistance and over-the-phone support. Heiken says he’s able to make a bigger impact by timing his trainings to coincide with some of the subdealers’ field days or customer demonstrations, if they have them.
“It’s a good opportunity to meet with and update the subdealers, but it also gives me a chance to meet with their end users as well,” says Heiken. “It helps establish them even further as a precision dealer with their customers.”
One of Triangle Ag’s primary subdealers is Churchill Equipment Co. Inc., a farm equipment dealership in Manhattan, Mont., about a 4 hour drive for Heiken. Churchill Equipment, with about 25-30 employees, has been working with Triangle Ag for 2 years.
The equipment dealership has expanded its precision offerings so much with the help of Triangle Ag, that they’ve been able to start transitioning a former parts technician into a precision specialist. Jonathon Kimm says he’s now able to devote close to 80% of his time to precision equipment sales and service during the peak seasons.
Kimm says Churchill’s expectations as a subdealer are modest, but the discount and product support make the partnership with Triangle Ag well worth effort.
“Depending on the product type, we have two different tiers of subdealer discounts and then we try to price components accordingly,” says Kimm. “We don’t expect that Triangle Ag will be at our beck and call, but they offer a lot of technical support and assistance with marketing. We put up an RTK tower last year to support some of our customers and they offered a lot of technical help with that process.”
Of their partnership, both Kimm and Heiken agree that a close working relationship and an understanding of their mutual goals has allowed them to work within a fairly simple contract that really only sets discounts and retail prices. Both sides claim to be exceeding their revenue expectations due to the partnership as well.
“Our iron market is a bit weak right now,” says Kimm. “Our precision sales have really been the only department to grow substantially in the last year or two. As of April 2017, we had outsold last year significantly in sales, installation and service revenue. We’re looking into trying to evolve soon and come up with some service plans.”
Heiken says that although he’s had to invest phone time and dashboard time into the partnership, the revenue it produces justifies its cost.
“Revenue from Churchill Equipment has been steadily increasing as they’ve been starting to pick up more and more sales,” he says. “It’s been a slow upcurve, but my hope is that in the next few years they’ll be fully trained and will hardly need my help. Then, we’ll have recurring revenue there that doesn’t require a lot of extra effort.”