Making the decision to build a sales force or to sell through independent reps.
For many start-up companies, the question of whether to build a company sales force or to sell through independent reps is academic. Young start-ups can't afford the sales force, and rep firms won't talk to them until they've generated some sales. Eventually, though, the question arises: sales force or reps? Sometime-entrepreneur Paul Sherlock, who is currently director of strategic marketing for Raychem, a materials-science company, and has written Rethinking Business to Business Marketing (The Free Press, 1991), suggests five ways to help you decide.
* Degree of technical competence and knowledge required. For complex products and applications requiring a scientific or an engineering background, there's no contest. A company sales force is your only choice.
* A customer's needs, wants, and expectations. A customer's purchasing agent will feel comfortable buying inexpensive items or commodities from a sales rep. But the customer's vice-president or president may feel peculiar about paying a rep's commission on something significant, such as a new MIS or custom-designed robotic system, when all the installation work will be done by the customer's engineers.
* Dollar size of the average sale. Say your average customer spends $10,000 a year with you, and maintaining that volume requires eight sales calls. First, calculate the cost of each sales call. Sherlock estimates that a salesperson capable of making three calls a day, 160 days a year, costs a company $100,000 annually. (Plug in your own estimates or assumptions.)
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Salesperson cost/year = Cost of sales call Number of sales calls
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$100,000 * $200/sales call 160 days * 3 calls/day
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Eight calls a year cost $1,600 to generate $10,000 in sales, so the company sales force costs about 16% of the sales dollar.
A rep's commission, Sherlock says, runs between 5% and 15%, depending on the product, so in this case reps might be cheaper -- provided they're capable of making the sale.
* Sales-gestation period. Reps like sales that happen quickly. A two-to four-year period between contract signing and system installation is not going to excite a rep working strictly on commission.
* Number of customers and their concentration. If the nature of your product means you have lots of potential customers scattered far and wide, that favors reps. But if the 80:20 rule applies -- 80% of your sales will come from 20% of your potential customers -- a sales force looks better. "In many situations," Sherlock says, "three factory-sales engineers with depth of knowledge, boundless energy, authority to make commitments, and unrestricted air-travel cards can introduce a product faster, with more immediate sales, than 50 floundering reps." -- Tom Richman