Sales has got to be the most critical operation of any business -- and often is the most challenging, especially in a tough economy. This month we address an issue that stymies many entrepreneurs who are striving to take their companies to the next level: What's the best way to get your foot in the door with a large corporate customer? We also get expert advice on another sticky selling issue: how to determine commissions.
Breaking Into the Bigs
I own a chain of auto-repair shops in Silicon Valley, and innovation has been the key to my success. My latest idea is a service that goes to corporate workplaces, picks up employees' cars, services and repairs them, and returns them the same day. My target market is the large technology companies out here like Cisco and AMD.
My company has been offering this service for three years, and I'm currently working with some small companies in the area. But it seems impossible to crack the big corporate HR departments for a pitch. Any suggestions? --Dave
Begin by networking, suggests Martin Babinec, founder and CEO of TriNet, a five-time Inc 500 company that provides outsourced payroll, benefits, and HR services. "We've never had much success in cold-calling a big company. Every one of our big-company opportunities has been brought to us by referrals," explains Babinec.
"One way we solicit referrals is by identifying the decision makers in a big company and then determining if we know someone who knows them. We then educate the person that we know about the things we can offer that the big company couldn't find somewhere else.
"Make sure you can offer the company more than mere convenience to its employees. Large companies are often risk averse, and unless they see a company benefit, they tend to focus on the things that could go wrong (for example, liability, upset employees complaining about poor screening of service providers, and so on).
"Find out which other local businesses provide employee services to the companies you're pursuing. What do those businesses offer that makes them unique? How is the large company benefiting? Can you track down the owners of those local businesses and gain insight into the relationship structure and the decision process that got them on board? And, of course, possibly find a supporter who could introduce you?
"One last note: In my experience, people at large high-tech companies expect service providers to handle transactions over the Web. It's best to have that capability up and running before you contact your prospects."
Mary Naylor, founder and CEO of VIPdesk Inc., which provides concierge services to large corporations, questions whether you're aiming too high too soon. "Though it might seem efficient to sell to a large company because you believe there's more business in one location, you'll be trying to crack a bigger bureaucracy," she observes. "I recommend you first target midsize companies, prove you have a track record with them, and then use that record to persuade a big company to work with you.
"Target potential customers by looking at which buildings you can service effectively within the radius of your shops. Look for multitenant buildings occupied by midsize companies. You can work with those businesses one by one or with the buildings' property managers, who usually are looking for additional services. In some buildings the garages are leased, so they're operated independently of the property management. But garages look for additional services, too.
"Note that the garage operators would expect to collect some sort of referral fee from you. Typically, they'll charge you a percentage -- 10% to 15% would be reasonable -- for the jobs they book," Naylor says.
The Sales-Commission Puzzle
I recently started a small medical-supply company. We sell surgical and examination gloves, but as we grow we intend to add other medical supplies to our roster. I just hired a sales rep who is working multiple accounts on a commission-only basis. What commission should I pay my rep? I want to be fair, but I also want the best for my company. --Michael
"That's a tough question, and more complicated than it would at first seem," says Jack Derby, president of Derby Management, a management- coaching firm specializing in VC-backed emerging companies. "Commissions in the commodity medical-supply business can run as low as 7% and as high as 18%. What you can pay depends a lot on what the market is like in your location.
"First, research what the common salary-range expectation is for a medical-supply salesperson in your territory. Call the owners of other medical-supply companies that don't sell gloves and ask for advice, since you aren't competitors. Ask, 'Can you give me some guidelines for what you pay your guys? On average do you pay $50,000 a year or $110,000?' Then you can decide what total compensation your rep needs to earn to be excited about selling your products.
"Say you decide that your rep should be making $70,000. If you set a 7% commission, your rep has to sell $1 million worth of gloves to hit that amount. Make sure that the customer base in the rep's territory can support that volume of business. Be realistic. If the big hospitals in your territory have contracts either directly with major glove manufacturers or with large distributors, don't expect your salesperson to steal away much of their business. Look instead at the opportunities offered by large group practices and small community hospitals.
"How much business is it fair to expect your rep to bring in? For commodity products in the medical-supply business, my metric is that an experienced salesperson had better be able to sell a minimum of $750,000 a year, and a great person should be able to sell $1.5 million.
"When you put together a commission program, don't forget to allow for growth. It's typical to change sales-comp programs on an annual basis. You can adjust the salesperson's quota or their rate. You can add another product line or increase the size of their territory. Or you can put them on a plateau commission program so that they receive a commission of 5% on their first $750,000; on $750,000 to $1 million, the commission goes up to 7%; and on anything over $1 million they get 10%.
"However, I wouldn't set a quota for the first six months. Use that time to evaluate the relationship. You may discover that commission alone will never get the rep where you both think he or she should be; in that instance you might consider giving the person $1,000 a month as a base. But never give a salesperson a draw. I hate draws. They're an accounting nightmare, and they do nothing to motivate the salesperson."
Having Trouble Sleeping Lately?
Could you use some advice from an experienced entrepreneur who's been where you are and figured out what works and what doesn't? Send your questions to IncQuery@inc.com. We'll find the best people around to answer them. And if you don't like their answers -- well, you can tell us that, too.
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