Sales Reps or Sales Force?

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, the question arises: sales force or reps? Here are 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, 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 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. Calculate the cost of each sales call. A salesperson capable of making three calls a day, 160 days a year, costs a company $100,000 annually.

    Salesperson cost/year = Cost of sales call
    Number of sales calls

    $100,000 * $200/sales call
    160 days * 3 calls/day

    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 runs between 5% and 15%, depending on the product, so in this case reps may 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, reps are the better choice for you. But if the 80:20 rule applies -- 80% of your sales will come from 20% of your potential customers -- a sales force is your choice.

From: Inc. Magazine, Dec 1991 | By: Tom Richman


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