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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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