Building a sales force can take a great deal of time, effort and money. If your company services a small geographic area or markets products or services to an extremely specific market, developing a sales force may be beyond your resources.
The cost of building an effective sales force based on this scenario may be prohibitive given the size of the market or the lack of quality prospects to justify full-time salespeople.
In this instance, using independent sales representatives is the best way to field a professional sales force to sell your products or services.
Independent sales representatives are in the business of selling products and services for other companies. They are not on the payroll of any of the companies they sell for.
They do not receive any benefits from the businesses they represent. They do not generate additional overheads, like travel, meals and entertainment etc. for the companies they represent.
As independent agents they are responsible for all their own expenses. The only cost to the businesses using their services is the commission paid on the sales they make.
Many small businesses as well as large corporations, use the services of independent sales representatives either as their sole method of selling or in conjunction with their own sales force.
Independent sales representatives contract to a vast array of companies which sell a huge variety of products and services. They are known by many names including manufacturer’s agent or manufacturer’s representative. The labels vary according to the industries the independent sales representative specialises in.
While the independent sales representatives receive commission on their sales, customers are invoiced in exactly the same way as if you were using your own sales force. In addition, you set the price and terms of the sale not the representative.
Advantages and draw-backs of independent sales agents
There are several advantages to hiring a manufacturer’s representative:
It enables an under-financed venture to field a sales force without a large capital investment. The cost of having a single salesperson in the field is between $15,000 and $20,000 a year, over and above salary and commission.
They provide rapid penetration in the market place.
They are professional salespeople and do not need any training.
There are also disadvantages to using independent sales representatives. These include:
Reduced control over techniques used to sell your product or service.
The cost of using an independent sales representative can be greater than using your own sales force if the volume of sales is high.
They do not sell your product exclusively and therefore may not give sufficient attention to your products without additional financial incentives.
If you cancel a representative’s contract, some of your customers may follow him/her.
Are independent agents the best choice?
Before deciding to employ a representative, there are some areas which must be considered.
You do lose some control of the way your product or service is sold. The cost of contracting with an independent sales representative can also be more expensive than building your own sales force.
To decide whether it would be better to contract with an independent sales representative or build your own sales force, compare the advantages and disadvantages of each option.
In terms of control, the key concern for you to consider is the amount of control you require to achieve your sales objectives. The amount of control you will be able to exert over an independent sales representative is minimal. You may invoice the customer and dictate the terms and conditions however, the customer is still the representative’s customer.
You have to ask yourself how important the interaction between the salesperson and the customer is in terms of your product or service.
For instance, when selling a retail product with great demand among retail distributors, the way a salesperson approaches and services these customers may not have as much influence on sales objectives as a product which requires a great deal of technical support and customer service.
In the latter case you should probably develop and train your own sales force in order to achieve higher sales and compete within that particular market.
To determine which selling approach is best for your product or service, you will need to re-address your analysis of the competition and understand how they are selling their products. If they are using their own sales forces, is there a good reason for this or is it just tradition? Could an independent sales representative work in this industry?
Another consideration is market penetration. Although many entrepreneurs know the market they wish to penetrate, there are some who do not. In this case, contracting with an independent sales representative may be beneficial. They should certainly know the market well.
Keep in mind that an independent sales representative can also provide faster market penetration because they do not have to employ and train a sales force.
The cost of developing and servicing a territory is another important factor. How large is the territory? Can one person cope with the area or the number of accounts? What is the cost of developing the territory? What is the cost of maintaining the territory?
You have to examine your own resources. Can you afford to develop and maintain the territory in a competitive manner? Remember, when calculating expenses to develop and maintain the territory, include salaries, benefits, travel, entertainment, commissions, etc. Then compare this figure against the cost of having an independent sales representative take over the territory.
Other factors to consider are:
Training: With your own sales force, you have to field and train salespeople. Representatives do not require training and can be in the field selling very quickly.
Customer service: Because representatives handle so many different products, they cannot afford to offer after-sales service, whereas a salesperson on your payroll can and should offer superior customer service
Experience: Hiring experienced salespeople is expensive. Training people is also expensive. Representatives are experienced professionals who already know and understand the industry and territories they service.
How to choose an independent sales agent
When considering a manufacturer’s representative, ask all your prospects to submit resumes. Be sure to check all references.
A good representative is going to want to know a lot about you as well. You need to convince him/her that your product is good, you have a sufficient quantity to sell and that he/she can make a lot of money selling your product.
The representative will ask you what your current sales volume is and what projected sales volume you expected. They will also want to know details about who their customers are and about the stock to be sold.
You in turn, should find out what his/her total sales volume is and the territories he/she has been covering. Many manufacturers ask for tax returns to substantiate a representative’s claim.
If the representative under consideration operates alone, your information gathering will stop there. If you are hiring an organisation, you should investigate the company as well as the individual salespeople. Ask how many people they have, what territories they cover and what kind of sales work they are doing.
Representatives who have a successful sales background charge larger commissions. How much you pay depends on who your representative is and how marketable he/she thinks your product is.
Overall, the commission ranges between 6 percent and 25 percent, depending on the industry. It might be 20 percent in the jewellery business, but 12 percent is standard in food services because of the high volume sales in that industry.
To find out how much commission you should pay, check with manufacturers already in business and see what they are paying.
When setting up a payment schedule for your representative, try to arrange payment at the same time you receive payments from your customers.
Finding an independent sales agent
If you do decide to hire a manufacturer’s representative, it is essential that you hire a good one. There are plenty of order-takers in the field, the trick is finding one who takes the initiative and sells your product. There are several ways of securing the ideal representative.
Trade shows: Contact your local Manufacturers’ Association to obtain information on trade shows related to your industry. They are an excellent source for making contacts – all the representatives are concentrated in one place at one time.
Trade journals: Check the reference section of your local library for trade journals and magazines which service your industry. In the classified section of most journals there is a listing of representatives seeking new product lines. Be wary however, of representatives who advertise for additional products as this will not help your business.
Classified advertisements: Place an advertisement in a trade journal or large city newspaper. Be prepared for a barrage of responses. Since there will be a large pool of applicants to choose from, be sure that you choose carefully. Having a bad representative is worse than having no representative at all.
Referrals: Ask any business contacts you may have about representatives they know of or use themselves. Query some of your customers about the representatives who call on them. Find out which ones they recommend. Go directly to retail outlets and ask shop owners, purchasing agents and buyers to recommend representatives to you. Also, find out which ones are representing your competitors.
Representative recruiting firms: There are several recruiting companies of this type operating around the country. These firms keep representatives’ names on file and for a fee (usually $1,000 to $1,500), they will contact any that they feel are most suitable for you. The representatives will then contact you.
Questions to ask
It is important you are fully prepared when it comes to questioning an potential independent sales representatives. Consider the following questions:
Does he/she carry conflicting / competing lines?
What is his/her commission structure?
Where is the showroom/warehouse, if any?
What is the geographical area covered?
Who are their key accounts?
How many sales people do they employ?
How many years have they been in business?
Do they organise their salespeople on a roster basis?
What type of promotional support is offered?
Are they willing to submit sales call reports?
What is the frequency of trade show appearances?
When are commissions paid?
What catalogues or other material are required?
Can you be present at sales meetings to see how things are going?
Can they supply a current list of references?
