Time to go to Market. Who will do the Selling? Part 2

It’s important for entrepreneurs to find the right sales model if they are going to be successful. We earlier identified some of the common ones in part one of this piece. But there’s more to learn.

For products that are highly technical, have a long selling process or require an extended learning curve, a direct sales model is probably best. This means hiring a sales force to sell your product for you. However, it is by far the most expensive. This is due to the need to provide benefits such as expenses, paid time off, healthcare, etc. The upside of a direct sales force is that you have full control over how they spend their time, and they can focus all of it on your product. If the decision is made to employ this strategy, it is often best to start small with a few sales people in very targeted areas and learn from their experience how long the sales process really is, what obstacles must be overcome and what the actual revenue generated looks like. You can then use the information gathered to make much more realistic projections for how many sales people should be added and in what time frame. Many companies have failed because they depleted their resources before they truly had the sales process figured out.

If the product in question requires a high level of expertise and therefore more control of the sales process, but cash is in short supply, it can sometimes be very effective to hire one direct sales professional as the product expert and then have that person work hand-in-hand with the sales team of a designated stocking distributor.

A distributor is a separate standalone company and as such they are responsible for the expenses involved with fielding a sales force. They can be either a stocking distributor, which means they buy the product and take title to it, and then they resell it to the customer, or they can be a non-stocking dealer, which means the company simply pays them a commission on what they sell. They never take title or possession of the product.

The benefits of a stocking dealer is that they have money in the game and therefore have much more incentive to concentrate their efforts on the product. The downside is your product will only command some of their time as they will also have many other products they represent as well.

If cash is in short supply, a stocking distributor can be leveraged to multiply the success of a direct rep. Look at it this way: If the distributor has eight qualified reps, they can do the legwork, set up sales calls and meetings and then the direct rep can make joint sales calls with them and help drive the business. This in effect can multiply their effectiveness by a factor of eight as opposed to them just selling on their own.  This type of hybrid model, combining a direct rep working in tandem with distributor reps, can be very effective in the early stages when driving the revenue curve is critical. An additional benefit is that the distributor reps can get some firsthand experience in observing how the product is best presented — making them an even more effective part of the team.

A non-stocking distributor does not buy the product to resell to the end user but rather is simply paid a commission on what they sell. The company ships the product directly to the end user and has access to the contact information to all customers they sell to, and it is a much more streamlined process.  The downside is if the product takes significant sweat equity (time and effort) before any significant revenue is realized, a non-stocking distributor rep isn’t likely to put in the time necessary to drive sales. Think of it this way: Since they only receive commission on what they sell, if the product has a long buying process, they aren’t making any commissions at all during that process. As such, they will tend to follow the path of least resistance and sell only those products that put the most recurring revenue in their pockets.

A non-stocking distributor model generally works best for products that are already well-established or more generic in nature.  Finally, there are independent contract sales people commonly referred to as 1099s (the IRS designation for this role).  They are also commission-only reps; the main difference between them and a non-stocking distributor is that they are lone contractors and do not have the support of a distributor.  The upside is they cost the company nothing If they don’t sell anything; the downside is you have little or no control over them.

When deciding which sales models to implement, consider some basic items:  More sophisticated products that are highly technical in nature and have a longer selling cycle tend to lean more toward the need for a direct sales force.  Products with shorter selling cycles that are less sophisticated and do not require extensive training can often be successfully launched through indirect distributor channels.