Salesman or Distributor
I am producing a medical device which sells between 5000 and 20,000. Competition allows multiple distributors who all advertise on the web and compete by offering incentives...prices are set by factory. These devices are being sold B2B and B2C. Would this be a better model to set up distributors or a sales force? Salesmen would have to be commission only since we are a start up company.
2 Answers
This all depends on your business model, and how much time you want to get involved in sales of the business. If you set up a sales team (commission-only or not), you'll need to spend a lot of time managing and coaching your sales force. Distributors can require less on-going effort. Maybe another option would be to look at a franchise model where people pay you to sell your product (If your product is good some distributors might pay as well).
I've had great success with a commission-only sales teams with no geographic restrictions. (We called them "sales agents"). First person to get a signed order wins. However the total market size was around 4,000 companies. We paid 10% commission and the minimum price for our product was $10K. We would do most of the marketing and send them leads. We did this because we believed a salesman needed to meet a customer to close a sale (due to the high value of the product). However 5 years later we have a central fully salaried sales team who sell everything over the phone. They now get a 1% bonus if they close a sale. This, of course, makes more financial sense to us.
One of the disadvantages of having more than one sales agent contact a customer (sometimes 5 targeted the same huge company) was varying levels of discount they would all offer. We eventually had to take control of this and say "no discounts" because it started to extend the time customers would take to decide to buy ("let me see who I can get the most out of"). This was hard to do but eventually worked and it became "fairer" for everyone.
So I guess some good advice would be to keep things flexible. No long term contracts esp. as you are a start up. Maybe it's not a case of "either / or" maybe you should try two or three different methods... see which one "wins".
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This is a great answer and almost answers a question I was about to ask. When you say "we paid 10% commission," is that based on sale, gross profit or net profit? When would you base your commission on any one of those numbers? – Clint 12 years ago
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10% of the value of the order. Sell 10K - take 1K in commissions. When to base on those number? When it makes financial sense. "10% off the top" is easy, as sales people know what they'll get when they make the sale. – Sunil 12 years ago
Well, it's doubtful you'd find many quality commission-only sales people, so I'd say go for the distributors.
