Using Sales Reps and Distribution Channels for Market Entry | Wednesday December 31st, 2003 | |
What is the best way to get your product or service to market - fast?
Although every entrepreneur needs to be the best sales person for their product or service, using a sales representative, either individual or organization, will get your product/service into the market faster and more efficiently.
Identifying distribution channels is necessary to manage the sales of every business and many independent sales representatives are identified aligned by geographic location and distribution channel or product line.
Independent Sales Representatives
There are advantages to using manufacturer’s representatives (reps); the most significant one being cost. Since reps operate on commissions earned from sales, the up-front cost of selling is reduced. In some industries, established rep or rep organizations may require advances against commissions to help cover their operating expenses, but this is still a much smaller outlay than maintaining an in-house sales force. Commission percentages also vary from industry to industry, but expect to pay somewhere between 5 to 15% of the wholesale cost of your product for professional sales representation. Although there are industry standards to commission percentages, feel free to negotiate. You might be able to pay a smaller commission percentage in exchange for some other negotiable item.
Another advantage to using independent reps is that they already know the territory and have established relationships with the buyers of your product. This market intelligence will be invaluable both as you start your business and as you grow.
The disadvantages to using outside representation include having less control over how the rep operates and ultimately how the customer is served. These disadvantages can be minimized by developing a good working relationship with your rep. Find a rep whose business philosophy and integrity match those of your company. Just as in an in-house sales operation, sales goals should be set, performance standards developed, and an agreement setting out these terms should be executed.
How to Find Sales Representatives
Every industry has a trade association. These associations are wonderful sources of information about the market and can also be helpful in identifying independent representatives. Many industries have sales rep groups affiliated within the trade association. The Encyclopedia of Associations (available in most libraries and at offices of Visitors and Convention Bureaus) is the appropriate reference tool for finding the trade association for your industry.
The other way to find good sales reps is to ask major buyers of your product or service. Once you have identified locations where you want your product sold, contact the buyer and ask for referrals to some reps with whom they currently work.
Sales Territories
Independent reps usually have a geographic territory in which they are established; e.g., the Western U.S., Southwest, Northeast, etc. Some organizations have national coverage or are associated with other rep organizations that cover more than one geographic area. Choose a rep that can deliver your best market opportunities.
Distribution Channels
Many sales reps are also organized by distribution channel or customer type. If you’re selling a product that is suitable for a variety of retail outlets, you will find reps that specialize in one or maybe more of those outlets. For example, if you manufacture hair care products, you may want to sell it to drug store chains, supermarkets and beauty salons. Different rep organizations will specialize in each of these markets.
Another way distribution channels can be aligned is by product category and cost of the item. You might produce a high-end shampoo to sell to salons and a lower-priced product that would be suitable for drug store chains, supermarkets and mass merchants like Wal-Mart and Target Stores. Or you might manufacture a grooming product that is only suitable to salons while the rest of your hair care line can be sold to a variety of retailers. You will need to identify the different sales reps that specialize in each of the product and customer categories for the goods you manufacture.
As with any service you purchase, be sure the contract clearly defines your expectations for the sales representatives you hire.
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