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Thursday
Oct152009

Hire reps or direct salespeople?

The $64,000 (or much more) question

To hire direct salespeople or not to hire direct salespeople, and instead to place your hopes in independent sales representatives? Eventually most small to midsized processors and mold makers face this question. There are pros and cons to each approach.

Tim Holland didn’t like sales. “Getting myself out of sales was the best thing I ever did,” said the president of Metro Mold & Design Inc. during a panel discussion at the American Mold Builders Assn.’s annual meeting this year. “I’m not good in front of the customer, and tend to back down. But the sales guy doesn’t because his paycheck depends on it.”

Today, Holland’s company, located in Rogers, MN, has a VP of sales and five salespeople who sell for Metro’s mold manufacturing and contract injection molding businesses. It’s a fairly deep sales team, but Holland believes that salespeople are key. The firm’s molding unit has 43 presses ranging from 35-650 tons.
 
Holland says that he tried using manufacturers’ reps, but was disappointed. “I think we just weren’t set up to manage reps,” he opines.

At Industrial Molds Group (Rockford, IL), Tim Peterson, VP, has struggled with the direct vs. sales rep conundrum. On his staff is one employee focused exclusively on sales, supported by the company’s engineering staff. Recently, Peterson tapped a sales rep to cover Michigan and so far likes that arrangement.
 
One obvious but common mistake is to hire a rep, give him some brochures, and turn him loose. “It takes a lot of work on our part to manage the rep,” Peterson says. “I go to Michigan on a regular basis and work with the rep, make sales calls with him to companies that he’s tapped into, and generally keep up with the activity there.”

$120k worth of reasons for a rep
Companies use independent sales reps primarily to expand their national or international coverage quickly, and of course to limit pay to results, notes Pat Bartley, president of OuterSales LLC, a Los Angeles-based consulting firm that helps companies connect with sales reps. “The average cost for one direct employee [including expenses, benefits, salary, bonus, and inside support] is $120,000 per year,” she says. “The average company needs 24 reps for nationwide coverage.”

While that number is excessive for most small-to-mid-sized companies, many have given up on reps, preferring to go direct in spite of the higher costs. Commercial Tool & Die Inc. (Comstock Park, MI) employs direct salespeople “because the company hasn’t had any luck with reps,” says Todd Finley, VP.

“[Reps] don’t know the company culture because they’re never inside,” he adds. “We have one full-time salesperson for prospecting. Engineering people work with current customers to get more work from them, so we have an incentive program set up for them. It’s motivated them to do a good job with current customers and develop relationships.”

The perception among many small/midsized processors is that reps just can’t do the job as effectively as a direct salesperson can. OuterSales’ Bartley understands, but adds, “The number-one reason why companies fail using sales reps is because they do not select those representatives that have the customer base, product knowledge, or sales experience.”

As a consultant working to connect the right reps with the right companies, Hency Bunner, president of Proact 2000 LLC (Louisville, KY), also has heard all of the reasons why reps don’t work. Like OuterSales, his company also handles the preliminary work of identifying reps of complementary product lines for a manufacturer seeking a rep, contacting, screening, and interviewing them per the manufacturer's instructions, and then recommending those reps qualified to sell for the firm.

In spite of all that preliminary work, the relationship will fail without guidance and training. “The number-one key to having a successful sales rep is training. You’ve got to train them, bring them in your plant, teach them about your business, make sales calls with them,” Bunner emphasizes. He also says that manufacturers need to visit with the reps personally in their territory at least four times a year, and bring them into the plant at least once or twice a year to update them on products, services, and potential customers.
 
Additionally, set goals and make expectations clear. “You should get 80% of your business with 20% of your reps,” says Bunner. “If the reps don’t sell, you need to replace them quickly.”

He adds that a key to success is to ensure the reps you hire also sell complementary products. “This cuts down on the frustration of explaining the details of your products or services. If they’re not selling a complementary product, they won’t be calling on the people you need and their efficiency goes way down.” Clare Goldsberry

Some eat well, some just eat, and some starve but have hope
This processor has plenty of good experience with his independent reps.

If you want to understand how to work with reps, just ask Floyd Coats, president of American Plastic Molding Corp. (Scottsburg, IN). This custom molder has 36 presses, mold design and build capabilities, and a variety of secondary operations including hot stamping, ultrasonic and vibration welding, and pad printing. Selling his company’s capacity are 27 reps working in various territories. So, just how has Coats managed to find so many reps?

“I’ve used rep headhunters, a magazine from MANA [Manufacturers’ Agents National Assn.], lots of word of mouth, and trade show recruiting,” says Coats. “I also use references from established customers. I ask them what sales reps call on them that supply them with other goods, which they’ve come to rely upon because of their tenacity and integrity. We use all of those avenues and have acquired good reps in each category.”

Coats has used Proact 2000 and found good reps through that agency. While admitting it can be difficult to find good sales reps, he has had more success with them than with direct salespeople. Of his current reps, Coats says the company has “three who are eating very well, four more who are eating, and another 20 who are starving to death but have hope.”

Coats seeks representatives who understand there may be a long time between an initial sales call and a commission check. “This is due to the length of time in product development and mold design and construction, and is dependent upon marketplace activity,” he says. “The salesperson who’s been selling life insurance is accustomed to receiving commissions within days after his sales activity. Salesmen who sell cars also get paid quickly. But the industrial manufacturing side is unique. A sales rep who can wait through the development cycle to get his commission understands this process. I have a small number of highly successful salespeople who understand that cycle and it works well for us and them.”
 
In addition, American Plastic Molding has an engineering department and product development group that is “quite sales oriented” and works with reps on potential customers. “If the sales rep generates a serious lead, then we do serious follow up with our engineering and product development group,” Coats says. “Our sales reps are reinforced very strongly with a mobile engineering department that can go out and support them.”
 
Experience is often a rep’s best tool. “They know who buys from corporate headquarters in Timbuktu or who buys locally,” says Coats. “And who’s a price buyer and who’s a quality buyer. A salesperson who knows his territory really well, and who sells three to five complementary lines and has been doing it for 20 years, has a high probability of success.”

By Clare Goldsberry

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