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"The benefits of a direct over independent sales force are too numerous to count."
- José Oliva, cigar maker, Florida State Representative
Sales Structure
Sales Structure
José told me this in a casual conversation the mid 2000's, as we at XIKAR were considering our conversion from independent reps to a direct sales force. And he was right, but not because the direct reps are superior sales people. They simply have all of their time dedicated to one company - yours! He was also right in the numerous ways we improved, in our relationship with customers, oure ability to roll out new products, get priority placement in the stores, and above all rapidly grow our revenue - a very easy and fun number to count! Note there are extremely important considerations before you launch a direct sales force, explained below. But whether an independent broker or direct sales people, you should have the same sales management techniques in place. Then the decision to have direct, independent or a hybrid structure becomes a matter of measurement and judgement of a good sales manger for the best outcome.
Type
Type
Geography
Geography
Focus
Focus
There is a cost to having direct sales force. As noted on the Compensation panel below, you will take on all travel and entertainment expenses. More importantly, in order to have an effective sales force you must have a sales manager to hire, train, retain (or terminate) your force and to oversee their activities. Don't pretend you can do this without qualified, fully dedicated help. (See the panel below on Sales Management for a complete description of your sales manager's activities.)
Should you have a sales force at all? Only if you engage in person-to-person selling, which means face-to-face. Your in-house sales people simply cannot match the relationships built by sales people, direct or independent, who see the customer on a regular basis. See the Tools of Persuasion page for more info on how this happens.
How do you know when it's time to hire a direct force? Simply put: you can afford a direct sales person in any territory whose commissions pay for that person's compensation plus expenses. Using simple numbers as an example: you have an independent sales rep charging 10% commission on revenue in a $1 million territory. This rep earns $100k per year. If in that territory you can find the right person (see Team page) to start working for $80k, you can hire this person with the mutual agreement of gaining 20% upside a direct rep should gain, and more as years go by. This assumes your anticipated travel costs plus other expenses are in the $20k range. This also assumes you already have a great sales manager in place.
Naturally you can build your direct force over time. As you hire more direct reps, the need for a dedicated sales manager becomes more urgent (see Management panel below). A hybrid approach may be best for entrepreneurs and small business. For example, you may choose an independent broker over a direct rep. This is particularly true in geographies that prevent a sales rep from visiting customers with the necessary frequency. Two examples illustrate this point. In the Northwest territory (Oregon / Washington), anti-smoking regulations forced the closure of many cigar shops. The territory became too large in size and too small in revenue to support a direct rep. On the other hand, despite a good density of cigar shops, Southern California also needed multiple independent brokers to cover the territory, due to the difficulty of visiting shops caused by traffic.
Depending on the size of your company and variety of product lines, you may even have more than one rep covering the same territory, with different product lines. So you can see that creative, focused sales management is of paramount importance to a successful sales effort!
Our orientation is customer focused, from the mission, to marketing, to product development and now sales. This focus is especially important in the structure of the entire customer-facing team, including outside sales, inside sales, customer service and sales admin. What setup do your customers want you to provide them? They want the right person at the right time providing the right information. They should never compete with each other: how does this serve the customer or create efficiencies in your organization? This means you should set up your customer team to work in concert to serve the customers needs. You can do this by sharing customer "touches" among your customer team in three main areas: sales efforts, service issues and sales opportunities.
Your inside sales staff should call customers, usually for turn orders or promotions, where the outside person isn't traveling. Together they rotate through the territory, effectively doubling the coverage. They should alert your outside reps to problems and opportunities the get through inbound and outbound calls, and should provide administrative backup for special events, presentations, etc. On the other hand, your outside force should alert and depend on the inside teams to cover customer needs and problems they cannot address.
It is possible to do this on a shared calendar plus excel spreadsheet, but more efficient to share via CRM (customer relationship management) software, whether that's embedded in your accounting system or a standalone such as SalesForce.com.
Note a vital facet of customer team success: you must align and share compensation as a team effort. For example, if you pay your inside sales a commission for a sale made in an outside sales territory (and don't pay that to the ouside sales person), then customer team morale suffers, your people work in competition, not concert and customer will feel frustration with the confusion.
Sales Management Philosophy
Sales Management Philosophy
Pressure not force. Force is a tactic sometimes appropriate. Pressure is a strategy, a technique of applying constant and consistent attention to accomplishing goals and objectives, not to force an action, but to insist it takes place.
Because of the frenetic pace of sales, among many other distractions, salespeople apply their efforts on a priority basis, their own priority, often the urgent over the important. It is the manager's job to establish a relationship with the salesperson that will cause them to devote a sufficient amount of time to the goal on a continuous basis. To do this, they must create an image of what the salesperson can always expect from them. This image will depend above all on the amount planning, communication and verification the manager does with theire sales people.
Planning
Planning
Planning and setting goals is a cause and effect formula. You create an action (cause) which you hope will result in a sale, promotion, etc. (effect). Since you as the broker manager have complete control only of the plan, you should never do this on your own as you run a high risk of failure. Engage your sales people, even your customers in the process. At the very least, you check your ideas and beliefs with them (and often get great ideas that you had not imagined!)
Communication
Communication
You must implant a complete understanding of the plan and get a commitment to / ownership of it from your sales staff. In this sense, the manager must "sell" the plan to his sales staff. The only way to guarantee this for any chance of success is to engage them in the planning and communicate the agreement in writing. These agreements should include who will do what by which date to achieve a specific outcome. This written document confirms the manager's expectations of the sales people, and it also confirms the company's commitment (to marketing efforts, etc.) to assist in the effort
Verification
Verification
Failure to follow-up guarantees failure. Consistent and constant follow-up is the only effective action to keep the ball moving over long periods of time. It's the only part of the sales process over which managers have complete control. Those who don't fail to understand its effectiveness, or believe that if they "said (commanded) it, it should get done!" Yet in the world of selling, Murphy's law, competing, confusing or too many priorities elimanate chances for success. Therefore, you must follow up at each stage, seek confirmations of each item on the agreed timeline to keep the sales force on track at all times. Until you have established "trust but verify" you may have to follow up on everything. ("We agreed you'd get the and appointment with the buyer today, did that happen?")
Sales Compensation
Sales Compensation
Nearly all sales people work on a commission basis. This doen't make it right. And although I always worked on a salary + commission basis while working in sales or as a manager, I have come to believe in salary + bonus for sales, just as any other position in the company (see the note on roles of Incredible Players in the Leadership page). However, that may not be possible in your trade, and almost certainly not with hiring independent brokers, who sell on a revenue commission basis, which is most aligned with their activities and quite easily to recognized by all parties.
If you choose a commission or salary + commission basis, consider choosing a commission percentage of gross margin instead of revenue. This better aligns sales people with the company in their decision-making as they offer deals, incentives and free goods to their customers.
A big benefit of a broker force over direct sales people is their variable cost - you pay only for what you get - each sale. Furthermore, you do not pay for travel expenses. That cost is shared by all the broker's manufacturers through the commission basis the broker requires. For direct sales rep expenses, we provided a conservative allowance for car, phone, hotel and meals, and lost the burden of collecting and reviewing receipts. The sales reps gain freedom and potentially a (small) gain on choosing more modest travel that we budgeted for them. Customer entertainment also had a budget, but each outing required pre-approval.
When you start a new territory, whether direct sales or through a broker, you may have to offer a minimum compensation for a short period (up to a year) while they establish the market for your goods. This is common and in my opinion worthwhile as it's necessary to get the best sales people / brokers.
Sales Analysis
Sales Analysis
Like a treasure hunt, sales analysis is a puzzle that requires curiosity, imagination and tenacity. In it you are looking for anomalies, variations that are exceptional for their success or failure. Your job is to discover these in order to understand them and correct the bad or multiply the good. Proper sales analysis begins by looking at your data from multiple dimensions, across several areas of sales categories. The type of search will depend on the use of your data, from the "what happened" in your weekly updates, to the "why" of your explanation and strategic planning. Once you find that anomaly, do not make any assumptions. Explore by asking questions of your sales team (inside and outside), who should ask their customers too. For two example in my own history, a product line promotion sells poorly in the northeast. Did the rep fail to properly roll out the promotion? What if instead the promotion was met with fierce resistance by a very popular local brand? Alternatively a new item sells exceptionally well across the country. Congrats! In a deeper dive you find the new red finish, usually a distance behind sales of silver, black and gunmetal, is extremely popular. Now you can apply this same red to other products whose red color didn't sell.
Dimensions
Dimensions
When you see something unexpected in your sales, understand that it doesn't happen in a vacuum. Approach it from the above and the sides. What did overall sales do for the period? What did like areas (geography, product, etc) do? In the absence of something obvious, begin a monthly analysis from the top in each area, diving deeper as you parse sub-segments, always looking for something exceptional.
Areas
Areas
In a product distribution model, you will generally explore sales in three areas:
Product (category, sub-category, product line, product feature (color, etc).
Sales Area (region, sales rep, market)
Customer Type (large, medium, small, or perhaps within those, customers who sell to different end users.
Type
Type
Static temporal sales are reported numbers, often seen on the income statement or in the weekly updates. This includes what happened, and how does it compare to prior period. Performative analysis compares sales performance to an index such as the average across a sales Type, or a forecast the company has agreed to match. This is the ultimate goal of sales analysis, to understand why something happend well or poorly, so that managers can explain it and plan changes or future activities.
Whether a unique project, quarterly or annual review, sales planning and execution through the year provides the foundation for evaluation and discussion with your sales people. This basis for reviews gives legitimacy to the planning process and encourages sales people to buy in to goal-setting, planning and follow-through. You may want to develop a scorecard of performance for each review and consolidate them at each quarter and year end. While each company will have different measure to score, typical ones include distribution % by item or category, sales by unit and dollars vs. prior year (or period), in-store positioning and results of the variety of marketing efforts during the year.
One unusual thing for you to consider: make your annual sales review (and perhaps even your strategic planning review) occur during a low season or in June - six months away from year end. This gives your team to focus all of their year end (and personal holiday) planning on the the most urgent and important tasks of the season.
Any type of review, performance or behavioral, etc. should always include three people: the manager the associate and a third witness, preferably from Human Resources.
Performance Reviews
Performance Reviews
Project / Quarterly Review
Project / Quarterly Review
The quarterly review is a management tool which over time will set the the expectations and behaviors of the sales people. Review each of your prior sales plans and goals at the time of their conclusion, and include the summary of each in the quarterly review. The sales person will knows what to expect as the basis for feedback. Therefore you can quickly and easily correct actions and behaviors, and perhaps more importantly pinpoint the strengths and weaknesses of the sales efforts leading to the outcomes. Like sales analysis, you are looking for anomalies: what worked what didn't and why for each. This is a great opportunity to course-correct for the next quarter.
Knowing how they will be verified and reviewed improves the quality of sales people's commitment to the company's goals and also to their own improvements.
Annual Reviews
Annual Reviews
The annual review is a formal evaluation which gives people a clear view of how performance gets measured and rewarded against expectations, and what to expect for the coming year. Key components include:
identification of strengths and weaknesses of the individual's sales behaviors and performance.
development of plan to increase strengths, shore-up or improve weaknesses.
identification of candidates for promotion / salary adjustment and or bonuses, or potentially, termination
Initiation of the coming year's sales plans
How many times have you witnessed an annual performance review including only events of the last quarter? In this review your manager must include all goals during each quarter, tying them together for the year. In addition to measurements against goals, I like to measure performance against the average sales person's performance for the year, with the goal for each person to be "above average". Sales people are competitive to win the sale and be the best. This helps motivate them, and also recognizes market anomalies which either depressed or increased overall performance against goal. Planning at this session should include interviewing the sales person's ideas for the following year, to be incorporated in the overall marketing plan.
Independent Brokers
Independent Brokers
You must understand up front that a sales broker is not an extension of the manager's direct sales force. The concerns for the manaufacturer's goals are not necessarily of paramount importance to the broker. Rather, a broker is much more concerened with the well-being of their buyers than their sellers. Simply put, buyers in a market are few, sellers many. And the fact is that some of the broker's other sellers, or "principals" may generate much greater commissions than your company and further deplete your firm's importance to the broker. Thus a good broker manager accomplishes. his goals through constant efforts over time, as described below in management philosophy.
Quarterly and annual evaluations are vital to keep the broker on track, with communications of plans and agreements in writing of paramout importance. Brokers are simply too busy to capture everything that was stated and not written. Finally, you'll evaluate brokers as company, not as a individuals. This evaluation with the account executive and perhaps also the sales manager gives them a picture to review with their people. It should cover every aspect of the broker performance, just as you might do with one of your direct sales people. Be sure to send a copy of the evaluation and it's follow-up action plan to the broker owner. The action plan should include an agreement with your account executive on actions that will take place in the coming year.
Do's and Don't of Sales Management
Do's and Don't of Sales Management
Never make a presentation to an account for your sales person or broker.
this shifts responsibility of the sale where it belongs - to the broker / sales person
making the sales presentation dilutes the managers control and oversight ("you are the expert - you couldn't sell them.")
prevents the broker / sales person development of skills with the product line
You or your sales manager may feel it expedites the process, or the account is too important for the salesman to make the pitch. However, it is too important for your team to let them have the authority and you customer will appreciate his usual sales person making the big call. Your presence is enough!
Never accept a gift from your broker or sales people. Never offer your customer or broker an inappropriate gift. It degrades your reputation, compromises your authority and damages your ability to get things done. It simply isn't good business.
Always confirm critical communications in written form
so they cannot fortget
so that their receipt and understanding is as intended
to clarify any doubts
to give sales people confirmation which they can count on
to create an written, actionable record of receipt
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