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Small Business Tips: When to Hire a Sales Rep
Here are some small business tips about hiring the right sales representative to find new customers for your small business. It’s not easy.
Most sales reps;
- Promise you the moon and don’t deliver customers or additional revenues.
- Sell many products from many suppliers (which could mean dozens or even hundreds of suppliers) .
- See your business as a blip on their radar screen. If any of your products or services are presented to a potential buyer, it’s by accident not design.
- Want to get paid on sales they make to buyers you already know.
- Do not want to own ANY of the revenue generating risk. They want you to own all of it. (I’ll explain in a moment).
- Are incredibly creative in explaining why the order didn’t come through. (Buyer had a headache, a hangnail etc. etc.)
- Do not cover their fixed or their variable commissions with the revenues they generate to make it worth your while.
Why does anyone hire a sales rep? You’re hiring them for the relationships they already have.
In theory, those existing relationships should reduce the time it takes to get an order.
Every sales rep (and PR agent) will claim you have to be patient. It takes time to fill a sales pipeline (or to build excitement).
If you don’t see an improvement within 60 days, rethink your strategy. No I’m not kidding.
The object here to to get a return on investment for that sale rep before you go on Medicare.
Back to Basics
Why you do hire a sales rep? For one reason and one reason ONLY.
You are hiring them for the relationships with your potential buyers you don’t already have.
Any effective sales rep should, in theory, increase your closure rates with new customers. Why? These are not cold calls, they know the rep already, remember?.
These reps should be able to generate revenues far more efficiently that you could on your own.
If they can’t do that, you don’t need them. You’re paying for new customers and all you’re getting is hype.
The most important small business tip is to manage any sale rep carefully. He or she should be able to provide you with the following data.
It will give you confidence the money you’re investing in their effort will generate revenues fast:
- The size of the market for your product
- A list of potential customers
- Expected closure rate among those customer segments
- Average sale per customer (expected revenues)
- The sales plan for reaching them within the next week and month
Why am I thumping the war drum so loudly on when to hire a sale rep?
Because Mary, one of my consulting clients, just paid a sales rep almost $30K, or $10K per month for three months to represent her company to the marketplace.
That’s twice what the average private sector worker is making.
This is a staggering amount of money! So while the sales rep was making out like a bandit, Mary wasn’t sure she could make payroll.
In addition, this sales rep required a 20% commission over his monthly fees.
These numbers make me queasy. All I could do was hold my head.
The sales rep’s job was to meet with prospective customers, fill a sales pipeline so Mary had predictable revenues while she was busy running the business.
OK. I get that.
But here’s the rub- Mary’s company was his only client. That should have been her first red flag. If this person is so terrific, why does he only have one client?
Mary’s company is a for-profit enterprise. She is not running a social services agency.
The rep was hired and delivered $8,000 in revenues, not commissions, revenues in three months. And those revenues were from clients Mary already knew.
He must have been busy drinking pina coladas instead of booking meetings with customers.
At a gross margin of say, 40%, this guy brought in about $3,200 in marginal benefit, maybe.
Subtracting that from his payout, the business is in the red (on this rep) about $17K.
For a small business, this could mean going bankrupt. $17K is a fortune.
Also, when you pay a sales rep $1, you should get at least a 10X return on that investment.
This guy earned $30K? Guess what? He should have generated at least $300K to pay for his fees.
This is not a contract; it’s highway robbery. So how do you avoid this trap?
Our next small business tips article will take you through the negotiating points before you sign a contract with a sales rep to generate revenues for you.
And if anything about revenues, gross margin or product line merchandising needs more explanation, watch our Instant CFO Course. A $249 value for only $49.
You get the Instant Marketing Manager and Instant Sales Manager Courses as a bonus.
And it’s guaranteed. If we don’t deliver, we’ll refund your money.
In your corner, as always.
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