Having worked in the sports trade for over 20 years, I’ve seen the benefits of using both sales representatives and sales agents.
The terms sales agent and sales representative seem similar on the surface, but are in fact vastly different. A sales representative works directly for a single company, while an agent may represent multiple brands and usually runs his own business.
Which approach is best? There are a variety of factors that need to be taken into consideration, including territory, type of product being taken to market, plus price points and breadth of the range. However, setting these aside, there are pros and cons to each approach.
Pros of hiring a sales agent
• Lower costs. What does the average direct sales employee cost? Start with a base salary of £20,000-£25,000. Now add the cost of a car and travel expenses, sick leave, holidays and holiday pay, pension and other expenses. Current estimates put this at £20,000-£30,000.
Factor in payroll taxes, liability insurance and expenses incurred attending trade shows, which may be an additional £10,000. All together, this person could be costing you £60,000-plus per year. The question is, what are you getting in return?
• No hidden costs. Hiring an employee has costs beyond just their salary such as office space, equipment, travel costs, insurance and other benefits. The cost of hiring a sales agent is clear and obvious, since there are no hidden costs - the agent sells for you, but is in business for himself and the cost of selling your products is their responsibility.
• Pay for performance. Sales agents are typically paid for their performance through a commission-only wage structure, which means you only pay them if they make a sale. This means hiring a sales agent can cost next to nothing and the products they sell will cover the money you’ll pay them.
• Give immediate access to the market. With agents, manufacturers have an experienced sales team in the territory immediately. The agent will be familiar with the area and have a number of good prospects who they feel would be ready to consider your product line.
• Provides a broader sales context for your product. Because he sells several related, but non-competing product lines, the agent is in a position to expose you to a wider variety of prospects and customers. By doing this, he often finds applications for your products that could be missed by the single-line salesperson.
• Value for money. Some businesses will not have enough prospects to justify hiring a full-time sales representative. In this case, a sales agent representing your products and services part-time can bring in the same income without straining your payroll unnecessarily.
Cons of hiring a sales agent
• Less control. Although they will be selling your products, you can’t control a sales agent in the same way you can an employee. Their sales process will be their own, as will their style and manner, and they are unlikely to sell according to the methods in which you train your in-house sales representatives, even if you offer them training.
• May sell other products. Hiring a sales agent may result in your products being sold by someone who also sells goods and services produced by other companies in your area. If these other companies are running a promotion or increase their commission, you might find your own sales suffer due to a reduced focus from your agents - something that is out of your control.
• Dilution of brand and product message. As the number of independent sports retailers continues to decline, so does the number of doors available for an agent to sell to. The result is many agents are carrying more brands to maintain their income levels and inevitably will dilute the brand and range messages by picking the winners from each brand they represent in a bid to maximise sales.
• No long-term strategy. Since the agent is working independently, they may not buy into your company/brand strategy as they continue to maximise short-term opportunities to maintain their revenue.
• Conflict of interest. As more brands push their product ranges into new areas, agents are finding that their product ranges may be in conflict. In the short-term, this can cause market confusion. In the long-term, it may result in the brand terminating the agency agreement and thus having to find an alternative solution.
• Who drives key account business? Some argue an agent cannot represent the supplier at key account level, as many of the decisions taken have much broader business implications, at which point a senior staff member needs to be involved.
Hiring a sales agent instead of a sales rep can be a wise choice that saves you money and reduces the amount of management work you need to do. But before doing so, you need to understand your own sales objectives and determine whether you can achieve these through a force of sales agents or if they can only be achieved by in-house employees.
Typically, the deciding factor is whether you are willing to give up some control of the sales process in return for lower costs. The more important control is to you, the less advantageous it is to hire a sales agent.