Did you know that when Intel bought Digital Equipment Corp’s semiconductor business, they used independent sales reps to sell three lines of products into markets where its in-house sales force had no experience or contacts?
As Steven Hamm from Bloomberg’s Businessweek noted:
“Companies are willing to outsource their back office operations. So, why not the salesforce?”
So, if you're considering working with freelance (self-employed) sales reps who work on a commission-only basis, or are a sales rep interested in becoming self-employed, this article will give you 12 interesting facts about the commission-only sales industry that you probably weren't aware of.
This article is brought to you by CommissionCrowd - The home of independent sales
1. Independent Sales Professionals Provide A Faster Route To Market
Self-employed (commission-only) sales reps are typically able to provide the companies they represent with a much faster route to market than in-house employees can. This is true for the following reasons:
Agents typically have existing networks of clients that they already do business with on a regular basis. This means more opportunity for your company's products or services to be presented to a customer base that already know, like and trust the agents they already do business with.
Your company's products or services will make up a portion of an agent's sales portfolio. The purpose of a portfolio full of non-competing, complementary lines gives reps the ability to up/cross sell on every client interaction.
Independent sales reps are exactly that, independent. While your company may be based in one particular geographical region, having a number of partnerships with a network of agents who are spread out across different regions, means your company will have a much greater reach than relying on an in-house or local sales team.
2. Freelance Sales Reps Are Entrepreneurs
Sales professionals who decide to break away from the constraints of employment and being restricted to working exclusively with one company in return for a salary, set up their own rep agency because they are entrepreneurial. Self-employment in the sales industry is no different to any other kind of business owner.
The word 'commission-only' still very much has a stigma attached to it for those not in the know. These negative connotations are usually associated with the old school door-to-door salespeople who would annoy you while eating dinner or the fake pop-up companies that take advantage of vulnerable young people by sending them from business to business selling poor quality merchandise.
In fact, the truth is that the majority of independent sales reps are seasoned sales professionals who have a desire to work for themselves and run their own business.
Self-employment is not a new concept. Anyone that decides to go into business for themselves – whether it’s the owner of the local grocery store, a lawyer, an accountant or the CEO of a Fortune 500 company – technically works on a commission-only basis. This is simply because there is no one to pay that person a salary for doing the job of running their own company and if there was, we would all be doing it. Instead, a company owner receives a share of the profits on the sale of the products or services that they or their company provide.
There is absolutely no difference in this rule when it comes to an independent sales rep that has decided to break away from the constraints of employment and start their own business offering sales as a service in return of a percentage of the sale value once the business has been closed.
The reality is that most freelance sales agents go into business for themselves because they have many years experience in their field, have built up a large number of contacts and no longer want, or need to work in a job for someone else.
3. Sales Reps Prefer To Work With Companies That Provide Warm Leads
While many sales freelance sales professionals have existing networks of contacts that have been built over the years, agents also appreciate being allocated warm inbound leads to supplement their efforts. Closing sales is an independent sales rep's forte and passing them warm leads will set your company apart from competitors who don't supply leads.
Reps also expect the companies they work with to be investing in solid Marketing strategies the further the awareness of the brands that they work hard to promote. Having a solid inbound lead strategy demonstrates this.
That being said, having a warm inbound lead generation strategy that works is obviously a hugely important factor in the success of a company in general. In fact, the lead generation strategy we developed in-house to further CommissionCrowd's success in a highly competitive industry, saw our business 10X in less than 12 months. We took those generated leads and passed them over to our independent sales team who are consistently happy with our contribution to their sales pipeline.
Here's a link to the inbound lead strategy we use to generate in excess of $6M of warm inbound leads for our company and sales agents per year: Inbound Lead Generation: The $6M Strategy
5. Commission-Only Sales Reps Build Diverse Portfolios
Agents rarely work with one single company at a time and instead prefer to build portfolios of products and services that complement each other. The reason that reps do so is because a diverse portfolio presents more opportunity for multiple sales on every client interaction and maximizes the commission earning potential of reps. Being part of a rep's sales portfolio also maximises the exposure your company's products and services.
Bottom line is, while you can absolutely expect your sales partners to properly work the leads they are given, it's a mistake to assume that you are the only company they will work with.
6. Reps Prefer To Work With Established Companies That Have Achieved Product/Market Fit
While some freelance sales professionals will be happy to get involved with startups that they truly believe will be successful, reps generally tend to work with established companies whose products/services have product market fit, a proven sales process and client case studies.
It's important to remember that freelance sales agents incur their own costs while prospecting for new business and developing territories and as a result, prefer to keep risk low and reward high.
7. Agents Expect To Be Paid Residual Commissions For The Life Of The Client
It's important to remember that commission-only sales reps not only work without being paid a salary, they also incur their own expenses while prospecting for new business and developing territories for the companies they partner with.
'Partnership' is the key word here. Agents will regard the business they bring you as theirs and will expect to be compensated accordingly. The biggest mistake a company can make is not paying residual or recurring commissions on repeat business, that includes any client that pays a retainer or monthly subscription for the service they've been sold.
Remember, you're not the only company out there looking for commission only sales reps. You have to be competitive and the most fundamental expectation a freelance sales person will have, is to be paid recurring residual commissions on closed business.
8. Where Does Your Company Fits In A Rep's Portfolio?
There are two approaches a company can take when looking to work with independent sales reps. The first is to find reps that have an active interest and experience in the industry you operate in. These agents will usually have existing networks of clients that can be quickly introduced to your company's products or services and provide a fast go-to-market strategy.
The second is to make reps - who may not actively sell in your space - aware of your company and ask them to keep an ear to the ground for potential opportunities that may arise from time to time. Let them know you're happy to pay a referral commission for simply opening the door to a new client.
For example, an independent manufacturer's rep will be in and out of their client's physical premises on a daily basis. Perhaps that person specialises in selling a specific type of industrial component but while speaking to their client, catches wind that they are in the market for an upgrade of their company's accounting software. That agent then has the opportunity to refer across a company that can provide this software and make a commission for simply opening the door.
The key takeaway is to be fairly broad in your approach when looking for outsourced salespeople and offer to pay referral commissions to agents who may not be interested in selling your products/services full time but may be able to open doors for you. Put your company on their radar and ask them if they'll be happy to keep your products/services in their 'pocket' for when the time comes.
9. Freelance Sales Agents Are Not Your Employees
The BIGGEST mistake you can make is treating self-employed sales reps like they are employees. Your company will make up part of their wider portfolio which presents more opportunity for multiple sales to be made on every client interaction. While it's perfectly reasonable to expect that an agent works the leads you provide, you should never expect an agent to work set hours, from your company premises or attend daily/weekly meetings. Your employees are your employees and your independent reps are your partners.
10. It Is Not The Role Of A Commission-Only Sales Rep To Build Your Business From The Ground Up
It's not the role of a commission-only sales agent to build your business from the ground up. Your company should be established, have case studies, invest in Marketing, have a solid sales/customer support process in-place and ideally provide leads (although agents that have large existing networks can quickly introduce your company to potential clients and open doors).
If you don't currently have a strategy to generate warm inbound leads you'll find this inbound Lead Generation Strategy very useful.
11. Self-Employed Sales Professionals Are Not Desperate For Work
One of the biggest mistakes you can make is thinking that commission-only sales agents and Manufacturer's reps are unemployed and desperate for work. In fact the very opposite is true.
Instead, independent sales agents typically come from a successful background in sales before breaking away from the constraints of employment brings.
Most freelance sales agents build diverse portfolios and carry three or more complementary product/service lines, giving them the ability to earn multiple times that of traditional in-house employees.
See CommissionCrowd's agent stats here
12. How To Calculate Sales Commissions
Sales commission is the remuneration amount paid to the sales rep based on either a percentage of the value of the sale or on the gross margin.
There will always be a negotiation based around commission levels between the rep and company prior to signing and sealing a contractual agreement.
Typically commission rates for physical products will be slightly lower than those of service providers. This is due to the costs associated with manufacturing physical products being higher than the overheads of a service provider.
Typically we see sales commission levels for manufactured products sit somewhere in the region of around 7-15% on the sale value, or 20-40% on the gross sales margin; which is calculated by subtracting the direct expenses associated to each sale.
On average, services pay a much higher commission percentage due to much lower overheads. You'll see commissions of anywhere between 20-50%+ offered, especially when selling online Software based services for which expenses incurred per sale are negligible.
You might think those figures are high, but what you have to bear in-mind is that independent sales reps not only incur their own expenses while selling your products and services - especially if developing their own territories - but they are potentially giving you access to networks of contacts that have been nurtured over a number of years, and this comes at a price.
Check out our sales commission calculator
This article was brought to you by CommissionCrowd - The Home Of Commission-Only Sales