Outsourcing Sales in Europe: Are commission only sales agreements a recipe for disaster?

In todays market, the economic slowdown and the difficulties in raising capital have led many companies to explore new strategies to reach their target markets. Many companies simply do not wish to release the capital to deploy an adequate sales force, and look to outsourcing their sales capability as their strategy for market expansion. There is a right way and a wrong way of approaching outsourced sales agreements.

[LONDON] In todays market, the economic slowdown and the difficulties in raising capital have led many companies to explore new strategies to reach their target markets. Many companies simply do not wish to release the capital to deploy an adequate sales force, and look to outsourcing their sales capability as their strategy for market expansion. There is a right way and a wrong way of approaching outsourced sales agreements.

The Wrong Way

Often companies are tempted to seek out commission only" sales representation - an agreement where sales reps are paid only on the revenue they generate. But there are good reasons for avoiding commission only relationships. Many of the pitfalls associated with commission-only deals include legal, operational and management issues, as well as the cost of a damaged reputation.

On the surface, commission-only relationships may look like a winning proposition. Outsourced sales companies may offer to make products available to a network of sales and manufacturing representatives in the hope that they will promote the clients products. The programme costs the manufacturer nothing as those creative enough to move the product are compensated on their success, or failure, to find buyers for the product. There are, however, serious problems in trying to sell products through relationships such as these. Pitfalls that can end up costing more than most companies realise.

One danger is that commission only sales agents are working on a nothing to lose" basis. They are often inexperienced and, as successful selling of the clients products may take some time, these sales agents can sometimes become desperate for a win and become liberal in their representation of products. Is it possible a sales rep, working for commission only, would misrepresent the products they are selling to close a deal? If they do, the soured customer relationship will be the companys problem. A companys commitment to its customers is key, and when choosing to use commission only sales reps, that key component is lost. There is little or no accountability of their actions.

It can also be impossible to fire" a commission only sales rep for misrepresenting products, since the rep does not really have a job in the first place. All that can be done is to tell them to stop representing the product. For these commission only sales reps, there is very little downside to doing a bad job. This situation can turn marketing coordination into a nightmare.

There are legal and tax-compliance issues as well. In Europe, it can be illegal to employ a person on a commission only basis if that person fails to earn the minimum wage. In most EU member states, the legal definition of a contractor is someone who sets a fixed price for a job in advance, such as a plumber or gardener. It is not possible to get around tax law by calling a commission only sales person a contractor". Anyone who spends the majority of his time working to promote a companys product, with the approval of that company, is legally considered an employee of that company. This means that regional governments can hold the employer of a commission-only contractor" responsible for payment of minimum wage as well as the statutory employer-tax on all employee income, including any commission payments made to the salesperson. This tax presently stands at 12% in the UK and at 45% in France. Should a relationship with a commission only sales person be less than positive, the representative has recourse to sue the company for failing to pay minimum wage for his efforts. Risks such as these can quickly result is spiralling legal costs as well as high tax bills and fines.

The Right Way.

When faced with a small amount of capital to put into sales expansion, companies should consider professional outsourcing based upon low fixed fees with further compensation tied to operational metrics. These kinds of outsourced sales programs do not have to be expensive to be effective and are a great way of controlling risk.

Consider the kind of metrics that can be employed to design a sales program:

Using performance metrics ensures that the program is executed according to the strategic goals set by the manufacturer. For example, the program can be structured such that the manufacturer only pays per number of resellers visited, as well as against improved reseller performance, as a way of eliminating fixed costs associated with the program.

Program metrics can be spilt into two categories; activity based and revenue based. Typically several metrics can be used to make up these two categories. Some examples are listed below:

·   Activity based metrics
o   Quantity of touches (existing resellers)
o   Number of face-to-face meetings
o   Signing new customers/resellers
o   Converting competing resellers
o   Authorise resellers for strategic new programs

·   Revenue based metrics
o   Increase incremental revenue from existing reseller base
o   Improve order mix to include strategic products
o   Improve average order value within the group
o   Improve average order frequency within the group

Using metrics such as these it becomes possible to establish a results-based partnership with the outsourced service provider, minimising the manufacturers risk of paying for a under-performing sales program.

When a company has made the decision to expand their market reach into new territories they can be tempted to ease into these regions with, what they perceive to be, the least cost approach and seek out commission only salespeople. Instead, companies should first speak with a professional sales outsourcer who is knowledgeable of the opportunities and pitfalls the new market might hold and who will be able to guide new entrants into profitable experiences with well-structured sales strategies.

For more information, please contact Consalient, Ltd. ( info@consalient.com )

About Consalient Representation
Consalient offers a First Start sales program that is tailored to the needs of small and medium enterprise and offers effective European sales programs starting as low as 2000 a per month. These programs are designed to position experienced sales persons to promote your products or service in Europe. Creating results based partnerships leverage performance metrics to create sustainable and replicable sales solutions for the UK and EU markets.

Toll Free from the United States 1-888-667-8997, or in the UK+44-208-584-2268.

Consalient Professional Representation
174 Parkers House, 48 Regent Street
Cambridge, England CB2 1FD United Kingdom
From the US: 1-888-667-8997
Global: +44-208-584-2268
graeme@consalient.com
http://www.consalient.com