• by February 8, 2002

In times of recession and/or cost cutting, the use of outside sales representatives or agencies typically increases. In 2001 alone, Intel, Texas Instruments, Cirrus Logic, Motorola, Phillips and Hunt Wesson shifted from in-house sales forces to outside sales agencies for some or all of their major product lines.

There has been a similar contraction in in-house sales operations for Internet content producers and service providers particularly as prices for advertising inventory have plummeted and diminished operating cash has targeted the high overhead costs of maintaining an internal sales operation.

“Most of the major media companies including network TV, radio and a good many magazines originally started with internal sales forces but over the years, market conditions similar to last year, made them take a closer look at outsourced solutions,” says Adam Guild, Chairman of online rep firm Interep Interactive. “They have discovered that outside sales force can achieve better economies of scale resulting in lower cost per sale and more profitability.”

Erin Anderson, a marketing professor at INSEAD, the international management education institute, and Leonard M. Lodish, a marketing professor at Wharton, contend that outside sales agencies should flourish regardless of the economic climate. The two have collaborated on research that studies how to get the most out of an outside sales force consisting of employees "who don’t report to you, don’t take orders from you and in general can’t be managed the way your own employees are managed," Anderson says.

The payoff for a productive relationship with an outside sales force can be substantial. According to Anderson, properly handled outside sales representatives will not just work hard to sell your products, but can provide you with important information about the market in general and your competitors in particular.

“Outsourced sales operations can help publishers focus on their core business: content. To split one’s focus can be deadly,” adds Guild. “Moreover, reps and agencies can create and package better deals in less time and thus have more time to develop new-business leads.”

THREE CRITERIA FOR SUCCESS

Anderson and Lodish say there are three major criteria for clients to have successful relationships with their rep firms:

1) Make your product(s) financially interesting compared to the rest of the agency’s clients.

The two professors have worked out the time split that would maximize an agency’s profits. "We asked the following question: If we were the owners of this agency and all we wanted to do is make as much money as we could, what amount of time should we give each product? What time spread would give us the optimal return? The optimal return goes up if one product line offers a better commission to the sales force. It goes up if one hour spent selling that product gives the agency more volume than one hour spent selling something else. The optimal return goes down if an hour spent selling doesn’t lead to many sales or if the commission rate is lower."

The important thing to remember, Anderson says, is that "sales agencies are run by good managers with a good nose for where the money is. Some manufacturers don’t think sales reps have the brains to figure that out. They do."

2) Communicate with the agency

Clients who listened as well as talked were successful in getting a rep’s attention, which resulted in two payoffs – more of the rep’s time and more information from that rep on the market. "One of the reasons many companies don’t like to use an outside sales force is because they say they can get market reports from their own people. But a lot of inside people don’t take the time to make those reports, while many outside agencies do," Anderson says.

3) Synergy

An outside sales rep will make up a portfolio of products that are complementary, but not competitive. For example, the rep will sign up a paper manufacturer, a desk supplies manufacturer, a printer manufacturer and so forth, so that he or she has one brand in every product category. When the sales rep calls on an office products buyer, the rep covering this market has the advantage of a full product line that not only increases sales for him and his client but also ensures better access to the time-challenged buyer. "A sales rep can leverage off the fact that he is the trusted source of information for a whole slew of products. He sells more products and provides a service to the buyer," says Anderson. Synergy, she adds, "means your line fits in well with the other lines. The more your product has synergy, the more time you will get from your rep."

“Websites or radio or television shows with a limited amount of traffic/audience can benefit from being part of a rep firm’s vertical category that matches up with their content and/or traffic demographics,” says Interep’s Guild. “We have had several small and powerful sites get turned down on their own because they do not have the mass to be included in a buy, but when presented as part of a vertical, more mass reach buy, they are transformed from nonsellable to fully marketable.”

OUTSIDE SALES AGENCIES MAKE SENSE

After more than a decade of research into this field, Anderson is more convinced than ever that outside sales agencies, if managed properly, make sense for most companies. Yet even companies that sign on with agencies "are almost apologetic about doing it and, in fact, tend to misuse them. And when they misuse them, these clients then turn around and blame the sales agency rather than themselves or their product."

Ironically, even when outside sales forces are doing well, companies will use that as another excuse to discontinue them. "One of the most common reasons a manufacturer will ditch the rep and go direct is because the rep is doing a great job," says Anderson. "The manufacturer thinks, ‘Wow. We could do even better if we had our own people.’ It’s the fundamental attribution bias: You blame external forces for all bad news and take credit for all good news. So reps are in danger of losing business if they do well or if they do badly." What some companies don’t realize, adds Lodish, "is that outside sales reps are often more motivated than the internal sales force. They know more about the market and they are hungry for the business."