Pros and Cons of Different Sales Models

A Basic Checklist for Starting a Business
July 6, 2018
Start an Instagram Account Now!
August 16, 2018

Pros and Cons of Different Sales Models

As a Food and Beverage manufacturer, or most manufacturers that have a product to sell, there are primarily three different sales models to bring your product to market. Let’s discuss the pros and cons of each, so that you can make an educated decision on which to choose. Choices will also be made based on your stage in business, startup or existing business. I’ve been involved with both stages of a manufacturing business and can share from my personal experience.
The stage primarily used for startups is the direct selling model. This is where you as a owner, solicit customers directly. I believe as a startup this is the best option. No one understands your product better than you or can share the passion for starting the business. This sharing of passion will be what allows you to obtain your first orders. When I founded my brewery, I did have sales experience, therefore I was the one visiting the local restaurants, markets and bars. If as an owner, you have no sales experience, which is quite common, this also allows you to learn this important aspect of the business. Once learned, you will be able to hire and manage other salespeople, as well as better understand the other models.
As a founder, wearing multiple hats, this direct selling model can be challenging and time consuming. You will most likely have experience in the product you are manufacturing and will want to spend your time here as well. I firmly believe, getting yourself in front of the customer will also allow you to get critical feedback on your product. You are also the one that will understand this feedback best and be able to make necessary changes. Sorry founders, no one said a startup was going to be easy. After some time, you could hire someone part- time or full-time, to help you with sales or go to one of the other models.
The con of hiring your own salesperson or persons can be expense. Often at the beginning you won’t have the revenue to justify it. You will have to make some financial projections to determine how many items your salesperson will need to sell to cover their cost. Then using market research, determine if this is a realistic solution. The benefit of hiring your own direct salesperson is the control and focus. A direct employee can be better trained and managed. Obviously, you as the founder will need to do the managing and training. If the person you hire has sales experience, you will most likely only have to train them on your specific product. They will understand the sales process and can be a big asset for your business.
The second sales model would be hiring a representative (rep) to sell your product. This is often an experienced sales person who has a line of products they sell from a variety of manufacturers. They often don’t have a warehouse and just solicit and receive the orders. You as the manufacturer, would handle the shipping or delivery. This can be an inexpensive alternative. Typically, they are only paid on the orders they bring in. There may be some base pay needed to convince them to take your product, however if you have a great product, this can be waived.
I used reps exclusively when I expanded the material manufacturer I worked for into the Asia market. Because of geography, language and culture, I needed someone local to sell the products. Hiring a direct employee in each Country would have been cost prohibitive, especially at the beginning. I found reps that were selling similar products, not exact competitors, into similar industries. This way, they knew the customers we were interested in selling to and made it easier to get an audience and gain legitimacy. The reps were happy to obtain another product to sell and this model worked very well.
The negative of a rep is the control and focus. The rep doesn’t work for you and therefore has his or her own agenda. If they are lazy or inappropriate, this can affect your potential customers. The reps goal is to make money. If you can provide a good product, good training and excellent customer service, he will sell it, make money and be happy. Treat your rep as you would your direct customer.
The third model is a variation of the rep model, the distributor. The difference between a rep and a distributor is that the distributor has a warehouse and inventories your product. This works well when it is important that your product be available in inventory at a local level. I have used distributors a great deal, both at my brewery and with the two prior companies I worked for. Often, distributors are larger and more established companies than reps. They usually have multiple salespeople in a given area, and can make a bigger impact.
Distributors, being larger, often sell competitive products. This was a big negative factor for the brewery business. Convincing the distributor’s salespeople to sell your products over another breweries. Individual breweries would offer financial enticements to individual salespeople to sell their product, above and beyond the agreed to discount. I often went with smaller distributors, so that I would have a better chance of getting them to sell my products. This could backfire as well, one of my first distributors closed down because they were too small and couldn’t compete.
A more established business looking to expand geographically should look at distributors. After being established with the distributor for a while, adding a direct person to a geographic area can help in training the local distributor and participating on more joint customer visits. This added control of a direct employee, can influence the distributor in a very positive way. The distributor likes it as well, because they now have a local contact that can assist them in growing the business.

Bill Riegler is a Sales and Marketing Consultant, bill@SandMguru.com