But is really cheaper to higher your own internal people? Surely it depends on how many people Bosch hires but typically I thought it was less expensive to use rep firms than hire your own team. Anyone particularly agree or disagree?
Although with a Rep. Firm you have a guy in a geographic region trying to sell 6 to 15 lines. Sometimes they excel at juggling all their offerings and use one to sell the other. Other times they don't do justice to any of their lines because they are spread too thin with an inability to focus.
That's why I suspect that for companies with broader lines (Bosch has cameras, 3 recorders/VMS (good or bad that's another story), analytics, access control, intrusion, etc.), having their own factory person enables them better control / 'closer to the customer' for all their offerings.
I would think it's all about volume in a territory. The insider accountants would be the only ones to know, but if $500,000 is going out the door as commissions in a territory covered by 2 physical people working for a rep firm, I'd think it'd be cheaper to have those two people on your payrole.
I'm not a manufacturer and sales isn't my thing. That's just a simple guess. It has to be about the numbers.
Age old debate...reps vs. direct. Reps cost about 4-5% of gross field sales. Direct people cost 15% to 22% of gross field sales. Lots of MBA-type documentation of these numbers. But the other main value of reps is that selling synergistic lines drags them kicking & screaming into every market segment of their territories, during which strong relationships/partnerships develop. With a direct sales force, you will always have an empty territory, as field sales people get wooed away by bigger pay offers.
In a fast-changing product environment like ours, reps can very quickly get a manufacturer's new products and programs started, especially if those products touch the non-traditional elements such as IT, datacom, AV, etc. Direct folks have to start from scratch finding potential channels, and many just hang around the distributors, serving just the fulfillment side rather than the initiation side of the sales process.
If direct is really better than reps, there wouldn't be so many reps firms around.
I'm not so sure I agree with the statement that there are so many rep firms around. In my region the rep firms are still around but went from representing brands like Pelco, Speco, Bosch, IFS, Nitek, West Penn, and NVT to representing brands I've never even heard of in the span of a decade. I have not spoken to any of them in over 4 years though they are all good rep firms otherwise.
Age old debate...reps vs. direct. Reps cost about 4-5% of gross field sales. Direct people cost 15% to 22% of gross field sales. Lots of MBA-type documentation of these numbers.
Having been responsible in the past for setting rep and field sales commissions, I don't know that I agree with those numbers.
Ultimately, you tend to back into quotas, commissions, etc. If I have a territory that's producing $5MM annually, I'm not going to pay an individual rep $250,000 (5% of that), and I'm not going to pay a field person (salary + T&E) $750,000 (15% of that). I might expect a field person to earn around $200K, and have another $50-$100K in T&E and sponsorship expenses, depending on the size/area of the territory. The rep firm in that case would probably net around $150,000, unless the product was very very new and still in launch mode.
The problem for reps these days, IMHO, is the Internet. Dealers and Users tend to find the majority of their product info online and the rep is essentially reduced to putting together quotes, rustling up demo equipment, handling "counter days" and things like that. Most reps don't
The other difficulty with reps is in fact the "distance" from the customer, especially if you're trying to enhance or expand your product line. Most manufacturers keep the reps at arms length, and the reps don't always convey all the details back up. So, if you're thinking of launching some new products and you want to have exploratory conversations with some of your key customers you are unlikely to say to your rep firm "try and see what Exxon thinks about a VMS with an Occulus Rift interface".
IMO, reps and direct sales people are really not even competitive in the sense of one or the other, they are mechanisms to use that depend on the size, scale and stage of the company. These days reps seem better suited to startups, niche products or products based overseas where the US represents a decent market but not large enough to make a formal investment in (yet).
Basically, reps are like contractors. You use them when and where needed but rarely are they appropriate for all stages of a corporate life cycle.
It of course depends on what you're selling, but a $5MM quota is not unreasonable for many product lines.
I will admit that that is on the higher end of what a typical RSM type of person might carry, but it's not an "impossible" number by any means.
There are roughly 261 work days in the average year. A $5MM quota is ~ $19K/day. For many lines (higher-end products) that can be a single deal, for some larger lines I've known reps who don't like working any deal valued at less than $30K, but of course that not *common*.
Can a single person maintain an averag of one "average" deal per day? In many cases, yes. Not immediately, it takes some time to build up a pipeline, and that would be in particular regions, not just anywhere.
In this scenario the RSM would also likely have a dedicated or semi-dedicated sales engineer. The SE would be doing a big part of the "grunt" work in making it all happen. But even adding in the overhead for the SE you would come up with less than $500K (10%) overall salary costs for that territory (going back to the original comment in this sub-thread).
Keep in mind the RSM is doing very little direct selling, but is providing the guidance/support/training for those integrators in his/her territory to sell. Those integrators are landing the projects and selling the product. $5MM is not sizable when you consider an RSM may have 3-5 states with 20-50 integrators. With some product lines it averages to one camera per day per integrator to hit the $5MM goal.
Previously Bosch allowed the Regional VP to select either a Rep Firm coverage with Business Development above them or direct sales teams. Most territories with direct employees sold far more than those with Rep Firms. "Most". Rep firms came into play with the acquisition of Philips.
Prior to that DS and Radionics had direct sales teams with a strength in integrator sales and a marginal success in distribution, primarily the DS motion detectors.
Post acquisition the bulk of business came from video and those relationships were retained until they proved unsuccessful or in one case....retired and closed.
Things change. I know a couple of Rep Firms for Bosch they would be crazy to release. I can't wait to see the list.
As for a 5mm territory, I did that amount and more over 10 years ago with a small part of California and Hawaii. My final quota as I recall was just around 8mm.
As for "no direct selling", I would argue that. Getting WITH the dealer and end user was a major part of my day. I closed 1mm in one month, mostly with 3 end users and 2 dealers where I was in constant contact.
Interesting idea from Richard in chat, Dahua might be smart to pick up those reps. Dahua is still trying to figure out how to sell directly in the US and they need help. Might be an ideal combination timewise. But it's Dahua so who knows...
Manufacturers often expect their sales channels to bail them out of poor/dropping sales situations due to years of slow product developement, failure to keep up with trends, and low cost competitors. A new management team is brought in, and their solution often is to fire the sales channel and try someting new, however ill-advised that might be. Rarely are the product marketing specialists and product developement people replaced. After a few years, upper management finds that the new sales team fails to perform to their expectations, having to deal with the same issues that caused sales to drop off in the first place. Then the cycle starts all over again, with new management and a new sales team.
Informative, thanks. Another reason why I don't think full time sales would be my forte. I think I do it well when needed, but I like a little more stability in my employment life, even if I might make more money at it.
Luis...nothing wrong with a career in sales. It can be very rewarding, both in income, but especially in relationships, if you are a people person. There is a lot of documentation about the sales profession, and help to determine if it is right for you.
Remember what Socrates said..."Nothing Happens Until Something Is Sold!"
As a consultant i regularly work with a Bosh rep who was great. Knowlegeable guy. Got information I needed. Always calling me when new items came out. A guy I could count on. If the rep is good, I would prefer him/her over a factory guy. Although the factory guy is usually (or should be at least) very up-to-date on the product its not so good if I NEVER SEE HIM. The rep can also tell you about other products in his line that may be helpful.
Its like anything else: its about the people and the stake they have in the products they represent. It would have been good if Bosch had called a few of the customers or consultants to follow up, but as far as i know, none do. Had they done so, they would have found out, that I had just accepted a proposal for about 800 of their cameras. Part of the reason was because of the rep and his ON SITE support over the years.
Another paradigm change that favored reps was the increasing demand/requirement from their manufacturers to help drive business through the fulfillment channels by influencing end users. In the past few years, most succesful rep firms started adding marketing services to their sales efforts, to influence the verticals in their territories, and to produce detailed reports on both their efforts and the results. These verticals varied by territory, and no single national policy would adequately meet these requirememts. Reps in the Southwest might focus on the oil industry, in the Northeast, education and biotech, in the Northwest, it might be high tech. etc. As a result, a direct salesperson, under these conditions, has less time on the road, and more time doing reports.
Reps went from once-a-month report requiremnts to continuous updates to portals, requiring having multiple personnel in their firms in order to simultaneously sell and report.
As regards the cost comparisons previously mentioned...reps versus direct sales channels, the figures came from "Outsourcing the Sales Function". by Erin Anderson (The Wharton School) and Bob Trinkle (ERA), published by Thomson.