Alternate Sales Partnerships #3: The Sales Contract

by Tina Burke on October 1, 2010

Alternate Sales Channel contracts are relatively simple in concept, yet complex in execution and long term survivability.

Here’s why: Most companies already have a Direct sales team. People that they’ve hired, trained and provided benefits to and a salary. Those are hard costs that finance knows down to each sales person that they are paying a salary. Companies also know just how profitable each sales deal is, is not – or just how long it will take for a deal to become profitable. Finance takes into account:

  • Marketing – as in trade shows, lead generation or web marketing.
  • Training – any efforts like brown bags or flying people in for new hire orientations.
  • Equipment –  Laptops, Lunches, Cell Phones, CRM licensing, coffee.

The pieces are complex to produce a sale and market research has conservatively  pegged the cost to hire of a new sales person between $200,000 and $250,000. Will they be good and sell something?? Hit the quota that was designed to cover the costs of hiring them?

In addition, just about every department in a company has to provide something in order for that sales person to produce a sale. It gets expensive. We haven’t gone into soft costs of cultural fit. Will this person get along with the rest of the team, be good in front of clients, be dependable, professional and a good representative of the company?

Expensive. Risky. Yet traditional.

What to do? There’s got to be a better way.

You need to go out and find a professional sales team. A group of individuals who understand your product and service and who are already aligned with your client base or the client base that you’d like to have. Find a gun for hire to get the job done.

Cheap. Risky. Non-Traditional.

How to find the ever elusive effective, professional independent sales producing machine?

Let me assure you, they do exist. But it will require a different mindset from Executive leadership, finance and sales to have an effective relationship.

First you need to have a good product or service. Obvious, but true.  It’s going to have already been through testing and you’ll need to have some operational history under your belt. Then you’re going to need a good sales contract from finance.

Finance should be ecstatic to design one for an alternate sales channel team. Here’s why: An alternate channel sales team isn’t costing the company an upfront dime. Finance isn’t paying a per headcount salary before one sale is made. No laptops, no flying in for new hire training. (Most independent agencies will fly themselves in for training if your product or service is good enough, see operational history above.) Agencies have their own CRM software that they pay for to manage their business, their own cell phones and their own lead generation. They bring you clients and relationships that you are looking for without the hard and soft costs.

Second, you need to have a good sales contract for these organizations. Executive leadership needs to recognize that these are clients that you wouldn’t ordinarily have. The end clients are typically well qualified and already trust the sales agent. The sales cycle will be much quicker because the sales agent has already gone through the dating stage and they are making a heavy recommendation for your product or service. They are also going to be self motivated to know everything about your product or service.

Now the tricky part.

How do you pay an independent sales person to sell your product or service?

You can do that as a one – time payment that’s paid after the client has paid their first bill. Its generally understood that with one time payments, you own the client 100% going forward and that you have no more obligation to the sales agent after they’ve been paid. That can be a double edged sword when its time to renew your product or service and needs to be thought out with management.  The second alternative is to pay out a monthly residual payment. If you go this route, make sure that it’s a payment that you can maintain over the length of the contract. Its perfectly acceptable to ask the sales agents perform additional tasks in exchange for a higher commission percentage. For example, sell more deals, participate in renewals and upgrades. This way, you also incentivize  the agent to stay involved and support your client over a long horizon of time without the added cost of customer service. You also avoid the potential of that agent moving your client away to another service provider when the original term is up.

Be prepared to spice things up with your existing sales team. Adding an alternate channel sales team always causes sparks and creates competition. You can design a program that is inclusive or competitive. Inclusive would mean that if both your sales person and the agent were working on a client, then Finance would decide to pay each person. This is a little more work on Finance’s part because they have to factor in the cost of what they are paying their sales people into the deal. An Exclusive plan would essentially mean that whoever signs the deal makes the commission. As you can imagine, this requires a good rule book with a strong sheriff for the town.

Last, don’t play with people’s money.

That means a few things. Make sure that pricing for your product or service is level across all playing fields. Meaning, make sure that the direct team has the same pricing as the agent team. Hold steady. Give everyone the opportunity to make the sale.  If you do promotions, make sure that everyone has access to them to offer to prospective clients. This will make your entire sales channel strong and consistent.

On the back end, don’t ever change commission payments before the term of the contract has ended.  Pay people on time and consistently and make sure that if you hire a new head to take over your sales organization, that s/he takes care of all of the people who have done a  good job for you already.

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