Do You Want to Build a 1099 Sales Force but, Don’t Know How?
In today’s business climate, the pressure to drive increased profits while reducing costs has never been higher. One of the ways that companies cut costs is outsourcing business functions to third party providers. This has especially been the case with 1099 independent sales reps. By the year 2021, 1099 reps will account for 60% of all sales teams. This holds true for both product and service based companies.
Before we dive into the specifics on the ins and outs of building a good 1099 sales force let’s first get a good understanding of what a 1099 Sales Representative is and what do they do?
The 1099 sales representative is an independent contractor specializing in selling products or services. In most cases, these reps set their businesses up as an LLC. There are different types of contract reps: the individual rep, 2-3-man rep groups and sales rep organizations with 20 or more people. For every company that has a product or service to sell, there is a rep that specializes in their area. Below are examples of industry specific reps:
· Industrial and Manufacturing
· Engineering Services
· Retail Merchant Service
· Home Décor
· Outdoor Sporting Goods
· Medical Devices
· Contract and Hospitality
Independent sales reps will typically cover a state or a region. How much turf they cover is dependent on the population of the region and the concentration of their target customers in the region. For example, the state of Florida and the Home Décor industry. Florida has a large population and a huge number of interior designers, furniture stores and lifestyle stores. Florida is usually the number 1 dollar volume territory representing up to 20% of sales. It would be very challenging for one rep to cover the entire state. The rep coverage map in Florida could look like this:
· 1-rep for the Ft. Lauderdale & Miami Area
· 1-rep to cover Tampa and Central Florida
· 1-rep to cover Tallahassee and the Panhandle
In states with smaller populations, one rep could cover Iowa, Kansas, Nebraska and Missouri.
There are other industries that have very targeted regionally driven customer concentrations. Companies that work in Manufacturing, Automation or Aerospace, will have heavier rep coverage in California, Pacific Northwest, Upper Midwest and the Mid-West.
Companies hire reps for their relationships, contacts and expertise. Sales reps provide access to the decision makers and help their companies structure sales programs to meet the needs of the customer.
How are independent reps compensated?
Sales reps work on a negotiated commission %. It is based on the sales they generate. Sales commissions vary by industry and range from 5%-20%. Key factors that determine the commissions rate are
· Profit Margins
· Services provided by the rep
There are cases where reps are paid a monthly retainer prior to moving to a commission structure. Here are two common examples, a rep who takes on a new line without any sales history or when the lead-times for new customer acquisition take 12 months or longer.
Why should you hire a 1099 sales force?
There are several clear advantages in using 1099 sales reps to grow your business. Companies greatly reduce the learning curve by hiring experts in their product or field. The independent sales rep gives the company instant access to the decision makers. The 1009 sales force reduces overhead by not paying payroll taxes or benefits. T&E expenses are reduced. Commission payments are based on sales.
Why do companies struggle when building or maintaining a “1099” sales force?
Well, the lines can get blurred. The rep is LLC business and not a direct employee. Sales reps carry multiple lines. They will spend more time on the lines that generate more income for them. This is a hard fact for companies on the short end of the stick to understand. As a result, rep turnover can be pretty high.
Additional problems occur when the culture of a company is not “pro” rep. This thinking usually starts at the top and spreads to every level of the organization creating adversarial relationships. Often times this is because the company feels the rep does not understand their business or margin structures.
The most common challenge when using the 1099 sales force is fit and alignment. This mis-alignment happens when companies hire reps that are not a fit for their business. Ultimately, the hiring process was not in-depth, and the relationship was set for failure from the beginning.
In summary, there are multiple challenges to building and sustaining a successful 1099 sales force:
· Under-performance by the rep
· Company culture
· Wrong fit
What are the best practices in 1099 sales force management?
Let’s start with the most important step in hiring the rep. The right fit. Not only the right fit for the company, but, for the rep. Why for the rep? If the fit is not natural for the rep, it will not work.
How can we determine a good fit? Start backwards with the customer. Remember your customer isn’t necessarily the end consumer. It is most often a business. Second, you should look for products that are compatible to yours. More often than not your customer/buyer will be purchasing these compatible products.
Now, you’ve narrowed your search down to the right type of customer base. Next up, set expectations. A strong sales rep relationship needs clear expectations on both the rep’s side and the company’s side.
Finally, suppliers that excel with the 1099 sales force do so because the entire organization embraces the reps. They view the reps as an extension of the company and understand that the sales reps success is their success.
The company’s org chart is aligned to meet the needs of the rep and the customers. With this structure, the turnover is low and the sales are optimized. There is a culture of sharing and constant improvement. Great companies understand the reps do not drive margin and profits and they do not hold them accountable to that metric. They do everything they can to provide programs, customer service and a secure environment for the rep that will deliver repeat business time and time again.
The 1099 sales force will continue to grow in its importance now and well into the future. On both side there is a tremendous opportunity for growth and advancement. It starts with embracing the concept and putting the infrastructure in place that allow the entire team to thrive.
If you'd like more information on setting up a 1099 Sales Force please feel free to set up a free 15 minute call with me by clicking here. I would happy to share some success stories and answer any of your questions.