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August 28, 2024
Small and mid-size manufacturing organizations face many challenges when it comes to the question of whether they should employ their own dedicated sales force, rely on external staffing agencies or attempt a “best of both worlds” hybrid approach. There are several reasons a company might choose one method or another, but it often comes down to cost versus control.
Determining which approach is most effective for your customers is critical to building the sales model that best serves them. Establishing your road map to growth requires an important first step: conducting a thorough customer segmentation analysis to deepen your understanding of your customer base.
Customer segmentation is the process of dividing a market into sub-groups based on shared characteristics in order to more effectively customize sales efforts to the different segments. The core steps for such an effort include:
For deploying the right sales team, the key aspects in this segmentation effort are to assess the territory opportunity, workload, and routing considerations. Performing data analysis to assess the territory opportunity helps to right-size sales territories, either geographic or account-based (i.e., sector, revenue size focus), as well as determine how many sales reps are needed to cover these territories.
Workload buildup is about developing an understanding of how many reps are needed to cover your accounts. Routing is an offshoot of this, as it directs sales reps on the desired frequency of touches per account segment, and ultimately per account. Typically, the “A” accounts are your highest volume customers and should receive the most frequent and meaningful visits, calls, emails, and other contacts in order to grow sales, while the “B”, “C”, and other customer segments will likely receive less attention, although high-growth-potential customer segments should, of course, be high on the contact priority list.
In segmenting customers by sales territory, some KPIs will be more meaningful than others. An obviously important piece of data to look at is the revenue generated by a customer, as well as their historical growth trajectory. The product mix the customer purchases, especially if they tend to buy high-margin goods, is another valuable KPI to assess. How a customer is currently being served by a sales rep is also critical, especially when considering resizing, splitting, or combining sales territories. Some qualitative factors also come into play - like how much of a product line a dealer or retailer may carry, how “close” the customer is to the business, or other factors that may make them a dealer of choice.
Once a sales-centered customer segmentation effort is complete, a business can begin considering whether it should retain its own in-house sales team, use independent agents, or attempt a hybrid approach that uses both.
Advantages of using independent sales agents include:
Known disadvantages of independent agents are:
One well-known brand took an interesting approach to managing its independent agents. Initially a family-owned business, the company grew over the decades while using independent selling companies in lieu of a captive sales force. When private equity purchased the company, there were concerns that it was overly dependent on independent agencies for its growth and that commission costs were growing faster than the company’s revenues. Additionally, the company dealt with 10 agencies that were generally small and focused on a particular region. Following a review of each agency’s territory and its segmentation analysis, the company negotiated lower rates with the two most effective agencies and consolidated all of their territories under them. The most critical retail customers were then supplemented by a new direct sales channel.
Midsize and smaller manufacturers in need of widespread sales coverage can benefit from a hybrid approach that uses a dedicated sales team supplemented by independent sales agents. However, doing so may require additional management resources because the two types of sales reps need to be managed differently – the internal sales team can be directed more easily as employees who can be taught how to represent the brand, train and follow the sales process, and provide customer service, whereas external reps need to be approached in more of a motivational and transactional fashion.
Choosing which sales agent model works best for your company is a challenging process that should be revisited periodically as your company, industry, markets, and customers evolve. Effective customer segmentation that helps you develop a deep understanding of your customer base is a critical input that is too often overlooked when setting the sales rep strategy.
