Sales outsourcing

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Sales outsourcing allows companies to attract and maintain a sales force without having to make them full or part-time employees. Outsourced sales groups typically shoulder all or most of the risk by tying their compensation to success, without a base salary or benefits. Sales outsourcing represents a quick way by which service providers or manufactures can access distribution, and is becoming more and more popular.

Background

Full 'sales outsourcing' is observed where companies have an external third party sales force. It is differentiated from value added reselling or distribution in that the business model can be based on shared risk, although there are models where the outsourcer is paid for all of their activity - just as with a hired direct sales force, but the outsourcer provides rapidity, flexibility and experience. Other names for sales outsourcing include 'indirect sales' and 'channel sales'.[1]

Full sales outsourcing is different from telemarketing in that it requires direct recruitment of sales personnel with specific backgrounds for each sales campaign. Usually the sales executives will be part of a team that may include telemarketing, marketing, tools systems and methodologies as well as sales management.

Sales outsourcing firms provide accountability regarding all sales results and activities while representing the brand of the client. For the end-customer, it usually appears as if the sales team sold the product themselves rather than the sales outsourcing firm. The outsourcing firm is, in essence, an extension of the client but is responsible for all operations associated with direct sales activities, often receiving sales engineering and initial product/service training support from the client.

Purpose of indirect sales

The sole purpose of a contract sales organization is to provide sales resource to its clients, without taking title to their products. Sales outsourcing providers include manufacturers' representatives, contract sales organizations, sales agents or sales outsourcing consultants. One way of organising the sales effort, especially when product delivery is erratic, is to replace or supplement internal resources with functionality and expertise brought in from contract sales organisations.

Sales outsourcing is quite different from large-scale service outsourcing, which has its advantages but also requires pro-active contract and relationship management.[2][3] In addition to full sales outsourcing, many partial models are observed, particularly in large firms.[4]

Typical Activities Which are Outsourced

A variety of sales activities may be outsourced such as:

  • outsourcing part of the sales process, e.g. lead qualification or lead nurturing
  • outsourcing management of particular customer segments, e.g. niche segments, geographies or sectors that are difficult to reach or are culturally very different
  • outsourcing of sales of particular product or service lines (e.g. parts, maintenance), or product-related activities such as product launches.

Any of the following may also be considered as partial sales outsourcing or sales out-tasking:

  • Integrating contractors into in-house sales teams for coverage of long-term absences such as maternity leave, or general vacancy management
  • Syndicated sales – where the contracted salesperson presents complementary products from different companies on a single call to a customer

Advantages of Outsourcing

Companies who outsource sales may have a variety of imperatives for doing so. The advantages of lower selling costs feature on the website of the Manufacturers' Representatives Educational Research Foundation (www.mrerf.org) and has been observed by authors, researchers and consultants.[5][6][7]

Sales outsourcing is expected to be cheaper than the fully loaded cost of employing salespeople, but calculating the cost comparison over time is far from straightforward. Nevertheless, replacing fixed costs with variable costs is attractive to budget-holders.[8] However, unlike many forms of outsourcing the advantages of sales outsourcing does not often come from saving costs but rather increasing revenue or providing speed of response or flexibility.

The business case for sales outsourcing should also include consideration of the cost of controlling the contract. Difficulty in measuring the link between sales activity and sales performance leads to a preference for employed salespeople.[9] However, the issues internally are often the same and the internal hire has many other corporate "distractions" that do not occur with external resources.

Companies may also choose sales outsourcing as a means of accessing the best sales skills.[10] Although the pejorative term “rent-a-rep” is still used, there is some evidence that contractors are perceived as good performers against qualitative as well as quantitative performance criteria.[11] Even so, the reputational risk of third parties handling customer relationships has been observed as a factor restricting sales outsourcing.[12] One could argue that an employee is often using a company to gain 2–3 years salary and experience whereas a sales outsourcing firm would usually be looking at a long term contract even though the staff may change during that time. So the aims of an outsourcer can be closely aligned with the aims and objectives of the contracting company.

A recent study has highlighted flexibility as an important driver for outsourcing sales.[13] Uncertain business environments accentuate the need to turn sales resource on and off quickly. Industries and companies undergoing rapid change may need to avoid hiring and firing costs and risks.[14] Contract sales organizations can absorb employment risk, enabling their clients to respond to short-term opportunities or competitor activity. However, an outsourcer may build in more of a premium to the rate or commission if excessive flexibility is required on a contract.

Contract sales organizations are growing in volume and influence, able to provide both tactical activity and long-term strategic support to their clients.[15]

Speed of response is seen as a key reason to use an outsourcer. if a company was looking to enter a market it may take several months to recruit the local manager which then takes several months to find and office and build a team. With an outsourcer, once selected often a full working team can be operational within a matter of days or weeks.[16]

Indirect Sales Growth Rate

The experience of many organizations over the past several years demonstrates that indirect channels can be critical to expanding market coverage. This has been particularly true in the electronics, communications and high tech sectors.[17] For example, the indirect channel now accounts for 66 percent of overall technology sales, up from 53 percent in 1997.[18]

Examples of Indirect Sales Companies

Examples of Sales and Marketing outsourcing Companies include: Some examples of communications companies who employ indirect sales forces to their internal sales efforts include: AireSpring, AT&T, Comcast,[19] Earthlink Business, Integra Telecom, Level 3 Communications,[20] Time Warner Cable, TelePacific, tw telecom, XO Communications, and Windstream.[21][22] Some top sales agencies who sell voice and data services for these carriers include Telarus, based in Salt Lake City, Utah, Intelisys, based in Petaluma, California, and Telecom Brokerage Inc (TBI), based in Chicago, Illinois.[23][24]

References

  1. ↑ Anderson, E; Trinkle (2005). Outsourcing the sales function: The real cost of field sales. Mason, Ohio: Thomson/South-western. 
  2. ↑ Anderson, E; Trinkle (2005). Outsourcing the sales function: The real cost of field sales. Mason, Ohio: Thomson/South-western. 
  3. ↑ Novick, H. J. (2000). Selling through independent reps. New York, NY: AMACOM. 
  4. ↑ Rogers, B (2009). "An exploratory study of the make-or-buy decision in pharmaceutical sales". Journal of Medical Marketing 9 (1): 11–20. 
  5. ↑ Anderson, E; Trinkle (2005). Outsourcing the sales function: The real cost of field sales. Mason, Ohio: Thomson/South-western. 
  6. ↑ Ross, W. T. Jr; Dalsace, F & Anderson, E (2005). "Should you set up your own sales force or should you outsource it? Pitfalls in the standard analysis". Business Horizons 48: 23–36. 
  7. ↑ Landy, E; Pandrangi, J. (June 2005). "Making the most of "feet on the street"". strategy+business. 
  8. ↑ Rogers, B (2009). "An exploratory study of the make-or-buy decision in pharmaceutical sales". Journal of Medical Marketing 9 (1): 11–20. 
  9. ↑ Krafft, M; Albers, S. and Lal, R. (2004). "Relative Explanatory Power of Agency Theory and Transaction Cost Analysis in German Salesforces". International Journal of Research in Marketing 21 (3): 265–283. 
  10. ↑ Anderson, E; Trinkle (2005). Outsourcing the sales function: The real cost of field sales. Mason, Ohio: Thomson/South-western. 
  11. ↑ Anderson, E; Trinkle (2005). Outsourcing the sales function: The real cost of field sales. Mason, Ohio: Thomson/South-western. 
  12. ↑ Weiss, A M; Anderson E and MacInnis D J (1999). "Reputation Management as a Motivation for Sales Structure Decisions". Journal of Marketing 63: 74–89. 
  13. ↑ Rogers, B (2009). "An exploratory study of the make-or-buy decision in pharmaceutical sales". Journal of Medical Marketing 9 (1): 11–20. 
  14. ↑ Downey, J. M. (1995). "Risks of outsourcing - applying risk management to staffing methods". Facilities. 9/10 13: 38–44. 
  15. ↑ Rogers, B (2008). "Contract sales organizations (CSOs): making the transition from tactical resource to strategic partnering". Journal of Medical Marketing. 1 8: 39–47. 
  16. ↑ Poulter, Julian (2005-05-21), "Selling People Ltd", Sales outsourcing alternatives 
  17. ↑ Chugg, Justin. "What is a Master Agent?". Telecom Channel News. Retrieved 10 March 2012. 
  18. ↑ Accentrue, LLC. "A Structured Approach to Reaching New Customers and Growing Revenues". Accentrue. Retrieved 24 March 2009. 
  19. ↑ Oborn, Patrick. "Comcast Solution Provider Program". Telecom Channel Association. Retrieved 4 February 2013. 
  20. ↑ Holverson, Austin (4 February 2013). "Level 3 Debuts New Channel Partner Program; Introduces Tiered Structure and Enhanced Support Resources". Telecom Channel Updates. Retrieved 4 February 2013. 
  21. ↑ Chugg, Justin. "Carriers in the Channel". Telecom Channel Updates. Retrieved 6 March 2012. 
  22. ↑ Holverson, Austin. "T1 Carriers". T1 Channel News. Retrieved 16 March 2005. 
  23. ↑ Henderson, Khali (14 March 2011). "Comcast Agent Program". Channel Partners. Retrieved 14 March 2011. 
  24. ↑ Chugg, Justin (14 March 2011). "Comcast Business Services Enters Into Master Agent Agreement with Telarus". Telarus Industry News Briefs. Retrieved 14 March 2011. 
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