Many B2B sales professionals dream of leaving their 9-5 jobs to set up a business for themselves. However, that’s where it ends for most: as a dream.
Not only can self-employed sales professionals earn significantly more than salaried employees, you’ll also enjoy a significantly better work / life balance.
However, making it through your first year successfully is often the real indicator of long-term success. This is especially true if you have existing financial and personal commitments along the way.
Are you currently considering becoming a self-employed B2B sales representative or Manufacturer’s Rep? Or are you already in the process of making the transition and would like to avoid making the most common mistakes that can mean the difference between success and failure? If so, then this complete guide will take you step by step through the process so you don’t fall where many have before.
Why Do Sales Professionals Choose To Give Up A Salary And Become Self-Employed?
The very first question you need to ask yourself is why you’re considering giving up the safety net of earning a salary in-place of becoming self-employed and essentially working on a commission-only basis.
To put it into perspective, every single entrepreneur who has ever started their own business, regardless of the industry they operate within, technically works on a commission-only basis.
It’s quite simple: When an entrepreneur starts their own company there’s no one to pay that person a salary to do so and if there was, we’d all be doing it. Instead, a business owner earns their money from the profit of the sale of their company’s products or services.
When thinking about the reasons as to why someone chooses to give up a salaried job in favour of starting their own business, there are a number of reasons including earning more money and or living a better work/life balance. In the case of self-employed B2B sales reps, the same is true.
Solo vs. Sales Rep Agencies
The first thing you should think about is whether you want to go solo, join or start a rep agency. Each of the following has advantages and disadvantages:
Solo Sales Reps
If you enjoy working entirely independently, and you’re great at making decisions alone, then becoming a solo sales rep may be the best route for you.
A solo sales rep needs to manage every aspect of their business, including finding company principals to contract with, negotiate commissions, set up their territory development strategies, generate leads, stay up to date with non-product specific training and development (company principals / Manufactures provide product-specific training).
Solo reps need to think strategically about what product/service lines they take on and consider the long and short-term risks of working with each company principal.
Sales Rep Agencies
Some independent reps instead choose to join a sales rep agency.
A sales rep agency takes care of a number of aspects such as finding the Manufacturer or company principals they represent. The agency would also manage the principal relationships, build-out and execute territory development strategies, negotiate commissions and ensure timely payments come through to their reps.
They would often organize ongoing training and be the point of contact between you and the Manufacturer or company principal you’re selling on behalf of day in and day out to your clients.
As an independent agent working with an agency, you would likely take a smaller commission or pay a rep agency fee than if you managed the relationship with the company principal directly as a solo rep. The rep agency is usually highly specialized and holds multiple non-competing but complementary lines.
It’s a natural progression for some experienced solo reps who have built substantial industry contacts and a strong reputation with their book of business to consider expanding and starting their own rep agency down the line.
Banding, together with other independent sales or Manufacturer’s reps, allows you to expand to larger territories and earn income by providing the above-noted services.
Consider The Sales Cycle Of The Products / Services You Sell:
Ideally, you want to build yourself a diverse sales portfolio of non-competing yet complementary products and services with a varying range of sales cycles. You would split your time against three categories in a robust portfolio—short, Mid and Long term cycles.
Remember, you no longer have the safety net of being paid a regular salary; therefore, starting off by chasing high-value products/services with mid or long-term sales cycles means you may not be able to eat or pay your rent/mortgage for months while you’re nurturing your sales leads.
The early days are a massive test for all self-employed professionals, and this is where so many people fail.
Avoid a ‘get rich quick’ mindset and realize that you’re running a business that takes time to mature.
You WILL earn less than your current job pays Initially but the pay-off down the line can be huge
Focus your attention on getting what we call ‘bread and butter money’ These are shorter sales cycle products and (or) services that pay out fast and help you meet your monthly expenditure.
Start by securing a few sales that pay a monthly recurring commission…
Start by finding sales opportunities from companies whose products or services have a short sales cycle and ideally provide recurring commissions on repeat orders.
Securing a relationship with a company principal that provides recurring commissions for the lifetime of the client ensures a greater sense of security, as you start the beginning of the next month with a repeat of the sales you made in the previous month and each month, this income compounds as you bring on more and more clients.
These sales opportunities are typically available from companies that offer products or services to their clients with automatic or low touch repeat purchases each month, for example, in retail, insurance, consultancy or Software-as-a-Service (SaaS).
Although, you should also expect and agree that any company you work with, pays a commission on every repeat order placed by the clients you bring to them.
It will take time to build a solid sales pipeline and earn a sustainable amount of recurring commission, so start small and work up. At the very start of your time in self-employment it’s be better to close twenty sales quickly, that pay recurring monthly commissions of $100 each than chase one high-value sale that could take a year to close and offer the same amount of commission at the end.
Once you know you can pay your bills and put food on the table, it’ll give you the confidence to invest more time into selling products/services that may take months of nurturing to close but have very high commission rewards at the end.
It’s good to have at least one line that pays out bigger yet less often in the long term. However, take a staged approach to this.
Build A Diverse, Non-Competing, Yet Complimentary Sales Portfolio
When deciding which companies to represent, think about how their products and services fit with your existing experience and hopefully, your network of clients and contacts. If you don’t have an existing network, consider the following as a starting place:
- Which industries are you experienced selling into?
- What kinds of products or services are you passionate about selling?
- What kind of people would you want to speak to each day? (i.e. Founders, Directors, Small Business Owners, Marketing Executives)
- Who do you already know that you’ve done profitable business with in the past?
Your network, i.e. your relationships, are the assets in your rep business. Your ability to sell multiple products and services to the same people is what will differentiate you and ensure you’re building a profitable business year in and year out.
Let’s break this down in more concrete terms to help deepen the learning:
You want to consider what problems your network face, so that you can present multiple solutions to them.
Let’s say you’ve left full-time employment in software sales where you spent ten years selling to IT Directors. You know this market inside and out. Ideally, you’ve already solved many big problems for your clients and have a great relationship with these people and know their company’s pain points and needs.
The goal is now to find other products or services you could present to them to solve other problems they have.
Perhaps they need business consultancy, a CRM system or even outsourced staffing options. If you’re not sure, why not pick up the phone and reconnect, let them know that you’re going independent and you’d like to help them solve other problems they are experiencing. Get a sense of what challenges them day-to-day. What’s on their radar over the next 3, 6, 12 months.
Always be networking. Let your contacts know that you can source what they need even if you currently do not represent it. Carry out all of the due diligence on their behalf to save them time and resources.
When one of your clients approaches you saying they need a particular product or service, you can contact companies — using a platform like CommissionCrowd — to supply them and then negotiate a referral commission for making the introduction.
Once you understand this, it will be easier to rep the products and services that will be most beneficial to your network, and it will be easier for you to grow your network to include more of this type of individual.
Since you’re just starting out, only taking a commission after the sale has been completed can be a good way to put your clients at ease and allow you to win some big contracts.
Sales Rep Contractual Agreements
Never start selling for a company without a mutually beneficial contractual agreement in place. An Independent Sales Rep Contract lays out the terms of your working partnership and is there to protect both you and the company principals you represent.
It’s a good idea to discuss and agree on high-level details such as Territory, Commission-Structure, Payment Terms, the Agreement’s term, cancellation of the contract, what happens in the event of a dispute over commission payments and any other information that is important to you before signing an agreement.
When negotiating and calculating sales commission rates, you should present your case for a higher commission percentage depending on the strength of your networks and experience in sales.
Just remember, you’re incurring expenses while prospecting for business and should be rewarded adequately for your efforts.
Using a service like CommissionCrowd allows you to manage the signing and storage of all relevant contracts with company principals.
Many company principals will have already invested in drafting an Independent Rep Agreement and will send it to you with all the details you discussed in your negotiation meeting. If you would like to speak to an international rep attorney, we can highly recommend speaking with:
Thomas J. Kammerait at von Briesen & Roper, s.c., Direct: 414-287-1413
Key Considerations Of A Typical Sales Rep Contractual Agreement
DISCLAIMER: This overview is intended to be a resource for use in developing an agreement between an independent sales representative (“Rep”) and manufacturer/supplier/principal (“Principal”). The following are typical provisions appearing in such agreements and related planning considerations. This overview is provided as Informational Only and is NOT intended to be legal advice, and we strongly recommend consulting an attorney or other advisor to discuss your specific needs.
- Necessary to clearly define the exclusive Territory for which you will be responsible as the Rep.
- Consider house accounts, customers, states, counties, postal codes, or any other method that allows the parties to identify your Territory scope as a rep. These are typically attachment to the Agreement.
- PRODUCTS AND SERVICES
- Clearly define the Products (or Services) covered by the Agreement. Usually all Products the Principal produces unless otherwise specified.
- Noncompetition: Reps usually agree not to represent products or services directly competitive with the Principal’s Products in the Territory. Often more specifically identified in an attachment (e.g. specific competing manufacturers or products).
- Typically a fixed percentage of Net Invoice Price (Total price invoiced to the customer, excluding (i) invoiced shipping and insurance costs, (ii) sales, use, and excise taxes, and (iii) tariffs, duties, and export fees).
- May include a table of commission rates or sliding scale.
- COMPUTATION AND PAYMENT OF COMMISSION
- Commission typically earned when order is shipped and invoiced (common exception for transactions utilizing progress payments).
- Payment made by the 15th of the month following the month Commission was earned or sooner.
- Adjustments for authorized returns or if customers fail to pay.
- CONDUCT OF BUSINESS / RISK MANAGEMENT
- An indemnification by Principal for product liability issues or failure to comply with applicable law.
- Any samples or demonstration materials that will be supplied by the Principal
- Documentation required for quotes and accepted or rejected offers.
- Each party will typically agree not to solicit employees of the other party for employment during the term of the Agreement and for a specified time following termination (usually one year) unless the other party’s consent has been obtained.
- Typically a specified initial term (6 months to 5 years, varying by industry), with auto-renewals unless notice of non-renewal is given (typically within 90 days of expiration).
- Termination for cause
- Bankruptcy or reorganization
- Breach of the Agreement beyond a specified notice and cure period (typically 14-30 days)
- During the termination period, Rep can continue to attempt to solicit orders and close existing business. The Rep can interview new principals and receive training (but not solicit orders for the new Principal), and the Manufacturer can interview and train a replacement rep.
- RIGHTS UPON EXPIRATION/TERMINATION
- Rep receives commissions on orders received before the termination or expiration period (or periods added per the agreement or industry standard), without regard to the shipping date.
- Negotiated post-termination commissions for an extended period to compensate Rep for relationships developed during the term.
- Negotiated post-termination/extended commissions on specific blanket orders and reorders, requirements orders, annual or multi-year orders, and follow-on agreements.
- Audit rights are essential so that post-termination commissions are properly paid.
How To Choose Which Companies To Work With
It’s important to put thought into the companies you choose to add to your sales portfolio. Here are a few vital factors to consider:
Is the company established?
While it is possible to work with early stage startups who’s products or services interest you, we would recommend choosing to work with companies that are already established when starting out.
There are two main reasons why this is important:
- Firstly, you want to work with companies that have product/market fit. Since your first year is the most important when starting on your journey into self-employment, you should know that there is a real need for the products and services you’re investing time into selling.
- Companies that aren’t well established may have scaling issues and might not be able to service your clients effectively.
That doesn’t mean that down the line - when you have established yourself and have a good recurring income - you can’t choose to invest time into working with early stage startups whose products and services interest you.
Does the company have case studies and client testimonials?
Being able to present good case studies and positive testimonials from happy customers is vital to the sales process. This is another reason why working with very early-stage startups should be off-the-cards for you in your own early days.
Try to represent companies that have built up strong client case studies and testimonials to support your sales efforts.
Remember, you’re also incurring your own expenses while prospecting for business, so you should make your life as easy as possible at the start.
Does the company invest in marketing and have a good presence both on and offline?
Another important factor to consider is whether the company you’re interested in working with invests in online and offline marketing.
Having a good brand presence and being seen as leaders in your industry is important when inspiring confidence in your prospects.
Working with companies who have a very limited presence compared to their competitors will likely make it harder for you to generate leads and close business with your prospects.
Do they understand how self-employed sales professionals operate?
Probably one of the last things you’ll think about is ensuring that the companies you work with understand how you operate as a self-employed sales professional.
Remember, you’re not unemployed and working on commission-only out of the goodness of your heart.
You’ve chosen to go into business for yourself.
Companies should understand that you aren’t their employee and that their company will make up a part of your wider sales portfolio.
They can’t demand you work from their premises, and you shouldn’t have strict targets to hit unless you’re being provided with warm leads.
They should value the introductions you can potentially make into your networks and the experience that you’ve built up over the years.
Anyone who treats you as cheap or free labor should be brushed aside.
The Benefits To Companies When Working With Independent Sales Representatives
We’ve discussed the benefits of self-employment and thought it would be a good idea to end this article by giving you an insight into the many benefits that companies enjoy when working with independent sales representatives.
This will give you a good understanding of the true value you bring with you when agreeing to a working partnership from a company’s perspective.
It also doesn’t hurt to use these facts when negotiating your commission either.
- Limiting upfront expenses:
Probably the most obvious benefit of working with B2B commission-only sales representatives is that companies don’t have to pay the upfront expenses that employees receive.
You represent a hugely cost effective and efficient route to market.
The company saves a fortune on office expenses, company cars, salaries, holiday and sickness pay.
- Missed sales quotas:
According to Narrative Science, missed sales quotas among employees are “an epidemic”.
SalesForce also estimates that 57% of sales reps will miss their quota again this year.
Hiring employees is a huge and risky upfront expense with no guarantee of a return on their investment at the end of it, while partnering with freelance sales reps and manufacturer’s sales reps has only upside.
- Reduced churn rate:
Did you know that the sales industry suffers from one of the highest annual employee churn rates out of any industry?
The industry standard is a staggering 34% while one in ten companies suffer from sales employee churn of 55%+.
Given the time and expense of training sales employees while paying their salary before they even start selling, you can see why many companies are opting to partner with self-employed sales professionals.
- Benefits of your experience and networks:
Working with freelance sales reps gives companies a much faster route to market for their products and services.
Given that your networks and contacts come with your experience, adding their company to your portfolio means that doors open for them much faster than hiring employees without networks or the experience you bring.
- Wider talent pool:
Most companies are restricted to working with sales employees who are either already located close to their offices or the few that are willing to sell up and move.
This severely limits the sales talent available to them and reflects in the overall performance of the company. Imagine how different your favorite football team would be if they could only rely on local talent.
Teaming up with remote working sales professionals enables companies to build a far superior sales force when not having to rely solely on local talent.
- Improved reach:
Continuing on from the last point, if a company wishes to expand into new territories the upfront investment in doing so is huge and prevents many from doing so.
This stifles growth and hurts the company’s bottom line. Purchasing office space in the territories they wish to enter and all of the other expenses that come with hiring employees to fill them are unachievable or take years to implement.
Partnering with self-employed sales agents in those territories eliminates those problems.
When Intel bought Digital Equipment Corp’s semiconductor business, they used independent sales reps to sell three lines of products into markets where its in-house sales force had no experience or contacts.
Good luck in your journey to self-employment!
I hope I’ve been able to give you the insight and confidence to make the first steps into self-employment a little easier for you.
Just remember to start slow, choose your portfolio carefully, and the sky truly is the limit.
I’d love to hear your success stories so feel free to visit us over at CommissionCrowd and let us know how you get on! Good luck!