Author: Nick Evered, COO, Sales Innovation.io
When software companies are considering market expansion, they are faced with a conundrum - is there enough business opportunity to support a full-time sales rep? For simplicity of this example, this excludes all the other supporting infrastructure for sales reps such as business development, marketing, sales management, etc., which will most certainly be required.
So, what is factored sales? Simply put, it is when you only pay for a percentage of a sales rep, say 33%, as a shared resource between a few companies in a trajectory similar to yours. Before you waive off the idea, let’s think through it. For example, you sign a contract for 6 months to pay 33% of the rep’s base salary plus some on-costs. Then, you pay a percentage of an amount on the contracted amount closed by the rep. In this scenario, your risk is only 50% of the base salary of the rep for the contract period. The upside of this model is that you could have a full-time employee who specializes in multiple industries, such as 33% in banking, 33% in Telco, and 33% in services. Alternatively, you have 33% covering Singapore, 33% covering Australia, and 33% in Korea. Furthermore, there is an added advantage of putting fractional business development, fractional sales leadership, and management. The alternative is to pay a full 100% full-time employee with limited capabilities in one industry or location.
Can this work in practice? Yes, provided that some basic guidelines are followed. For one, one rep should not be representing competing products. Better still, they should carry complimentary products in similar portfolios. For example, if the rep represents three products that all fit in a CFO’s area of responsibility, it becomes beneficial to represent all 3 solutions. End customers end up getting more value from the exchange than if the sales rep was a single solution representative. When you think about it, this is hardly new, as account managers in big vendors have been doing this all along.
The trick is to balance the solutions that a factored sales rep sells. If they are trying to maximize their earnings through commissions on closed sales, then a large ticket product (say $500,000 per deal) seems more attractive than something much smaller. All of this depends on the sales cycle and the close rate, and the trick is to balance the portfolio so that relatively equal effort is expended in each solution. This is where first-rate sales management comes in – to ensure a sales model and compensation model with maximum benefit to each solution vendor and maximum value to the end customers.
So, how does this work for a company looking to enter a new market? This is where Sales Innovation.io comes in. We can provide the first 33% of a sales rep in one location and 33% in three industries or countries. Then, when you see the value and volume of your business build, you can add a greater percentage of a factored rep or more factored reps in new markets.
In conclusion, you get to try a market with very little risk but significant upside which is especially valuable when you are trying to balance both growth and profitability.
