Outside Reps or Salaried Sales People?

Many of our clients ask us the same question: “Which works better for an injection molding company: manufacturers’ reps or salaried salespeople?”

This is a GREAT question and our usual answer is: “Well, it depends…”  There are lot of factors that influence the decision, including the size of the company, the industries served, typical product life cycles, financial circumstances and growth goals – both long term and short term.

Most molders understand the benefits of using outside rep firms or agencies.  Here are a few from our perspective:

1. Manufacturers’ representatives don’t cost much initially.
2. They usually have experience in the molding industry.
3. They have a built-in Rolodex of contacts.
4. They pay their own expenses (hopefully!).

But, there are drawbacks to working with outside reps as well:

1. They have other clients/principals competing for their time.
2. They focus their energy and resources on projects with the quickest payback.
3. They are independent and may not take direction well.
4. They may have a hard time fully understanding or grasping your company’s sweet spot.

Full-time salaried salespeople have noteworthy pluses and minuses as well.  Here are the positives in our view:

1. Full-time salaried salespeople are not conflicted in any way and do not have competing interests.
2. 100% of their efforts are focused on developing business for your company.
3. You can train them to target business in your company’s sweet spot.
4. Seasoned salespeople can have established customer relationships that might be valuable to your company.

But there are also a few negatives with salaried people that should be considered:

1. Good salaried salespeople are expensive.
2. Long lead-times for new business could make near-term returns seem very weak.
3. They can be flighty, especially if they or the company hit a rough patch.
4. Finding a compensation structure that is good for them AND for the company can be difficult.

So, how do you make the decision between hiring an outside rep and a salaried salesperson?

If your company can afford to hire a salaried person and is lucky enough to find a technically-oriented individual with experience in the custom molding industry, then by all means, hire this person! A former colleague of mine used to say, “The best predictor of future success is past success.” If you run across someone who has been a successful custom molding salesperson in the past, they will likely be successful for your company as well. Hire them, incentivize them, train them and then give them clear direction. Give them at least 12 months to prove themselves. Your new salesperson may not immediately land any business, but the company should start seeing more quoting activity within six months.

If your company’s typical products are highly engineered and have a long lead-time for development and/or tooling, you should probably stick with salaried salespeople. If a new program takes 18 months to develop, it is hard for an outside rep to justify the up-front work and time investment.

But if your company’s financial circumstances will not allow for a full-time salaried salesperson, then hire a manufacturers’ representative. Find a rep in your company’s geography (or your customers’ geography) and also one that has relationships with the customers you are looking to penetrate. A rep with the right relationships can trim months from the business development timeline. You might consider giving them a monthly draw or pay the rep on some existing business – as a way to keep their attention on your company and your company’s products.

And, if your molding company has products that are standard or in a catalogue, rep firms may be the fastest and best way to take those products to market. The business development cycle for stock products is usually much shorter than custom molding and outside reps, with their existing customer relationships, may be the best and most effective way to grow your company’s revenue.

Whatever course your company decides to pursue, we suggest you be very cautious with the contract language and avoid evergreen commission structures. Every sales commission arrangement, whether it is with an inside salesperson or an outside rep group, should have some kind of sunset provision or declining scale over time. If not, then the individual on the receiving end will eventually become complacent, happy to rest on their laurels and deposit commission checks.

There is no right answer between outside reps and salaried salespeople. It depends on your business and your circumstances.  And it might make sense to try both.  But keep in mind that most of the larger and more successful molders in North America have grown their business using salaried salespeople.