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External Sales Methods

FastTrac, Kauffman Foundation

The advantage of using an external sales method is that your company typically does not incur any sales costs until the customer pays for the product or service. You hire another company to do the selling for you. This method allows you to utilize a large sales force and sell more products or services locally, regionally, and nationally. The primary disadvantage of using external sales methods is that these entities usually sell other products or services. External sales teams tend to push the products or services that are easiest to sell and that already have a large customer following. Another related disadvantage is that you have little control over external sales teams since they do not work directly for you. Therefore, they can be harder to manage in regard to pricing, follow-up, and service.

The most common types of external sales methods include the following:

Licensing—Many entrepreneurs seek companies or people to whom they can license their products. In addition to up-front and annual fees, licensees typically pay the licensor a royalty percentage for each product sold. In some cases, other entrepreneurs can launch their business faster and more economically by buying the rights to your existing products than by developing their own. If you have a solid product, you can grow faster by licensing the rights to your product or service to other entrepreneurs. Going rates for you as the licensor for licensing your product or service are 5 to 12 percent of wholesale revenues over the life of the agreement.

Existing Distribution Channels—Your industry may have existing distribution channels that could market and sell your products or services. Many manufacturers use wholesale distributors to reach both business and consumer markets. Food and toys are common products that have well-established wholesale distributor channels. You can see why distribution is a marketing issue because it affects your approach to sales.

Sales or Manufacturer's Representatives—External salespeople—also known as representatives, sales agents, or sales reps—are engagedas subcontractors for your business. You pay these agents by a commission which is calculated as a specified percentage of the wholesale price. They receive their commission after you collect from customers. The sales agent pays for expenses-such as product samples, travel, office, telephone, and supplies-incurred in selling your product or service. You save the cost of full-time employees.

© 2007 Ewing Marion Kauffman Foundation. All rights reserved.

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