FREE GUIDE — SALES REPS & HOW THEY BENEFIT SMALL BUSINESSES

By Bob Reiss

Sales Reps & Small BusinessI was a national sales rep for 14 years before switching sides and founding or co-founding 16 start-ups, one of which made the INC 500 list three years in a row. . .So, I feel qualified to speak on this subject, which I think is misunderstood and not taught at school. This is why I’ve written this comprehensive and practical Guide to help Sales Reps and Manufacturers understand each other better, to create a positive partnership that will yield more profits for each, and extend the duration of the partnership.

Too often this relationship is adversarial. It shouldn’t be, as both factions need each other.

Clearly, Sales Reps turn the fixed cost of sales into a variable cost and just as importantly, provide immediate access to hard to reach customers.

Here is the table of contents for this Guide:

  • Rep Commissions
  • Who Becomes a Rep
  • Why Work with a Rep?
  • How to Find and Select a Rep
  • Rep complaints about Manufacturers
  • Manufacturers complaints about Reps
  • Training Reps
  • A Tip for Reps
  • Advice for Both Parties
  • Both Parties Tip
  • The Future of Reps

To get your free copy, go to: www.bootstrapping101.com/guide

You also might want to pass this information to a friend or associate who might benefit from it.

Outsourcing Turns Fixed Costs Into Variable Cost

Low monthly overhead could save your company during a cash crunch.

A fixed cost is one that your business incurs whether or not it makes any sales. An example is rent: It has to be paid every month whether or not you’re generating any income, and it’s the same every month.

A variable cost, by contrast, is incurred only when you make a sale. A variable cost usually varies depending on the amount of the sale. A commissioned salesperson, for example, is a variable cost. If the rep is paid 10 percent of sales, and the sales for a given month are $25,000, then that person gets $2,500 in commissions. If sales drop to $1,000, then the commission drops to $100.

Converting fixed to variable costs is a major way to reduce your need for money. It could also be the difference between success or failure for young companies. Every fixed cost should be scrutinized for conversion to a variable cost.

Here are some examples of fixed costs that can be converted to variable:

Sales: Instead of hiring full-time salespeople and being burdened with weekly or monthly wages, go with independent sales representatives who work on a percentage basis. You pay none of their expenses. Reps don’t incur the burden of benefits, which can run as high as 30 percent of the salary of a full-time employee. Plus, ineffective reps are easier and less costly to replace than full-time salespeople.

The best reps have strong relationships with customers in their territory, which can translate to quick access and orders.

Manufacturing: You don’t have to own a factory just because you want to produce, assemble, store, ship and build your product. Contract manufacturers are happy to do all or some of the above for you. (Find them on search engines or the phone book.) They charge either for the space you take up or the functions you ask them to do. Most will work out a deal with you to charge a percentage of your billing, making this a variable expense.

Contract manufacturers also maintain insurance on your goods in their possession. They cover the cost of their employees’ benefits. This represents a huge saving in fixed and operating costs.

Yes, there are some downsides — including the fact that you may have to vie with their other customers for priority. Here persuasion and salesmanship are your best weapons. As soon as your volume warrants it, allocate a full-time person to cultivate the relationship with your “extended factory.” At some point, you may even want to position your employee on their premises for more control (and reduced risk).

You may have the type of product that would permit you to pay another manufacturer to make it for you under your brand. (This would be their “private label.”) Products like beer, liquor, drugs and computers are often made under this kind of arrangement.

Administration: Guess what? Your billing, sales reports, commission statements, royalty statements, inventory reports and aging reports can also be done on a percentage basis by your contract manufacturer (or a company specializing in doing all the administration for you). Of course, the more functions you outsource, the higher your percentage payment will be. But remember: everything you’re outsourcing is a function that you’re not hiring a salaried body to perform.

And it’s not just bodies, either. Why should you pay for the latest computers and software to run them? By outsourcing administrative tasks, you don’t have to pay the price of obsolescence, which can be very high in the world of computers. Your customers will have absolutely no idea that these functions are outsourced. (They probably wouldn’t care if they did know.) And your company takes on the aura of a well-established business from the outset.

Inventors/designers: You can get quality people to invent, develop and design products for you on a percentage of the products’ billing — in other words, on a variable expense basis.

Many will want to work on upfront fees only, a fixed expense. Salesmanship on your part can get them to charge your way. If they’re sold on your company, you personally, or the product, they’re more likely to comply with your wishes. Sometimes a compromise is required where you pay a modest upfront fee and a modest percentage on sales of the product.

Public relations: Some public relations firms charge on performance rather than the more typical fee basis. A performance-based agreement should be carefully spelled out, with specific accomplishments and their exact costs.

As your company grows and volume increases, there may come a time when the fixed cost is less expensive than a variable one. Before you switch, make sure you can maintain this high volume. Don’t switch on the basis of sales projections or a one-time uptick. As a general rule, investments in overhead should be made only when you have a high degree of certainty about the product, and when customer demand is strong and well understood.

Maximizing variable expenses reduces the amount of capital you’ll need to handle overhead and operating expenses in slow-selling periods. A low monthly fixed expense ensures that you’ll break even (and even profit) faster.

 

This is my November column in Entrepreneur.

FUNNY TAKE ON HOW ENTREPRENEURS ARE BORN

This past Saturday, November 6, Scott Adams the creator of Dilbert wrote an article for the Wall Street Journal and showed us why he is one of the iconic humorists of our time. His hilarious take on how Bad Management spawns new start-ups has much truth in it. I thought I should share this article with anyone who missed it. For those who saw it, enjoy again. Here it is in its entirety:


The Perfect Stimulus: Bad Management

If no one had a hamster-brained sociopath for a boss, who would start new businesses?

by Scott Adams

One of my earliest childhood jobs involved shoveling manure at my uncle’s dairy farm in upstate New York. Things were going well until my uncle explained that no matter how well I performed, I would never be promoted to farmer. Or even cow. I had hit the manure ceiling.

I consider that experience my first economic stimulus package—the unwelcome realization that my current job was a dead end. While my classmates were building snowmen with carrot noses (mostly the girls) and carrot genitalia (mostly the boys), I started to do some serious career planning about how to get out of the fecal relocation profession and into the warm embrace of a loving corporation. I studied hard, and I earned money for college by mowing lawns, shoveling snow, shoveling even more manure, and (my personal favorite) shoveling frozen manure covered with snow. I saved my meager funds, and with the help of my parents, who both took extra jobs, plus a few scholarships, I clawed my way into college.

Years later, my dream came true. I got a job with a large bank, and I never again needed to shovel manure. Corporations use something called PowerPoint instead. Thanks to my farm training, I was so good at designing PowerPoint slides that my coworkers called me “The Natural.” Jaws dropped when I introduced my signature move: the frozen PowerPoint slide with snow on top.

In those days, I was a furious bundle of ambition and determination. The old-timers told me I had a “rocket strapped to my ass.” All I needed to do was get my “ticket punched.” It wasn’t long before I was able to enjoy my second economic stimulus package: bad management.

Though most of my immediate bosses were entirely reasonable and competent, the organization at large was riddled with hamster-brained sociopaths in leadership roles. Surely, I thought, this must be a problem that exists no place else on Earth. Otherwise we’d all be living in caves and holding long meetings on the feasibility of using sticks as stabby things.

One day, a position opened above me, and I was the most obvious candidate to fill it. My boss called me into her office and said she had some bad news. She explained that the media was giving our company a lot of heat because almost all of our managers and executives were white males. Promoting me, she explained, would only make things worse. I asked how long I might need to wait for all of this to blow over. My boss was vague, but she said the timeline involved smoothing out the effects of two centuries of corporate discrimination.

I decided to jump ship and go where my talent and hard work would be rewarded. I took a job at the local phone company and soon discovered, to my horror, that banking was not the only industry in the world managed by hamster-brained sociopaths. Once again, my immediate bosses were quite capable, but interacting with other departments was like being the last human in Zombieville and trying to buy groceries at dusk. Still, it was marginally better than shoveling manure, so I doubled down. I finished my MBA classes at night and distinguished myself as an up-and-comer.

One day my boss called me into his office and explained that the media was giving the phone company a lot of heat because almost all of the managers and executives were white males. So, he explained, promoting me would only make things worse. You might say that was the day that the “Dilbert” comic strip was born, although I had not yet drawn one. Let’s call it a tipping point. From that day on, I considered myself an entrepreneur. All I had to do was figure out what business I was in. The phone company was willing to pay for almost any sort of semi-relevant training or education that I was willing to endure. It was like an accidental school for entrepreneurs. From an economic viewpoint, I was in exactly the right place, with exactly the right amount of career discomfort.

I wasn’t suffering alone. Many of my co-workers already had active side businesses and ambitious expansion plans. The guy in the cubicle behind me was running a concert equipment rental business. Across from me was a guy running a computer tech support business. We had Amway dealers, Mary Kay sales people, inventors, authors and just about any other business you can imagine. That’s not counting all of the business plans in the incubation phase. I think we all understood that working in a cubicle and being managed by Satan’s learning-challenged little brother was not a recipe for happiness.

The way I describe it may sound pessimistic, but consider the alternative. Imagine a parallel universe where employees enjoy going to work. They feel empowered and fulfilled—so much so that they don’t care about the size of their paychecks and never want to leave their jobs. That’s exactly the sort of nightmare scenario that would destroy the economy. The last thing this world needs is a bunch of dopey-happy workers who can’t stop humming and grinning. Our system requires a continuous supply of highly capable people who are so disgruntled with their jobs that they are willing to chew off their own arms to escape their bosses. The economy needs hamster-brained sociopaths in management to drive down the opportunity cost of entrepreneurship. Luckily, we’re blessed with an ample supply.

To put it in plainer terms: The primary purpose of management is to kill any hope that staying in your current job will work out for you. That sort of hope is like gravel in the engine of progress. The economy needs workers who are fed up, desperate and willing to quit their jobs for something better. Remember, only quitters can be winners, because you can’t do something great until first you quit doing something that isn’t.

You see this same dynamic with countries. The United States is a nation founded by people who couldn’t stand the leaders of their old homelands. I’m no geneticist, but I suspect that the “screw it, I’m out of here” attitude can get passed on. We’re probably the most disgruntled, self-loathing, hard-to-satisfy people on Earth. It’s no wonder our GDP is awesome.

Israel is another perfect example. The entire nation is full of people who were displeased with their last situation. And Israel’s economy is one of the most vibrant in the world. If every Israeli became satisfied at once, they couldn’t keep the lights on for a week.

I have always assumed there’s a correlation between imagination and risk-taking. You wouldn’t leave an unpleasant but relatively safe situation unless you could imagine a better outcome. So the people who leave a company first tend to be the visionaries who can best imagine entrepreneurial success. The last wave of people who leave are usually excreted just before the door is chained. They didn’t imagine it would happen so soon. Bad management is how imagination gets wings.


LISTENING INSTEAD OF HEARING

Why is it that in most business and social encounters the mouth is employed much more than your two ears? Many people think they are listening when they are just hearing. If your ears are healthy, hearing is an automatic anatomical response to sound in your vicinity. It takes no effort or skill.

 

On the other hand, good listening, which uses the same two ears as hearing, takes focus and is a skill that can be learned. The most common mistake in good listening is that while someone is talking, you are thinking about what you are going to say. The consequences of that is the other party quickly realizes you weren’t listening to them, as your remarks did not take into account what you should have just heard. Not exactly a confidence builder.

 

How many times have you been introduced to someone and almost immediately forgotten their name? You didn’t forget. You just didn’t really hear it.

 

This listening thing is a big deal. It affects all phases of your business and personal life. In my opinion, it is the key component of successful selling. If you ask good questions and then really listen, most buyers will eventually tell you how to sell them. Silence many times is your best friend. Successful negotiators are good listeners. They learn what’s really important to the other party through good listening. They can then speak to address their concerns and priorities.

Good listening is a major trust builder. People want to know that their opinions are being heard. They will have confidence and trust in people who listen to their point of view, even if they don’t share it. This applies to your employees, peers, customers, suppliers, family members, and all earthlings you meet.

 

Understand that humans process ideas faster than they can be delivered verbally. This makes it easy for your mind to wander when listening. Patience is required to focus.

 

Good listening will improve your relationships at home. Don’t come home and bring all your problems to the dinner table if you aren’t willing to listen to everyone else’s concerns and activities.

 

There is an abundance of books and videos available on the subject. However, just being aware of the situation will make you a better listener. You can always improve on this skill.

 

I strongly believe listening is a life skill that should be a mandatory course beginning in high school.

 

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