If you want to expand your sales to new markets, there is one big question you should ask: Do I build a direct sales presence or use a distributor? Each method has its benefits and drawbacks, but we are going to make a strong case for using one method over another in almost every instance.
What is the difference between direct sales and distributors?
A direct sales presence means that your company establishes, manages and pays a sales team of one or more people in the target market.
An external agent is any entity that will sell your product in exchange for a service charge. An example is a sales representative, who sells your product in exchange for a percentage of sales. A distributor is similar to a representative, except that they will buy products from your company and sell directly to the end customer.
Is Direct Sales Better?
For most businesses expanding into new markets, especially international markets, hiring a distributor is a better decision — at least as long as there is a sufficient return from the market to justify the presence of a substantial sale. Don’t
Certainly, having direct sales presence-control is a major advantage. Control over the day-to-day activities of its sales personnel is appealing to most business owners. But this control comes at a heavy cost. To start, you have to spend time to appoint someone in that market, then train them, then equip them with sales materials and management, if not office and equipment. These costs are prohibitive for most small businesses looking to expand internationally.
There are even more costs that we have not yet mentioned. Each market has its own unique laws, cultures and customs that are required to master if your company wants to establish a successful sales presence. Japan is a classic example of a market with unique legal structures and business customs that if not followed, the failure of sales efforts is guaranteed. It is difficult to pin down an exact monetary value for this learning, but ask yourself: Do you manage, manage and pay the sales force in a foreign country for at least one year to learn the ropes and generate no revenue can do?
What about a distributor? Is a distributor better for new markets?
Distributors are a cost-effective means to successfully enter new markets. Here are some reasons:
- No overhead: Unlike running your sales team, a distributor will take care of their channel hiring, management, payment and optimization. You are only borrowing their distribution while they handle maintenance.
- Channels established with local knowledge: A good distributor will already know all the laws and customs of the market you are entering. You do not need to reinforce the wheel — you can use someone who already has valuable local knowledge.
- Understand the pricing and purchasing power of the market: Knowledge of laws and customs as well as knowledge of the most successful ways to price and market your product locally.
- Cost-effective: Since you will not pay for the above items, distributor relationships are very much within reach of a small business trying to enter a new market.
There are some downsides to using a distributor as well, but they can be minimized by building a good relationship with a distributor.
- Not your people: You will not be able to manage every step of the process directly. While it may bother you to lose some control over the sales process, you can manage risk by building a transparent relationship with your distributor with transparent updates and feedback from both ends.
- Distributors have many products to represent: You cannot be a distributor’s top priority at any point, and you want to make sure that your product is not getting behind the line. Once again, a well-established relationship with constant contact will ensure that your product is getting the attention it deserves.
- No “turn key” solution: You cannot deliver your product to the distributor and expect success. You must manage the relationship. It takes time, but it is still less expensive than trying to set up a sales team directly from scratch.
So what do I do next?
If you are not sure that a distributor will be better than setting up a direct sales team for your organization, seek help from a consultant who has experience establishing a presence in new markets. An advisor can use their experience to analyze your opportunity and recommend the best course of action.
Before you choose a distributor, you need to know….
Choosing the wrong distributor will prepare you for failure. The wrong distributor will not only generate sales, and you will waste at least a year’s time and establish an unprofitable relationship.
There are a few things to look for in a distributor, and they are different for every market. The best thing is to find a professional, with experience in distributor relationships, and hire that professional to help you identify the right distributor.
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