Direct or Independent Sales Reps for Start-Up Medical Device Companies – Nine Factors to Weigh

Direct or Independent Sales Reps for Start-Up Medical Device Companies Nine Factors to Weigh

You have spent a lot of time, money and energy getting your new technology through the product development, pre-clinical science and regulatory pathways. You are gearing up for market launch. You have a fine stable of Key Opinion Leaders (KOLs) on board; a strong training and education program for new users; and you are covering all the bases of brand building: sales collateral development, website presence and a targeted tradeshow program.

Your biggest decision now is selecting the best structure for your new sales team. While the traditional independent sales-rep organization has lots of benefits, the idea of having a legion of able-bodied men and women waking up everyday focused only on driving sales for your company is awfully tempting.

There may be no "right" answer to this conundrum, and even if there is, it may not be readily apparent. There are a number of factors that deserve consideration when you are weighing out your options. We are going to discuss nine (9) of the most critical ones in this article. So, let's get started:

1. Accessibility to Customer Who makes the buying decision? If you are selling to physicians, you already know getting face-time with your customer can be your biggest challenge. If your buyer is a surgeon, the accessibility challenge goes up exponentially. A new face showing up in the clinic for "a minute" of the doctor's time will have her work cut out for her. If rapid penetration is an important part of your business plan, you may be better off with an independent sales person who already has a relationship with the doctor as well as all of the support staff and "gatekeepers." You may be able to "buy" this accessibility in a well-seasoned direct rep, but experienced sales reps with years of relationship building under their belts come with a hefty price tag.

2. Cost Independent sales reps only get paid when they have sold your product. With this model you have no fixed cost as you are paying the rep from sales proceeds. A direct sales team is quite a different story. First, you have a base salary due to your sales reps each month whether they sell or not. On top of salary, you will typically fund their expenses including car (or mileage) and some meals and entertainment. In order to be competitive you will likely be paying health insurance, vacation days, 401k expenses and more. Conversely, independent sales reps are contract personnel, and almost always cover their own expenses. In general, independent representation is the more cost-effective way to launch a new company. Once the company reaches a certain revenue threshold it often becomes less costly to field a direct sales team.

3. Compensation Potential Related to cost is potential income level for the sales rep. Top independent sales reps may make very high six-figure incomes. An average for surgical sales reps today is over $200,000. As we all know, there is a huge variation in sales rep effectiveness and revenue production. If you are aiming to have above-average, seasoned sales reps selling your product, you can figure that you will be competing for that talent with other companies who want the same thing, and you will need to budget for a high compensation plan. If your product or service lends itself to a more "entry-level" sales team you can staff up with a direct sales force much more economically. Perhaps your target recruits are candidates who have done well in non-medical sales and want to make the transition to medical sales.

4. Uniqueness of/Demand for - Product If you are selling iPhones today, you may not need Brian Tracy leading the chargethat is if you have the marketing prowess and existing demand that Apple enjoys. Generally, high-demand, well-understood, proven products do not require the special entre and sales expertise provided by the seasoned sales rep. The sales profile for such products may well be the "farmer" (service-focused) profile rather than the "hunter" profile. Understand that unique or complex products (that may one day become industry standard) often do require the talents of a seasoned sales team to gain access to and convince the early adopters.

5. Sales Experience Required When I contract with an Independent Distributor my expectation is that I am tapping into a team of seasoned, connected sales professionals. There may be some "newbies" on the team, but they are typically under the tutelage of the Distributer Principal, an all-star rep or an internal sales manager/trainer. In short, I am not responsible for basic sales skills and territory management trainingthat comes with the package. My commitment will be limited to product or technology support. My team will train the distributor reps on our products and we will come in periodically to support them on key customer calls, but beyond that we are measuring sales quota achievement and deciding to retain or replace the organizationand that's about it.

6. Sales Organization Depth Related to the issue of sales experience required is the required depth of your sales and marketing organizations. If you are recruiting less seasoned, direct sales personnel, you will need a larger commitment to sales training and management. The big pharmaceutical companies lie at the extreme end of the spectrum with sales training and product knowledge "academies." New hires come to central locations often for weeks at a time and go through selling, science and product-focused "bootcamps." While these sales reps are lower cost in compensation than their independent rep counterparts, the infrastructure requirements for training and management may be vast.

7. Control It's Monday morning at 10:00 a.m., do you know where your reps are? If you cannot sleep at night not knowing the answer to this question, you should consider a direct sales team and a staff of managers. In truth, with an independent sales force, sales management is mostly about influencing and "selling." In short, you must convince the rep that investing time in her day to sell your product carries a high ROI relative to his or her other choices. Typically top sales reps are mercenary and can be relied upon to gravitate toward high financial reward. With a direct team, you can require call plans, call reports, business plans and all forms of time and territory management measures that you will not get from independents.

8. Target Launch Speed and Expansion Rate Are you happy with a local or regional market launch and gradual expansion, or are you looking for a nationwide blitzkrieg? Obviously, these two pathways carry dramatically different resource requirements across every functional area of the company. But with respect to the sales organization, you're practically locked-in to the independent sales force if you're goal is the broad and rapid market penetration that you may need for a quick sale of the business.

9. Hybrid Sometimes a hybrid sales team makes sense. With a mixed effort, you can jump-start the business (and revenue) with your independent groups, while you field-test various marketing approaches with your direct team over whom you have more control. Even if your ultimate goal is to have a direct sales organization you may start with a hybrid model. Understand that distributors are sensitive to the prospect of doing the "missionary" work to establish a product in the market, only to lose the distribution rights as a company takes the territory direct. You may need to offer a term guarantee or contract buy-out clause in order to overcome this concern and attract top distributors.

The good news is you have come a long way in developing your proverbial "mousetrap" to a stage where you have the opportunity to consider distribution options. Some inventers fall in love with their product and believe the world will beat a path to their door for the privilege of buying. Do not make that mistake. Your sales channel selection may well be the most important decision you make in shaping your company. Consider all the factors above. Talk to your team. Call on your mentors. And finally follow your instinct. Understand that, while hitting it right initially is your goal, you can and will make adjustments down the road. For now, choose a path; prepare your team and get out there in the market.

For a "Sales Team Selection Tool" and more information on sales staff selection and hiring visit The McCaa Group on the web www.McCaaGroup.com

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