How to Start a Sales Agency SMB
Start a sales agency using your sales and marketing experience by finding the right opportunities to start a small business and achieve success working as an independent sales agent.
When you start a sales agency you will be selling on behalf of manufacturers, suppliers, and service providers, and receiving commission for sales made. An agency is not a franchise, it’s your own small business start-up and you have the freedom to select the goods and services that you will sell, and the business principals you will work with. Knowing how to find and recognise an established business principal to represent, with a product or service that customers will want, is essential when you start a small business as a sales agent. It is also important to know the potential pitfalls and how to avoid them.
Table of contents:
- Use your experience to start a small business
- Find the right opportunities for your small business start-up
- The six areas you should check before starting your small business with an agency
You can use your related sales or business experience and knowledge of a market sector as you start a sales agency or expand your current sales activity. Start by selecting the sector you want to operate in and looking at your knowledge of the buyers, sellers, market information, and products and services available.
One of the most valuable assets you can have when targeting a sector as a sales agent with a small business start-up is contacts and customers. If you have existing relationships, contact details, or just knowledge of the buyers in the sector, this is a real advantage and a shortcut to small business success that will save a lot of time cold calling and building prospect lists.
When you have selected a business sector the next step is to find the right opportunities, offering products and services that your customers and contacts will want.
On the Opportunities page at Salesagents.uk you’ll find a constant stream of business principals advertising their opportunities and requirements for sales agents in the UK. When you see one that is of interest to you, follow the link to their full page advert and feel free to contact the principal for more information. The first step should be to start a dialogue with the principal to get all the information you will need to decide if this is the right opportunity for you.
There is also a free email service sent to agents looking for opportunities, and you can register with the website to add your agency details to a database.
There are plenty of very lucrative opportunities available for sales agents but how do you find the right ones, the genuine opportunities, and how do you avoid the pitfalls that can happen when working with a business as an agent? The following 6 points will give you important information on what to look for and the actions to take to ensure small business success for your agency.
1. Commission & Terms
If you start a small business as an independent agent without a regular base salary and associated social benefits, commission and terms will naturally be very important.
One of the most common questions we get from principals is, how much should we offer in commission to agents. Our answer is always “as much as possible” or “what your margins permit.” It goes without saying that agents and small business owners who sell on commission should have the opportunity to earn more than ordinary employees.
However, it is absolutely impossible to give a specific commission rate as it is entirely dependent on product, industry, and market.
We also find that most principals want to offer a good commission to agents.
This might seem contradictory but we also recommend agents not to be too greedy. Remember that principals allow you to work for other companies simultaneously, which an employee would never been given the chance to do. It can also come across wrong if you as the agent begin to set tough requirements without having delivered a single sale.
A real world example
A supplier of building materials searched for agents in the North East. They offered the agent the opportunity to take over the existing customer portfolio in the region, and of course make new sales to building materials stores, etc. The commission was 10 percent of all sales to both existing and new customers. The principal openly shared that they had agents elsewhere in the country, e.g. their agent in Yorkshire earned £ 410 000 in commission alone annually on the same terms offered to new agents.
A small business contacted the principal through us and said he was very interested in the opportunity with the agency in the North East, but the commission rate was too low. He was willing to become an agent if the commission rate was increased to 25 percent.
The principal perceived him as rude and arrogant, and asked how could he defend a much higher rate of commission for a newcomer compared to their existing, and very loyal, skilled agents? The principal considered that the agent’s request was not appropriate and the application from the agent was discarded with the opportunity going to another agent.
Skilled agents often look beyond the actual commission rate for opportunities with recurring commissions. Some providers just want to give commission on new sales, and then take over the customer relationship and all future earnings from the customer. If there are no exceptional good reasons for doing it that way this does not come across as attractive to professional sales agents. If it is a product / service sold once, and there are no future revenues, it is of course acceptable to give only a one off commission payment.
Another point related to economic conditions, is whether the principal makes it clear that they will cover the costs of any training, trade shows, or sales meetings outside the agent’s district. This says something about how serious the principal is in working with agents. If you are about to start a small business with an agency be certain that it is a principal that is serious and will use resources on helping you succeed.
Examples from the real world
- A principal in the wellness industry requires that their agents attend training in London, but they must cover their travel costs themselves. One of the agents calls Sales Agents UK and says he is happy to cover all costs for travel activity in his sales district, but finds it unreasonable that he must cover the cost of mandatory training elsewhere. We completely agree.
- A company in the consulting industry invites its agents to training in London. It is expected that the agents cover their own travel expenses, but attendance is voluntary. The principal however, has made such an interesting and exciting program that most agents want to attend. It may still be argued that the agents feel, directly or indirectly, less committed to the principal because they have to pay for attending the training out of their own pocket.
- A company in the staffing industry invites its agents to sales meeting in Bucharest. They cover all travel costs, meals, and even provide “pocket money” to the agents. They make it clear that they appreciate their agents and the motivation and loyalty of those agents is clearly greater than in the examples above.
It is also important to remember that 10 percent of a lot is always more than 90 percent of nothing. The percentage commission rate is important, but the question is whether the agents has a product you can sell, and can be sold together with other products / services in your portfolio. If the answer is yes, the agency certainly should be considered. If no, you should safely move on to the next opportunity no matter what the commission rate is.
Does the principal have sales agents today, and if so how do they perform?
If they do not have sales agents, can the company show sales results from hired employees?
These are perfectly legitimate questions for you to ask if you’re going to start a small business based on an agency – or if you you already work as an agent.
If it is a well-established company, they should be able to demonstrate existing sales results that can give you the confidence that their products/services are something that sells in the market.
For a relatively new company, it is difficult to prove specific sales results. In this case you, as a potential agent, must make a decision based on how strong your belief is in what the principal offers.
Which USPs does the product have in comparison to competing products?
If the unique selling points are strong enough they could offset the lack of documented sales results.
However, if there are no real USPs and they cannot show documented sales results, it’s probably smart to wait to start a small business agency untill you find a principal that meet these criteria.
Some agents can sometimes possibly put too much emphasis on exclusivity of their sales area.
If you take over an existing client portfolio, as the example in Section 1, it obviously has a value from day one. But if the market is completely new, and there are no existing customers in the area, it is debatable how much the exclusivity of the sales area will be important in the initial phase.
If you require exclusivity from the beginning, there will likely be a clause stating that you need to achieve a certain budget or you lose that exclusivity. So if you do not achieve the sales budget the exclusivity is worth nothing. And if you achieve your budget you have sufficiently strong cards to play to get exclusivity anyway, and the principal have little reason to look for other agents in the area.
An alternative is that exclusivity is given after a trial period if the agent delivers specific revenue targets. This is a good solution for both parties and can be wiser than to demand exclusivity from day 1 and have the danger of losing the same right later because of poor sales number.
There are also principals that do not provide exclusivity and they have professional sales agents who are just fine without it. As long as the conditions and terms are identical for the agents it can be argued that you should focus on building your client base and not be too fearful of a couple of competitors.
Exclusivity is often more meaningful the more targeted the niche that you work in. There is not room for many agents selling special components for nuclear power plants in the UK, but there is room for a lot of agents that sell products to SMEs.
If you start a small business and get exclusivity and agency rights in your area, be careful to ensure that the contract is entirely clear on what it entails. We have come across some concrete examples where agents in our database have contractual exclusivity in their area, but then later discovered that retailers still get to buy goods directly from the principal. One possible excuse from the principal’s side will be that the retailer is part of a chain and the sale technically was made somewhere else (their HQ) even if the goods are sold in the agent’s area.
If the principal is on the verge of bankruptcy it is not a company that it is appropriate to start working for. One should therefore do some research about the financial situation of the company before entering into a business relationship.
Do not fall into the trap just to look at the total revenue of the company. There are companies with a turnover of tens of millions who do not pay for themselves, while there are companies with much lower turnovers that are very ethical and reliable business partners.
So in addition to the financial situation of the company you should have an idea of how reliable they are. Even companies with net profits are not always ethical. Does the principal take the initiative to present a professional contract? Do they have authentic testimonials from clients and also other agents? What does your gut tell you about whether they are reliable or not?
How will the principal help their agents to succeed? Will they supply you with sales material? Will you get brochures to hand out, and demo products to use in sales presentations?
Will they spend time and resources on product training for agents?
Sales agents are an extension of the company and not somebody to just be left to their own devices. Companies that are truly interested in succeeding with sales agents realise this.
Some companies that have advertised via Sales Agents UK are also working actively to find specific customer leads to give to their agents. It is no coincidence that these also are the companies that experience tremendous success with their network of agents, and sales agents thrive working on their behalf.
Remember to get a written contract with the principal. Contact us if you would like a written template for an agency contract.
A while ago we came across an agent who just recently had decided to start a small business. Almost right away he delivered a huge sale worth £millions, but only had a verbal agreement and a none-binding e-mail exchange where the principal “promised” a 5 percent commission. As soon as the agent delivered the sales contract the principal changed his tune and was only willing to give a 1 percent commission. The difference amounted to many millions and the case is now in the judicial system (pr. 31.09. 2017). We hope to tell the whole story when the outcome of the case is clear.
Remember that both parties in the contract are equal. When you start a small business with an agency you’re not an employee of the principal. You guys are business partners and your dialogue and communication should reflect that.