Types of Sales Force Structures

For a company, there are three major ways to structure a sales force. The first way is to hire sales representatives (reps for short) and run everything in house. The second way is to outsource the sales work to outside contractors who work independently of the company. The third way to structure a sales force is a middle ground between the previous two methods, and involves hiring a broker agency that employs and manages sales reps.

A sales rep who is hired to be a part of a company's "in-house sales force," becomes an employee of that company, and is under the direct control of company management. In-house sales reps are generally paid a base salary in addition to a commission of some percentage of their sales. A major advantage of an in-house sales force is that it enables company management to have more control over the activities of sales reps. However, there are also disadvantages, and chief among these is the large management commitment required to maintain an in-house sales team. Whether it makes sense for a company to go the in-house route depends on the company's economies of scale prospects. Economies of scale are cost savings that a company realizes as it grows (for example, due to more favorable terms with suppliers). Not all companies experience larger economies of scale as they grow. However, those that do anticipate larger economies of scale as they grow might be better off running a sales force in house, according to sales expert Dan Kleinman.

A company that forgoes the in-house sales route may opt to contract with independent sales reps instead. Unlike in-house reps, independent reps are not employees of the company, and work as independent contractors. They generally sell multiple companies' product lines at a time. Because of this, independent reps may be more inclined to focus on their older, established product lines rather than product lines that they recently began promoting. This means that a company that has newly contracted with a given independent sales rep may be at a disadvantage relative to companies that have well-established relationships with that independent sales rep. In general, independent sales reps are more likely to work on a commission-only basis than their in-house counterparts.

A broker agency employs and manages sales reps. A company can contract with a broker agency to promote its products. Contracting with a broker agency can mitigate some of the problems posed by contracting with independent reps directly. For example, broker agencies directly supervise and manage their sales reps, and this can help mitigate the problem of sales reps excessively promoting the product lines of established clients to the detriment of the product lines of newer clients. This comes at a price, however, as contracting with a broker agency is generally more expensive than contracting with independent reps.