New Market Entry using commission-only salespeople: Is that a good new market entry strategy?

Companies sometimes think that a good and cheap way for them to internationalise is to engage a commission-only sales representative; no investment, no risk. In my career, I have seen companies deploy this entry strategy as they felt that they had nothing to lose but in hindsight, they had a lot to lose, including brand reputation, but most of all time.  They lost huge amounts of time and were one of the later entrants into the market and hence struggled to gain market share.

Need help to internationalise - contact : sales@openventuresconsulting.com

Commission only sales do not build trust and loyalty and without these two ingredients, it is very hard to expand. Growth strategy needs to ensure that the people you have on-board are committed to growing the company. Commission only sales do not promote commitment as the salesperson probably is not especially motivated because the company does not want to invest in their own company, and this drives de-motivation. If we look at Maslow’s hierarchy of needs, commission-only work does not meet the hygiene needs of an individual and right at the beginning, motivation is stalled never mind moving to any of the higher tiers in Maslow’s hierarchy of needs.

New market entry strategy based on employing sales representatives on a sales commission basis does not work, especially if it is a solution sale which generally takes longer to close and if the company is a relatively new start-up, it can take even longer.  

 When a company says that aren’t paying a salary or a retainer to its international representative, several questions need to be asked.  

 Firstly, does the company have the finance to expand internationally?  Is this the right time to expand?  Internationalisation needs a certain amount of finance behind it for it to be successful.  Internationalisation should be part of the strategy for most companies from the start but expansion has to be done at the right time. A company needs to understand what are the cost and what the risks. They need to understand what revenue they need from a new market and when they need to see an ROI from their investment.  If they are to meet these revenue targets, do they have the capacity to deliver the product/service?

 Secondly, the company is asking the representative to take 100% of the risk for the market entry whilst at the same time not having any control.  New market entry always involves risk. However, if you are looking at an independent consultant, that risk needs to be shared at least. Before a company enters a market, significant research and analysis need to be done to ensure that the entry strategy is the correct strategy. The better information and data that a company has at its disposal the better it will be able to make decisions.  If this information and data is not available, it is very difficult for a sales representative to develop a market quickly as s/he enters the market, they will be met by challenges that had not been predicted  

 Thirdly, if a company will not invest in a product, the question is why should the representative invest his/her time for nothing.  I think this point is fundamental and in reality, this says a lot about the company and its culture.  If you do not value your skills as a salesperson, then the company definitely will not.  This type of relationship does not build trust.

 At the end of the day, if the decision is to use an overseas sales representative, it needs to be a win- win situation for all parties.  You need to find a package that meets all the needs of the representative and which will drive his/her motivation, which in turn will be good for the company. There can be a  lot of misconception about what is needed to enter a market and engaging sales representatives internationally on a commission-only basis may seem like a really smart and cheap way to grow your market, but in reality, it shows a total lack of understanding of market entry, of the value that salespeople bring to an organisation and challenges that new market entry brings.