Experts Weigh Independent Versus Direct Sales Forces

One of the biggest mistakes a medical device company can make when using an independent sales force is neglecting the situation where sales representatives are disinclined to do the legwork of building up a product's market when the manufacturer is likely to sell out to a bigger company or switch to a direct sales force, according to Rick Davies, managing partner at Vector Resources.

Companies can resolve this issue by building positive incentives for personnel in these situations into their contracts with sales reps. These incentives could include buyouts if the company is sold, Davies said, speaking at "Commercialization of Medical Devices," a workshop presented by the Medical Device Manufacturers Association and Vector Resources last week.

If a change in sales force is going to be made, one possible incentive to keep reps performing is a declining percentage of the company's future earnings for a set amount of time. This may encourage independent salespeople to refer customers to, or help familiarize, the company's fledgling direct sales team after a switchover.

Companies may be tempted to switch to direct sales teams to have greater control over call patterns, the ability to take corrective action with the sales force, and 100 percent of the reps' time and focus, he said. This type of sales force may also be more appropriate for a high-technology device that requires better understanding of the product.

Direct sales forces can be a liability, however, if a company's goal is to be acquired by a larger firm that may already have its own sales force, Davies said.

They also require a large initial investment to cover salaries, benefits and travel expenses before the team even begins to generate sales. Hu Hauser, national sales manager for The Harloff Company, estimated a firm would need annual sales of approximately $50 million to $100 million to support a direct sales force.

There is also the danger of high costs if product launch is delayed. For a small startup, it might be more feasible to enter the market with an independent sales team, which may not get paid until they make sales.

Commissions for independent sales reps range from 7 to 10 percent for low-tech products and, as technology increases and demonstrations or servicing is required, could increase to approximately 15 percent, according to Hauser. Independent sales reps' income "is directly tied to their productivity," he said.

Independent sales reps are intimately familiar with their local markets and call points. Hauser pointed out that because these representatives have known their clients for years, they have established reputations they can lend to a startup company that has no name recognition.

Companies can also benefit from independent sales reps' market knowledge when it comes to pricing their products. These reps may be more familiar with the price a particular type of product can be sold for in their areas.

Another option for companies is to take a "blended approach" that uses both direct and independent sales staff, speakers noted.

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