Sales and distribution is more than customer relationship management; it is the army that meets directly with customers enabling cash to flow into the company's bank account. This is a very obvious distinction in an entrepreneurial business proposal within the business plan. Of course in an online business, the sales force is the website. However, for the purposes of this article, sales and distribution will relate specifically to a bricks and mortar business model and specifically how it should be structured within the context of a business plan. Moreover, the sales and distribution plan must support and be supported by the marketing plan and be internally consistent.
Sales and Distribution Organization in a Start Up Company
The organization and structure of the sales department in a start up (and in the business plan proposal) must demonstrate to the investors that the senior sales manager and the sales team have been successful in similar ventures and organizations. Therefore, their resumes must reflect this background. For the most part, a start up will have a very small team in general, including the sales department, in particular. The management team must also be considered an extension of the sales team.
However, outside sales people are almost always used. Typically, they can be contract sales agents or part of an outside distributor selling the products or services of the start up as one of the companies within their line. Under normal circumstances however, there may usually be one or two sales people directly employed in a new start up. In these circumstances, sales commissions are normally set at a relatively high level to promote exceptional performance.
Sales Force Compensation
There are four key components that may be used as part of the sales team compensation package:
- Base Salary
- Escalating Commission Base
- Stock Options
- Sales Contracts, Anti Competition
Base Salary Structure
The base salaries of sales representatives would normally be set at a low level, however if a company is so new and the initial sales efforts are so difficult, the salary level should be adjusted to account for the pioneering efforts that may be required by the sales team.
Sales Commission Plan
The sales commission plan should reflect a rapidly escalating commission factor to strongly incentivize sales efforts. For instance, the commission rate might be set at 10% under quota escalating to 15% over quota and 17.5% at 150% of quota achieved.
Stock Option Plan
Providing a stock option plan for both key employees and especially the initial sales team, is an effective approach to building an initial strong sales effort and a loyal sales organization.
Sales Representative Contracts and Anti Competition Clauses
Sales contracts/anti competition clauses are normally the employee agreements that a sales force expects to sign. The sales plan will state that the sales team will have to execute such an agreement as an employment requirement. This demonstrates experience, competence and professionalism to the prospective investors. In fact, a plan might even include a standard sales and anti competitive agreement as an appendix to the plan.
Business Plan Revenue Projections
The revenue projections within a plan would normally be located in this section. Obviously, it must tie in directly to the revenue projections on the pro forma financial statements enabling the investor to easily locate the financial relationships reflected in both places within the plan. The plan should allow the venture capital firm, investor or bank to see a reasonable relationship between the sales force and the revenue that would be purportedly generated.
Further, the sales plan should also reflect reasonable assumptions on the sales cycle. That is to say, if it typically takes a sales representative six months to close a sales opportunity, the plan must obviously take this into account within the initial revenue forecasts of the sales and business plan. The sales plan should also list immediate targets of opportunity that can be closed in the short term. These may be former customers of the sales team or potential customers that have indicated they would be interested in purchasing from the start up. Ultimately, the sales revenue projections must be reasonable, believable and achievable.
The sales plan is the road map to achieving financial success in a start up when presented to an investment group. It must be internally consistent with other parts of the business plan and must be based upon reasonable assumptions. When and if the venture is funded, the sales plan may become the outline of the basic sales manual.
Nick Schklair - Nick Schklair, author, writer and business consultant has published a work on business startups in today's economy.
