This post is part of my series An Analysis of 5 Business Models.
Direct sales using a field salesforce is one of the most expensive ways to pursue customer acquisition, and as a result only works for larger deal sizes.
There are several significant challenges with building a field salesforce in the high tech industry:
- Field sales people are very expensive, typically running around $230k to $250k on target. They often need a sales engineer in the field with them, which can add significantly to the cost. They also have office costs, and travel costs.
- Because they are working to get face-to-face meetings with customers, they usually make far fewer customer connections in a day than an inside sales person could do by staying in the office and using the phone.
- Because of long sales cycles, typically there is a long ramp time, of around six to nine months before a new salesperson becomes productive.
- For every five sales people hired, typically between one and two of them fail, and never get close to reaching quota.
- Unfortunately because of the long ramp up time, it typically takes six to nine months to detect which individuals will fail, and to terminate them.
- The large deals that are typically worked on by a field sales force often only close in the last week of the quarter, making for lumpy bookings and nail biting revenue management.
Given all the above issues, venture capitalists have become somewhat wary of business models that are based on field sales organizations.
If you are considering the use of a direct sales force, I strongly recommend reading this blog post: How Sales Compexity impacts your startup’s viability.
