Direct Sales Representatives or Independent Agents, The balance between cost of sales and lack of focus

One of the debates I frequently hear regarding medical device sales distribution is  “should I hire direct W2 sales representatives or tap into a network of 1099 agents and their relationships?”  The positives and negatives are pretty clear and still opinions are strong on both sides of the choice.

The obvious plus of the direct sales distribution channel is the focus. You have a captive sales team selling only your products. You hire, train, manage and fire as you feel is needed.  You can feel confident that your corporate message is carried out by the sales team to your customers.   The down side is that it comes with a price and complexity.  The direct sales representative is expensive and requires typically a full benefits package and competitive salary with a guaranteed base to be successful.  You will also need a larger management team to handle the personnel issues that inevitably arise from a team of sales representatives who tend to be higher demand personalities.  This can especially be a burden on smaller companies trying to preserve capital and can pull from other areas of need like R&D.

As for the independent agent, the big plus is the little to no upfront cost to penetrate a market.  The agent uses his/her network to advance the sale of your products and you pay them a commission to do so.  The downside is that smaller companies do not have the breadth of product line to sustain an agent on an exclusive basis.  The agent typically will need several vendors with products directed at a target customer base.  This can work well if the product baskets are not competitive and typically that is how a contract is set up. However, the problems begin to occur when your company is looking to penetrate a new market or launch a new product.  You may be interested in a space that your agent network may already be in with another vendor.  You are now left with a decision to release that agent or acquiesce to their existing relationships.  This can lead to the thinking that “going direct” as quickly as possible is the best long term plan for any company.

Ironically, some of the biggest most profitable manufactures in the medical device space operate exclusively through distributors. How does this reconcile with the problems listed above?  In my opinion both channels can work.  It speaks to the quality of the direct sales force or 1099 agents.  They both need to be managed and can be equally successful.