The Foodservice Sales & Marketing Association (FSMA) has released a must-read, comprehensive industry White Paper, co-sponsored by its FSMA Foundation and ASMC Foundation, comparing the economic differences of agency sales and direct sales. The study provides a unique calculation tool to answer the age-old question of which sales method is the best for a manufacturer.
For more than 100 years, agencies have been the primary go-to-market selling source. The chief reason for the overwhelming preponderance (70-75% of U.S. foodservice product volume) of agency sales is that they are significantly more cost-efficient and effective than direct sales. The study explains how agencies are significantly more cost-efficient because they are able to spread the sales, marketing and support costs (known as “syndication”) across the numerous clients they represent. This syndication ability of agency services allows sales agencies to perform activities much more cost-efficiently than direct sales, which have no such advantage because manufacturers cannot replicate the highly efficient syndication model.
Furthermore, the White Paper describes how agencies are compellingly more effective than direct sales because they are closest to the customers in their markets, with long-standing relationships and intimate market knowledge with all customer segments. Agency syndication also provides experienced multi-client sales and marketing services, culinary facilities, dry and cold storage, and customer service and order management staffing, among many other services that would be cost-prohibitive for almost all manufacturers to replicate in each of their markets. The syndicated representation is favored by buyers because it permits a more efficient interface than having to build relationships with hundreds of different manufacturers.
While agency services are typically associated with making customer sales calls, the study reveals that sales calls are just one of many services performed by agencies. This classification often ignores all the other services provided by agencies in support of the essential sales and marketing activities. The White Paper includes detailed identification of all the brokerage activities performed by syndicated agencies in every market, without which services sales growth is nearly impossible for manufacturers to achieve using direct sales.
To aid in a proper agency or direct analysis, a Sales Cost Analysis Tool was developed to accurately compare fully loaded costs associated with an agency’s many services which a manufacturer needs to incorporate to be competitive with those services performed by an agency. The Sales Cost Analysis Tool includes a fill-in-the-blank worksheet for a manufacturer’s comparison using their own internal costs and needed new service cost estimates.
The White Paper permits a manufacturer to evaluate the financial impacts of each model using the customizable Sales Cost Analysis Tool before risking significant increased sales and marketing costs. These include the possible loss of effective sales of its products due to the loss of local relationships and loss of cash flow since agency commissions are variable, based on performance, and paid from sales, versus fixed payments to in-house direct staffs paid in regular payroll intervals.
Copies of the White Paper and the Sales Cost Analysis Tool (in a customizable Excel spreadsheet format) are available for download at no cost from the ASMC Foundation website at www.ASMCFoundation.org and the FSMA Foundation website at www.FSMAonline.com. At FSMA’s annual Top2Top-NexGen Conference in Phoenix on January 15-17, 2019, through the sponsorship of the ASMC Foundation, the Agency or Direct study, perspectives on the markets from executives Whole Foods and Amazon and other important topics like these were actively discussed. Visit www.FSMAonline.com for conference information.
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