Quick links

Choosing Your Sales Route

NIC Document

Summary

A vital part of product development is planning how to sell your products to the market. This guide outlines the different options available and looks at the key advantages and disadvantages of each one.

In brief

  1. Sales team
  2. Sales agents
  3. Distributors
  4. Joint ventures
  5. Out-licensing

Introduction

Before you start developing your product, it is important to examine the market and identify your most appropriate sales route, making sure that the one you choose will give you a good return on investment. There are a number of potential sales routes, each with different benefits and risks. If you’re developing a number of products, it is possible that you will need to use different sales routes for different products. Additionally, you may decide upon different sales routes for the same product in different territorial or application markets.

Sales team

A sales team gives you the most control over how your product is marketed and sold. This route should also take the shortest time to organise as you don’t need to make any deals with other stakeholders.

Advantages include:

  • Margin – Although there will be more costs to manage, a successful sales model should give you the highest margin for each product sold
  • Scalability – Using this model allows you to start with a small team in order to manage costs and increase it as your sales increase
  • Customer service, reputation, and brand building – A direct sales route will also enable you to build your brand which can either support or slow down your future direction, depending on how your brand is handled
  • Disadvantages include:

  • Cost – Good salesmen are expensive and if you’re looking to sell a new product, it is likely that it will cost you money to sell until you start to make a profit
  • Coverage – If you are setting up a new sales team, it is likely that your coverage of the country will be patchy until you can expand your team. You will need to concentrate on key accounts until you can afford to expand your coverage
  • Storage and distribution – Health service providers often require rapid service so an effective distribution service is important in providing effective and timely customer service
  • Sales agents

    Sales agents are essentially independent salesmen who sell a range of products from a number of companies. Under an agency agreement, you agree that they can sell your product in a particular territory in return for a percentage of the sales price.

    Advantages

  • Cost – Although you may have to pay for expenses and the agent will require a larger incentive than a company salesman, you will not have to pay a salary or other associated costs
  • Existing network – Most agents should have an existing network in your target markets
  • Disadvantages

  • Focus – Agents are likely to be selling a number of products and it is likely that they will focus on the ones that give them the biggest return and that they find the easiest to sell. If your product does not fit into these criteria, it may not receive the focus it deserves
  • Termination – It can be very difficult and expensive to terminate an agency agreement and they may still be entitled to a share of sales in their region even after the agreement has finished
  • Distributors

    Selling can be an extremely difficult job, particularly if you don’t have an established sales team or the relevant infrastructure and experience. The ideal distributor will sell a range of non-competing products into your target marketplace and will have the necessary infrastructure and coverage to support the territory you appoint them to distribute to. In the distribution contract, you will agree sales targets. If they fail to meet the targets, you should be able to terminate the contract if you want to.

    Advantages include:

  • Infrastructure – A distributor should already have the infrastructure required for a successful sales operation, which means that you will not need to develop these systems yourself. These include storage, ordering systems, invoicing and product tracking
  • Sales network – If you choose the right distributor for your product, they should have appropriate contacts in your product field, a sales team that covers the territory you wish them to sell into, and experience of selling into your target market
  • Disadvantages include:

  • Margin – A distributor will expect a large discount on the price of your product, as they have to support the infrastructure and cost of selling it. Commonly, a distributor will expect to pay 40-60% of the final sales price for the product. When choosing a distributor, it is not necessarily advisable to appoint those who will accept the lowest margin on the product. You should also take into account the reputation, size, and ability of the distributor, and the fact that if they have a larger margin they will have more incentive to sell the product
  • Finding the right distributor – Finding the right distributor for your product can be a very time consuming process, as can persuading them that they want to distribute it and defining your agreement with them. If your product has not been used in medical practice before, the distributor is potentially taking a risk with their reputation, as they will not know for sure how well the product will work in clinical practice
  • Joint ventures

    Another option is to create a joint venture to exploit a product. The advantages and disadvantages of this model are discussed in the guide on Joint Ventures. In some overseas markets, you may be legally required to form a joint venture with a local company in order to sell your products.

    Out-licensing

    In an out-licensing sales model you would develop your product to the point where it can be sold and license it to an established company in the market.

    Advantages include:

  • Greater exposure – If you can come to an agreement with a multinational company, the product will benefit from increased market coverage and more sales and marketing power behind it
  • Sales route for dependency items – Some products are very difficult to sell as stand-alone items. It can be of benefit to both you and the other party to license to a company with a gap in its portfolio or a poor product compared to the competition
  • Disadvantages include:

  • Difficult to negotiate – It can be extremely difficult and time consuming to negotiate out-licensing agreements
  • Valuation – It can be challenging to achieve a valuation for your product that matches your expectations. This is particularly true when the company you are attempting to license to is aware that you have a limited number of options for your sales route