1099 vs. W-2: Choosing the Right Workforce

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Welcome back to the Sales Focus, Inc. Podcast. My name is Tony Horwath, founder and CEO of Sales Focus, Inc. We started the sales outsourcing industry or pioneered the sales outsourcing industry in 1998. Well, I did. I did it with an idea. There were no other organizations doing that, but the word of BPO or business process outsourcing started to become more popular in the mid-90s, and I came up with this idea of doing sales outsourcing or sales BPO in 1998. We launched and really established ourselves in late 1999 and 2000. In that rollout of Sales Focus, Inc., the model was always building and developing dedicated sales teams that would help our clients grow to the next level of their organization. How do we get them to become a million-dollar company, $10 million company, $200 million company? So we’ve worked with small organizations across the world. We’ve worked with some of the biggest companies in the U.S., Fortune 500s across all regions, across all industries. But our focus initially was really that outside sales team. How do we build outside, dedicated outside sales teams in geographical targets that our clients needed us to be or across the U.S. where they needed contacts into many, many different prospects, but they were spread out across the U.S.? And we’ve done all those different types of services. Now over the years, what’s transpired for sales outsourcing, there are a lot of companies out there that will do 1099 or commission-only sales. And I’m going to give you my feedback or my perspective of commission-only salespeople. Our model at Sales Focus Inc. is we do not do anything commission-only. We do a fee plus commission. Why do we do that? Because we hire the salespeople. They’re W-2 employees of Sales Focus. They’re trained, they’re managed, they’re on our insurance benefits. We give them a nice place to be and live and stay with for a long time compared to a 1099 or a commission-only model where it’s very transactional in nature. I’ve spoken with other CEOs of organizations similar to ours, but they use a 1099 model. Their turnover rate is typically about 100% every 90 days to 120 days. That means 1099. No salespeople stay longer than typically 90 days. Now, I’m sure there are outliers out there that have been with an organization for some time because they’ve built a good base of business. But the turnover of 1099s or commission-only people is typically about 100%. Now, do we have turnover? Absolutely, because every sales organization needs to have turnover. Not every salesperson does well in every situation. They may be with us and do really well, but they may get promoted and go someplace else. Or they may be with us and not hit the quotas that we need them, and then we do have to make changes. It happens in sales. It doesn’t mean that they were a bad salesperson, typically, but it could mean that that selling situation or that product or who we were selling to just didn’t fit their skill set. But what we do for all of our clients is commit to hiring quality salespeople. What does that mean? Well, when we hire a salesperson, we want to make sure that they have the skill sets necessary to be successful. So if we’re building a team of 20 or 30 or five people across the U.S., we’re going to do outreach and our internal recruiters are going to make sure we hire the right people who can be trained properly, who have the right skills, the right tools in order to be successful. I always say we can train almost any salesperson to be successful. I can give them skills and techniques and tools. The only thing I can’t give them is the ability to get up and open their car door and get to work every morning. If you have the work ethic, we can make you successful. But let’s talk about the 1099 versus W-2 environment. In our 28 years, almost 29 years now, as I mentioned earlier, we’ve hired between 25,000 to 30,000 salespeople. In that time, we have never, not one time, have we had a situation where our client was put in a situation where they would have some liability against them because of anything that we have done. Now, why is that? It’s because we take great care in hiring the right people and making sure that they’re trained properly. We take ethics and professionalism to the highest level. If we have anyone who does anything that we consider unethical or unprofessional, we make immediate action or take immediate action for replacement. So, if you really care about your brand, if you want somebody representing your brand, because remember, when we’re out selling, we’re carrying your business card. So if I’m representing ABC company, my business card is saying ABC. Sales focus is not on there. It’s about your representation, whether it’s on the phone, in emails, face-to-face, whatever the case may be. When we’re representing a brand, that brand has to be protected. And again, whether it’s a Fortune 500 brand or it’s a small independent that you’ve never heard of before. I have a lot of small organizations that come to us and they’ll be like, ah, brand really doesn’t matter. Brand protection is not that important. I totally disagree. When you’re a small organization, if your brand gets damaged, the likelihood of you being able to overcome that is very slim. A big organization, a large organization, they can take a couple hits. I always like to tell this story. We work a lot in the energy sector and it’s deregulated energy. And we have represented over 50 energy providers across the US in multiple territories. And in that time, we have written tens of thousands of contracts. We’ve generated hundreds of millions of dollars for our clients. But it’s also a very regulated, deregulated market. There are a lot of rules that go along with the salespeople, what they can say and can’t say, and how they interact with customers. But what can they promise those customers? You have to be very careful about the way you say things and how you say things. And we want to represent our brands or our clients in the most reputable way possible. Just recently, we’re working with a client in the mid-Atlantic region. And when they first came to us, this was a very large organization. They’ve been around well over 100 years. And they had done previously an outdoor or an outside sales program, and it was a failure. And their management team got very frightened of doing that work again. They wanted to, they wanted to put feet on the street, they wanted to be interactive with their clients, right? They’re already customers, but they were very fearful of getting into a liability because the salespeople that they used previously before our organization had done some unprofessional, unethical things, right? Misrepresented their brand or misrepresented the product or told customers the wrong thing. And it’s a very serious offense, right? So when we started to engage with them three years ago, we went through steps of building the relationship, but also showing them, hey, our brand protection, our quality of work with our W-2 employees, second to none. Does it cost more to use us? Probably not. Because when you really look at the cost of the salary or the monthly retainer plus the commission, it’s at the end, it’s probably a little less expensive to use us. And I’ll tell you why. We keep our people. We have better salespeople. They’re trained better. They’re more productive. So when you look at that and you say, okay, we’ve had programs for eight years, nine years, and we’ve had salespeople that have stayed on the same program for that period of time. It’s unheard of. And when you go into the 1099 or commission model and you look at 100% turnover in 90 days or 120 days, it’s obviously there’s a big difference in the quality and the production, the integrity, the professionalism, all those things factor into it. Back to that client. Now we’re getting ready to launch feet on the street for them because in those three years of time, we’ve shown them and proven to their executive management team, hey, this company, Sales Focus, is able to hire a quality team of people and put them out there and represent our brand in the most professional way. So I mentioned earlier, we’ve generated hundreds of millions of dollars in that sector, in the energy sector, and we’ve written tens of thousands of contracts. Not one time, not once in all those years, 20 plus years now, 25 years of doing this, have we ever had one of our clients have a situation with the Public Service Commission, meaning customer complaint. It’s never happened with us. And there’s a simple reason for that. It’s about making sure that we’re hiring the right people and we’re training the right people, making sure that when they’re out there, they continue that training to make sure they’re doing things in a professional manner. So why would you use a W-2 model? Most people say, because I need brand protection. I want to make sure it’s the right people representing my company in the right way. And you have control over a W-2 model. If you really are using a 1099 or commission type model, if you’re operating it properly by the law, you really have no control over those teams. Those individuals are supposed to be coming to you with a skill set already there where they can do their business and then invoice you or invoice the company for the services that they’re doing or get paid commission based on the services. But legally, you’re not supposed to give them direction. You’re not supposed to tell them what to do every day. You’re not supposed to tell them the hours that they can work. So if you really look at, I want control of a dedicated professional sales organization, I truly believe sales focus is the option you really should look at. I appreciate the time. Think about what works for your organization. But if you’re looking to really find success and grow your business to the next level, whether you’re already a really large organization and you’re a mid-sized company and you want to take that next step, reach out to salesfocusinc.com and let us give you a free analysis on where you are as a sales organization, where you are from a digital marketing perspective, and see how we can help you. Thank you. Until next time, this is Tony Horwath, CEO, founder, Sales Focus Inc.