Recently I was asked by a successful door-to-door sales rep if he should start his own company. Obviously, this isn’t a simplistic decision as there are many questions that need to be answered such as:
Do I want to shoulder the responsibilities that come with owning my own business?
Am I looking to build long-term financial wealth, or do I need money now?
Am I willing to take on the risks (financial, legal, reputational, etc.) associated with a failed attempt?
Am I prepared to sacrifice time away from family and fun to start my working days early, end them late, and be at the constant mercy of employees, vendors and customers?
Once these questions (and many others) are answered, then it’s important to thoroughly review the numbers. Here’s what I gathered from this sales rep:
Number of accounts serviced the past 3 years – 1,850
Average contract value of these accounts – $445
Revenue generated – $823,250
Commissions earned – $450,000+
He’s clearly done well for himself earning quick cash! However, as he’s getting older, his objectives are set on building long-term, sustainable income and he’s realizing that working for somebody else may not be the best way to accomplish his overall goals.
So let’s play out the scenario.
Hypothetically, let’s assume he starts his own company and runs a 20% profit margin. Over the course of the 3 year period he generated over $800k in revenue as a sales rep, his company would generate $1.3M in recurring revenue (assuming a typical cancellation rate) and would profit $265k. This is a far cry from the $450k he earned as a sales rep. However, he could potentially make up the difference in just over 2 years without having to knock another door.
This being noted, if he continued selling accounts, even on a part-time basis, the $185k difference could be made up in as little as 1 year.
In this scenario, the primary benefit for him, as he concluded, was the opportunity to earn money from sales he made years ago instead of having to start from zero each year as he’s been doing as a sales rep.
Granted, this is a simplified model, and there are many other factors that need to be determined before starting your own business. Nonetheless, this provides a baseline for you to determine if it makes more sense to further explore becoming a business owner or continue as a sales rep.
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