(Economyst only Please):
As a VP of sales for a rapidly growing company, you are grappling wirh the question of expanding the size of your direct sales force (from its current level of 60 national salespeople). You are considering hiring from 5 to 10 additional personnel. How would you estimate the additional dollar cost of each additional sales person? Based on your company's past sales experience, how would you estimate the expected net revenue generated by an additional sales person? (Be specific about the information you might use to derive this estimate). How would you use these cost an revenue estimates to determine whether a sales force increase (or possibly a decrease) is warranted?
I need help finding an equation to answer this with, please help..
Thanks
To estimate the additional dollar cost of each additional salesperson, you need to consider the various factors that contribute to the cost of sales personnel. Here's an approach you can take:
1. Begin by identifying the different cost components associated with each salesperson. This can include the base salary, commission or bonus structure, benefits, training and development expenses, travel and entertainment costs, and any other expenses specific to your industry or company.
2. Calculate the average cost per salesperson by dividing the total cost of the sales department by the number of salespeople currently employed. This will give you the baseline cost per salesperson.
3. Analyze your historical data on the relationship between the number of salespeople and company performance. Look at how revenue has changed in the past with an increase or decrease in the sales force size. This analysis will help you estimate the expected net revenue generated by an additional salesperson.
4. Determine the additional cost of hiring new salespeople. Consider the additional salary, benefits, and other expenses they will incur. You can estimate this by multiplying the baseline cost per salesperson (from step 2) by the number of additional salespeople you are considering.
5. Estimate the potential revenue increase that can be attributed to each additional salesperson. Based on your analysis from step 3, determine the average revenue generated by each salesperson. This can be calculated by dividing the total revenue by the number of salespeople.
6. Compare the additional revenue from step 5 with the additional cost from step 4. If the potential revenue increase exceeds the additional cost, it may be justified to increase the sales force. Conversely, if the additional cost outweighs the potential revenue gain, you may need to reconsider increasing the sales force size or even exploring a decrease.
Please note that this is a general framework, and the specific calculations will depend on the unique circumstances of your company and industry. It's always a good idea to consult with your finance and HR teams to get accurate and up-to-date financial data and to discuss any specific factors that might influence the analysis.