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?

Question

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

Answer 1

See my post above.

Answer 2

To estimate the additional dollar cost of each additional salesperson, you can use the following equation:

Cost per Additional Salesperson = Total Sales Force Costs / Number of Salespeople

To derive an estimate for the expected net revenue generated by an additional salesperson, you can use historical sales data and consider the following factors:

1. Average Revenue per Salesperson: Calculate the average revenue generated by each salesperson in the past. Divide the total revenue by the number of salespeople.

2. Average Revenue Growth Rate: Determine the historical revenue growth rate of your company over a specified period of time. This can be calculated by comparing the revenue in the current period to the revenue in the previous period. Divide the difference by the revenue in the previous period and multiply by 100 to get the growth rate.

3. Salesperson Productivity Rate: Calculate the average revenue per salesperson per time period (e.g., per month or per quarter) by dividing the total revenue in that period by the number of salespeople.

Once you have these estimates for cost and revenue, you can compare them to determine whether a sales force increase or decrease is warranted. Consider the following scenarios:

1. Cost vs. Revenue: If the additional revenue generated by hiring more salespeople exceeds the costs of hiring and maintaining them, it could indicate that increasing the sales force is justified.

2. Revenue Growth Rate: If the expected revenue growth rate is high and hiring additional salespeople can help achieve that growth, it may be a strong indication to increase the sales force.

3. Productivity Rate: If the average revenue per salesperson is declining or stagnant, it might be an indication that a decrease in the sales force is needed. Alternatively, if the productivity rate is high and hiring more salespeople will contribute to maintaining or increasing that rate, it could be a sign to increase the sales force.

By analyzing the cost and revenue estimates along with these factors, you can make an informed decision on whether to increase, maintain, or decrease the size of your sales force.