As vice president of sales for a rapidly growing company, you are grappling with the question of expanding the size of your direct sales force (from its current level of 60 national sales people) You are considering hiring from 5 to 10 additional personnel.
How would you estimate the additional dollar cost of each additional safety person?
Based on your company’s past sales experience, how would you estimate the expected net revenue generated by an additional salesperson? (be specific about the information you might use to derive this estimate.)
How would you use these cost and revenue estimates to determine whether a sales force increase (or possibly a decrease) is warranted?
To estimate the additional dollar cost of each additional salesperson, you would need to consider various factors. Here's how you can approach it:
1. Determine the direct costs: Start by identifying the direct costs associated with hiring and maintaining a salesperson. This includes salary, benefits, commissions, and any other direct expenses specific to sales personnel.
2. Consider indirect costs: Besides the direct costs, you should also account for indirect costs such as training, onboarding, office space, equipment, and other support services that are required for the sales force.
3. Calculate average cost per salesperson: Divide the total costs (direct + indirect) by the number of current salespeople (60) to get an average cost per salesperson.
4. Estimate the additional dollar cost: Multiply the average cost per salesperson by the number of additional personnel you plan to hire (5 to 10).
To estimate the expected net revenue generated by an additional salesperson, you can use historical sales data and other relevant information. Here are the steps to follow:
1. Analyze past sales data: Look at your company's historical sales figures and determine the average revenue generated by each salesperson over a given period.
2. Account for product/service changes: Consider any changes in your products or services, as well as changes in the target market, competition, pricing, or other relevant factors since the time period of the historical data. Adjust the historical revenue figures accordingly, if needed.
3. Consider industry benchmarks: Research industry benchmarks or standards to understand the typical revenue generated by salespeople in similar roles or companies.
4. Forecast revenue: Based on the historical data, adjusted figures, and industry benchmarks, estimate the expected net revenue that an additional salesperson can generate.
To determine whether a sales force increase (or decrease) is warranted based on the cost and revenue estimates, you should consider the following:
1. Compare costs and revenue: Compare the estimated additional dollar cost per salesperson with the estimated net revenue generated by each salesperson. If the revenue outweighs the cost, it suggests that increasing the sales force might be justified.
2. Consider growth projections: Evaluate your company's growth projections and goals. If you anticipate significant growth and have the capacity to support more salespeople, it implies that increasing the sales force could help capture new business opportunities.
3. Assess market demand: Analyze the market demand for your product or service. If there is unmet demand or potential untapped markets, expanding the sales force can help in reaching more customers and increasing sales.
4. Account for competition: Consider the competitive landscape. If your competitors have strong sales teams or if you are losing market share, expanding the sales force might be necessary to stay competitive.
By carefully analyzing the cost estimates, revenue projections, growth expectations, market demand, and competition, you can make an informed decision about whether to increase or decrease the size of your sales force.