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 salespeople). You are considering hiring from 5 to 10 additional personnel. How would you estimate the additional dollar cost of each additional salesperson? 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 can follow these steps:
1. Calculate the direct costs associated with hiring a salesperson:
- Recruitment costs: Include expenses such as job postings, background checks, and agency fees.
- Onboarding costs: Account for training materials, tools, and any necessary equipment.
- Salary and benefits: Determine the base salary and consider additional costs like commissions, bonuses, and healthcare.
2. Factor in indirect costs:
- Administrative support: Consider the time and resources needed from other departments to support the sales team.
- Travel expenses: Estimate costs related to sales trips, client meetings, and conferences.
- Overhead costs: Include office space, utilities, and other shared resources.
3. Sum up these direct and indirect costs to determine the total dollar cost for each additional salesperson.
To estimate the expected net revenue generated by an additional salesperson, you can follow these steps:
1. Analyze historical data: Look at past sales performance to identify trends and patterns.
2. Identify key performance indicators (KPIs) for salespeople: Common KPIs include total sales revenue, new customer acquisition, customer retention, and average deal size.
3. Calculate the average revenue generated by your current sales team: Divide the total sales revenue by the number of current salespeople.
4. Assess individual salesperson performance variations: Look for significant differences in performance between salespeople to identify top performers and low performers.
5. Consider the market potential: Analyze the size of the target market and evaluate the potential revenue growth by expanding the sales force.
To determine whether a sales force increase or decrease is warranted, you can use a cost and revenue analysis:
1. Compare the total cost per additional salesperson with the expected net revenue generated.
- If the expected net revenue significantly exceeds the cost, it might indicate a potential increase in the sales force is warranted.
- If the cost outweighs the expected net revenue, it may suggest that increasing the sales force is not a viable option.
2. Consider the scalability and market conditions:
- If the market has substantial untapped potential, adding salespeople may be beneficial.
- Evaluate the scalability of your product or service to determine if there is room for growth.
3. Assess the impact on the existing sales team:
- Consider how adding more salespeople may affect team dynamics, workload distribution, and overall productivity.
- If your current team is already overloaded, it might be necessary to consider increasing resources to support the salesforce.
By carefully analyzing the cost estimates, revenue estimates, market potential, and considering the impact on the existing team, you can make an informed decision about whether to increase or decrease the sales force.