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 and the expected net revenue generated, you can use the following equation:

Additional Dollar Cost = Base Salary + Commission + Training Cost + Onboarding Cost

Expected Net Revenue = Average Deal Size x Conversion Rate x Annual Number of Deals

To derive these estimates, you will need specific information from your company's past sales experience. Here are the components you should consider:

1. Base Salary: Determine the average base salary for your existing sales force. This can be obtained from your HR or finance department.

2. Commission: Calculate the average percentage of sales revenue paid as commission to your existing sales force. This information should be available from your sales compensation plan.

3. Training Cost: Evaluate the average cost of training programs required for new salespeople. Take into account expenses like training materials, trainers' fees, and facilities.

4. Onboarding Cost: Assess the average cost of bringing new salespeople on board, including expenses like recruitment, hiring, orientation, and equipment setup.

5. Average Deal Size: Analyze historical data to identify the average dollar amount per deal closed by your salespeople. This information may be found in your CRM system or sales reports.

6. Conversion Rate: Determine the percentage of leads or prospects that your sales team successfully converts into paying customers. This can be derived from your sales analytics or historical data.

7. Annual Number of Deals: Calculate the average number of deals closed by each salesperson in a year. Use historical sales data to determine this figure.

Once you have gathered this data, you can plug it into the equations provided above to estimate the additional dollar cost and expected net revenue generated by each additional salesperson.

To determine whether a sales force increase or decrease is warranted, compare the expected net revenue generated with the additional dollar cost for each additional salesperson. If the expected net revenue is significantly higher than the additional dollar cost, it may indicate that expanding the sales force is justified. However, if the additional dollar cost outweighs the expected net revenue, it may suggest that increasing the sales force is not financially viable. A comprehensive cost-benefit analysis will help guide your decision-making process.