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

see my post above.

Thanks, I found it.

To estimate the additional dollar cost of each additional salesperson, as well as the expected net revenue generated by them, you can use the following equation:

Cost per Salesperson = Base Salary + Commission + Benefits + Training Expenses

To determine the base salary, you can consider the prevailing market rates for sales professionals with similar experience and skills along with any internal salary structures your company may have. Commission can vary, but you can estimate it based on either a fixed percentage of the salesperson's total revenue or a tiered commission structure.

Benefits such as insurance, retirement plans, and vacation time should be added to the equation. Training expenses can include any costs associated with onboarding and skill development programs for new hires.

Once you have the estimated cost per salesperson, you can move on to estimating the expected net revenue generated by each one. To do this, you can use historical data and metrics such as:

1. Average revenue per salesperson: Calculate the total revenue generated by all salespeople over a specific period (e.g., one year) and divide it by the number of salespeople. This will give you the average revenue per salesperson.

2. Sales conversion rate: Determine the average percentage of leads or prospects that a salesperson successfully converts into paying customers.

3. Average deal size: Calculate the average value of a closed deal for your company.

Using these metrics, you can estimate the expected net revenue generated by each additional salesperson by multiplying the following:

Expected Net Revenue = Average Revenue per Salesperson * Sales Conversion Rate * Average Deal Size

Once you have the estimated cost per salesperson and the expected net revenue, you can compare the two to determine if increasing or decreasing the sales force is warranted. Here are a few scenarios:

1. If the expected net revenue is significantly higher than the cost per salesperson, it may justify hiring more salespeople.

2. If the cost per salesperson exceeds the expected net revenue, it might indicate that the company is overstaffed, and decreasing the sales force could be more beneficial.

3. If the expected net revenue is slightly higher than the cost per salesperson, you could evaluate other factors such as the potential for increased market share or the strategic importance of expanding the sales team.

Remember that these estimates are based on historical data and assumptions, so regular monitoring and adjustment of your calculations are important to improve accuracy over time.