To determine when to expand your sales force, you need to ask yourself two questions: “What can I afford?” and “What can the market support?”
What Can I Afford?
Sales reps produce revenue. They prospect for customers, present your products and solutions, and close deals. The more sales reps you hire, the more revenue you can count on. Based on this logic, as long as the market is not saturated, you should always hire more sales reps. They will pay for themselves.
There’s a problem with this logic because when you hire a new rep sales do not flow immediately. There is a lag from the time the rep starts work at your company and the time when cash flows from the sales your new rep closes. This time lag results from three major factors: on-boarding, training and the sales cycle.
- On-boarding represents the time it takes for a new employee to come on board your company. It’s the orientation period during which your new sales rep is learning your company, its processes and its procedures. There are forms to fill out and people to meet. The on-boarding period can last anywhere from a few hours to several days or weeks, depending on the size and complexity of your company and the number of interactions your rep needs to have across the company.
- Training can last from hours to days, weeks or even months. Your new sales rep needs to learn your products, culture, markets and competitors. The more training your rep receives, the more likely he or she is to be successful.
- The sales cycle constitutes the longest period before revenues flow from your sales rep’s efforts. During the sales cycle, your rep needs to identify prospects, qualify them, develop rapport, establish needs, sell features and benefits, close, invoice and collect revenue. In a retail operation, the sales cycle may only last a few minutes. However, in a complex business-to-business transaction, the sales cycle can last a year or more.
During the time lag, you still need to pay your sales rep, whether it’s salary or draw. You also have other costs associated with your sales representative – computer, phone, travel, expenses, support staff, etc. As the time lag between hiring and revenue production increases, the cost of the sales rep also increases.
Before hiring additional sales representatives, you must make sure you have enough resources to pay for your new sale reps through the period when they are hired until cash revenue is flowing from their sales. Here’s how to get a good estimate of how much you will need to cover a new rep. Multiply the rep’s compensation by the length of the time lag, then add in costs of computers, phones, travel, expenses. Finally, uplift that amount by 50% since things always take a little longer than you expect.
What Can the Market Support?
To answer this question, you need to consider two different perspectives. First, how will customers and prospects react to your additional sales rep? If they are already overburdened with sales reps (including yours) calling on them, they may react negatively to the new rep or to your company. However, if you offer a new product, a better product, or unique benefits that address critical customer needs, then the market may welcome more sales reps. Your goal is to either create new demand for your products, thereby expanding the market, or take existing market share away from your competitors.
Second, how will an expanded team affect your own sales force? When you add a new sales rep to an existing team, it may reduce everyone else’s earning potential. If your sales force is already covering your market thoroughly, adding a sales rep could have the following effects:
- Your existing reps will have to give up prospects and the associated potential income,
- Your existing reps will have to give up established customers and the associated income,
- Your new rep will be assigned the neglected prospects who likely have lower income potential,
- A combination of the above.
On the other hand, if the market is not saturated, then adding new sales reps can result in additional sales and revenue for your company. It can also produce a sales team that maintains a strong income level and customers who are pleased to buy more products to meet their business needs.
For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.
© 2009, David P. Wallace