The number of field sales reps you need to cover a market is a function of the size of the target market (number of prospects, number of customers and size of geography), the complexity of the product or sale, and the level of sales support. The number of sales reps you employ is a balance between how many you need and how many you can afford.
If you are fortunate and manage your sales force properly, your total market will always be larger than you can cover with your existing sales force. The reason for this is two-fold – the incremental value of additional customers and sales rep effectiveness when focusing on a targeted territory.
Incremental Customer Value
Not all customers are equally valuable.
Some customers drive higher levels of revenue for your company at little additional cost. Some customers showcase your products or services which attracts new customers and new business. Some customers who serve as research partners or beta test sites provide value to your company not reflected in sales. Other customers, however, demand more support than you can afford to provide. Or they frequently return purchases for refunds, which drives up inventory costs and restocking fees. In the end, you want more of the profitable customers and fewer of the low-margin (or unprofitable) customers.
Instead of going after every opportunity in the market, hire fewer sales representatives than the market can support. Direct and compensate them to go after the most profitable customers, leaving the unprofitable customers for your competitors.
Manage the effectiveness of your sales representatives by limiting their territory. Direct them to go after only the most profitable or productive customers. Sales representatives with territories that are too large often flounder, unsure of where to focus their efforts. They go after everything and achieve little. (See my earlier blog on “How Much Territory Should I Give My Sales Reps?”)
Product Complexity, Sale Complexity
Complex products and complex sales cycles demand more time with the prospect. Sales representatives in this environment spend much of their time selling to a limited number of well-qualified prospects. As a result, they are unable to service a large territory.
In a complex product or sales environment, you may need more sales representatives to sell to your market than you would in a simpler environment. The off-setting benefit, however, is that generally complex products and complex sales generate higher gross margins than commodity-type products. Higher gross margins should more than offset the higher cost of a larger sales force.
Level of Sales Support
Office and field sales support staff can reduce the time demands on your field sales representatives, freeing them up to sell to more prospects and customers. The more customer and sales support you provide, the less time your sales rep will spend on non-sales activities. Customer support may include customer service, technical support and quality control. Sales support includes the fulfillment process to get marketing collateral into the field, sales materials such as presentations and demos, proposal development, pricing, technical support and executive briefings. In short, if you can shift more work away from the sales representative, he or she will be able to manage more customers and a larger territory.
How many reps can I afford?
Finally, the right number of reps to put into a market depends on how many you can afford. In theory, you should continue to add reps as long as they cover their costs by bringing in profitable customers. In reality, you need to evaluate how many you’ve got the money to pay for.
When hiring sales reps, they should easily pay for themselves by generating additional revenue with attractive gross margins. However, sales reps do not generate revenue starting day 1. You need to take into account the length of your sales cycle (1 day, 1 week, 1 month, 1 year?). You also need to account for training costs, equipment, offices, expense, telephone and other services. In time, these should all be covered by the sales reps’ production. In the short term however, cash flow and competing resource demands may dictate how many reps you hire and put in the field.
For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.
© 2009, David P. Wallace