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.
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:
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