Does your company think about the long-term profitability of its sales force, or does it only focus on short-term results? Research by Harvard Business Review has shown that by focusing on only immediate profits to decide the number of salespeople you hire will actually cause your sales force to be undersized by approximately 18%. Many times, leaders are under pressure to deliver results quickly and only focus on the first-year impact. However, long-term profitability should be the main focus and the approach you take to decide the right number of salespeople is important.
Hiring sales people based on an “earn your way strategy” or cost-to-sales ratio is no longer an effective way to determine the most effective sales force size. Harvard Business Review’s article, “Does Your Company Have the Right Number of Salespeople” describes three important steps to best measure how many salespeople your company should employ.
For sales managers, this is not an easy question to answer. The number of salespeople affects profitably by impacting both revenues and costs. It’s easy to estimate costs by looking at historical compensation, benefits, field support, and travel costs per salesperson. But it’s much more difficult to predict revenues, as it requires understanding how complexities such as customer needs, the economy, and the effectiveness of your and your competitor’s salespeople, influence a sales force’s ability to generate sales.
Most companies use financial decision rules to determine how large their sales forces should be, but regrettably, these rules often lead to poor decisions. Consider three commonly-used rules…
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