Sales Staff, How to know when you need more of them

A Hot Tip about Sales in the United States

Posted on: 1 Mar 2012

Along time, entrepreneurs I talk to regarding their sales operations have given me all sorts of reasons why they do –or don’t - increase their sales staff at a given moment.  To validate their reasons they also offer me all sorts of metrics and subjective opinions, ranging from interesting, to relevant, to superficial, etc…

The metrics you use to make decisions literally shape your company, your offer, your present and your future. Depending on what you measure will open new ways of seeing your operations, your staff, and your performance as a company. Performance is the Key.

In most of the cases, the decision to bring in or not new sales staff is ultimately driven by cost, otherwise we would hire sales staff every week, right? More sales staff = more sales, right? What seems to be not quite clear is what is the real cost of not bringing in more sales staff beyond the metrics of literal (wage + benefits) cost.

In present times, there is one thing that makes it easy for entrepreneurs to answer the hire/not hire decision: that they don’t have any budget, nor any way to get it. Complexity however, comes when there is actually some budget, but what could possibly be the best way to use it?

Revenue per Employee.

Imagine that your company makes 1M€ a year, and that you have 10 employees, two of which are your sales staff.

To obtain your revenue per employee (RPE) rate, you would divide your yearly invoicing by the number of employees. In our example it would be 100K€, right?

Now let’s imagine that from the total invoicing, 50% is existing business (no sales effort), and 50% is customer and business development. That would mean that each of the 2 sales people sell 250K€ a year, follow?

If you bring an additional sales person the numbers would be:

Total Revenue 1,25M€, number of employees 11, revenue per employee 113,6K€

Would your overhead, margins, and total expense move accordingly? You should find out.

When you get to this number and start playing with it, consultants recommend you compare it doing the same exercise with other companies’ data: Your competitors, your role model companies, and so forth, and from there start making decisions. When I witness entrepreneurs benchmarking themselves for the first time, I feel I am witnessing a true milestone.

It is also interesting to benchmark against companies in other industries (but similar models to yours) although this should be done with certain considerations, sure it would be nice to know the RPE from Google or Linked in, but don’t be misguided. In any case, if you want to benchmark some more obtain your RPE from each of the last 5 or 6 years in your company, and try to connect it with relevant milestones: new products, openings of new offices, successful campaigns and so forth. Likewise, at this point you should be ready create some future scenarios in which the RPE is one of your goals. Actually is more than a goal, it is a Key Performance Indicator (KPI).

Decisions… if your RPE number feels “low” you may either get additional sales-force, or empower your existing sales staff to bring more revenue. To my experience, once you start focusing on this number, you’ll quickly see the intrinsic appeal of hiring salespeople over other personnel. You may also look at reducing the cost of assets and people, provided you don’t compromise your value proposal. If the number feels “high” or satisfactory my suggestion is keep it high and reach higher, and be ready to brag about it in the right context and circumstances: Partners, business angels and investors generally smile before a high RPE…
 


Posted: 01 March 2012

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