So you want to add a new person in sales?

Big Red Car here.  Nice day in the ATX, nice and sunny and getting a bit warm.  Maybe some pool time this afternoon for a Big Red Car?

Well, we will see.

OK, so The Boss is talking to one of his hard headed CEOs — they are all very special people because they are those crazy entrepreneurial types who can live on air and work their butts off — about how to determine when or whether to add a person to the sales effort.

The simple, one cell, worm like brain analysis

The Boss likes to use a bit of analysis.  About a single index card analysis.

Here is his simple, one cell, worm like brain analysis.  [Hey, I hope The Boss does not take offense at that, you know what I mean?  The old boy has a pretty thick skin.  I hope.]

1.  Determine your total cost of overhead — everything.  How much does it take to run your company on an annual basis?

2.  If you already have some sales persons, identify their cost and productivity — how much does it cost to employ them for a year?  How much revenue do they generate over the same year?  Are they covering their own direct cost and are they contributing to the costs of the company?  Hopefully, they are making you a bit of profit, no?  If you have no current sales staff, then skip this step.

3.  Ascertain the cost of an additional sales person for a year.  If you already have sales folks, then you can base this cost estimate on your actual costs.  Take into account that it make take six months to get a new salesperson up to speed and maybe therefore, you may want to take a two year look at costs.

4.  Now, estimate how much revenue the new sales person can bring in over the first year — or whatever time period you desire to use for your analysis.  Again, if you have existing sales persons this will be easy to do.

Now, let’s take that information and work a problem.

Work a problem with me

So let’s drop in some numbers and see what we get.  Click on the following PDF to see a quick little spreadsheet.

Additional sales person analysis <<< click here

So, what you can see is that we have laid out the impact of having from one to four salespersons.

We have used the numbers we identified above and we have increased the cost of overhead an arbitrary ten percent each time we add a sales person.  This is a background cost increase.  Note also that with different iteration, we are adding the cost of the prior number of sales persons to the background overhead cost.  In this manner, you can clearly see the impact of one additional sales person.

Don’t be a literalist

The methodology for the analysis is the teaching point.  Don’t struggle with the differences between your company and the analytical approach.  Adapt it to your specific enterprise.  Each company will be a little bit different.

Your company and product may not lend itself to a “sales person” analysis because it sells directly on the Internet, as an example.  If so, this approach may not be for you exactly but the underlying logic may guide you to a better way to look at things.  Do that.

I hope this is useful to you.  If not, send me a message and I will help you directly.

Diana Ross

But, hey, what the Hell do I know anyway?  I’m just a Big Red Car.

Be good to yourself, you deserve it.

 

 

  • http://www.pointsandfigures.com pointsnfigures

    Big Red Car, don’t quite understand. Aren’t their diminishing returns? At what point are they in your example? Also assuming that this company would never hire just one salesperson. They would hire two.

    Am also assuming all support costs are included in the analysis. Meaning, if you have to hire back office support staff, follow up staff, etc.

    • http://www.themusingsofthebigredcar.com/ JLM

      .
      The example only contemplates considering hiring up to 4 sales persons — an increase of 3 sales persons. Base case is for one already.

      There will be a lot of room to grow for this little company. Carried to infinity, there will some day be no more market share to garner but that is way, way, way in the future. This will be a $250MM revenue company one day.

      Lots of room to grow and lots of sales persons to hire. Each one sussed out as noted.

      The incremental support is in the $100,000 increase from $1,000,000 to $1,100,000 in background overhead. Look at the case for 1 sales person v 2 sales persons.

      BRC
      .