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• Carlos Parape

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A note on sizing sales force Those firms that can achieve greater efficiency and effectiveness in the way they employ, deploy, and allocate resources to their sales forces will emerge as competitive winners. Among the key decisions that a firm must make lies the question of how many salespeople are enough. The size of a sales force often needs to change as companies evolve their products and adapt themselves to different market conditions. Data appear to reveal a very strong and positive correlation between sales effort and revenue.

A good sales force (appropriate structure with correct number of salespeople) can help a company achieve its strategic objectives. But factors both internal and external to the firm influence sales force size and at times, companies find that their sales forces have become too large or too small.

Factors that Might Cause a Company to Increase Its Sales Force Size External forces include changes to the company’s customer base, its competitor set, and its environment. Internal forces that might result in a decision to add to the sales force might be strategic ones such as launching a new product, entering a new market, adopting a new selling process and/or a go-to-market strategy that requires more salespeople. Expand its targeted customer base, enlarge its prospects and sales leads, and modify its sales focus from cost minimization to revenue generation. Productivity enhancement efforts that emphasize sales, market share, new business development, and reduced travel and workload might require more salespeople.

Factors that Might Cause a Company to Decrease Its Sales Force Size External factors such as changes in the buying process that require less salesperson input and services, shrinking markets, or consolidation among buyers might result in smaller sales forces. With respect to competition, fewer players or a general trend might result in downsizing a company’s sales force. Environmental changes such as a weakened or anticipated downturn in the economy could result in fewer salespeople. The existence of a new sales channel or new technology that enhances productivity in the field. Internal factors such as a merger/acquisition could result in taking two large sales forces and combine them to achieve a number less than the sum of the two. A marketing strategy that reduces the number of segments. If the sales function is viewed as a cost center, there is a tendency to have fewer salespeople. productivity tools that reduce costs and increase the effectiveness of units that support the sales effort.

Sizing Methodologies Approach 1: Activity-based method Involves estimating how many customers would the company target, what sales force activities would be required to target these customers, the time it requires for the activities and therefore the number of salespeople needed. Salespeople and sales managers can make judgments depending on what they have seen in the past and how they perceive the future to be. The firm can also find out from their customers what exactly their requirements from a sales force are. Other channel members who might provide useful information are distributors and wholesalers. the firm can also do a competitor analysis both intra-industry and interindustry.

Approach 2: Target return-per-call method Companies often have a target ROI for any investment they make. This usually depends on the WACC of the company. The target ROI itself can be a useful guide in determining the size of the sales force. The method takes into consideration both the cost and the revenue side of the equation. The value (revenue – variable costs) generated by each customer segment is estimated. Value estimation can be enriched by accounting for carryover of the current year’s effort to future years. (Carryover is the current year sales that result from the sales effort spent the previous year). Thereafter the salespeople required for and hence the cost to cover each segment is estimated. Having both the cost of covering and value generated by each segment gives a ROI number for each segment. The ROI number for each segment is compared with the ROI

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threshold of the company which gives us the segments that the company would want to cover. This in turn gives the size of the sales force.

Approach 3: Sales response method The sales response approach employs concept of “sales force drives sales” directly. If a product has been on the market for some time, the company can plot a sales response curve for the product. For this purpose, it uses historical information and extrapolates what the sales for the product would be under alternate sales force size scenarios. It is however, important to note that when gathering data from any two territories for comparison, they should have the same sales potential. It is possible to simulate the results of sales forces with different sizes and plot a sales response relationship. To determine the right sales force investment for different market segments, a comparison of the anticipated sales obtained under different call frequencies with associated cost is done. The most appropriate sales force size would yield maximum profit and not necessarily maximum revenue or minimum cost. By determining the best sales force investment strategy for each market segment, it is possible to determine the profit-maximizing sales force size.

Approach 4: Geographic concentration method If salespeople are required to cover large geographies, the location of accounts and the placement of salespeople can be a significant factor in determining the right customer coverage and thus the correct number of salespeople. The geographic concentration method for sales force sizing assumes that a sales force will not want to cover every account in person, due to high travel cost and inherent reluctance to

travel. The goal is to minimize the nonselling aspects of the salesperson’s job, so the sales force can be more productive.

A Comparison of the Different Approaches An activity-based approach would work well with products that have a well-defined selling process. For instance, an activity-based approach would work well with a wellestablished product because this method needs accurate estimation of the time required for different selling activities. But care must be taken while applying this method, because it can easily be manipulated to arrive at premeditated results. The target return-per-call method provides a fairly easy way for companies to link an activity-based plan with financial projections, thereby allowing managers to assess the reasonableness of a proposed coverage plan. The analysis is especially useful for companies that want to determine what depth of coverage is affordable. Sales response modeling is theoretically the best way to determine sales force size. It is the only approach that directly links sales effort to results allowing managers to predict the consequences of alternative sizing decisions. is not appropriate in all situations as it requires detailed sales and activity data, which may not be easily available. The geographic concentration method is ideal for sales forces that are fewer than 200 and are operating in large territories.

Quick Ways to Check the Sales Force Size One test is customer validation, in which the firm takes the customer’s point of view and asks key questions such as how customers will be affected by a change in the sales force size; that is, will customers receive less attention or more attention, or will there be any disruptions in how business is conducted?

A second test is a sales force morale test, in which the prevailing sentiment of the sales force would reveal their feelings about the size of the sales force. A third test is the selling activities test, in which a company determines what activities are consuming most of the sales force’s time. The final two tests rely on comparisons with competitive expenses and industry norms. In both instances, a company attempts to compare with “standards” to determine if the size is adequate or at least on par with other companies with which it competes.

Common Pitfalls in Sizing a Company’s Sales Force 1. Assuming the previous year’s sales force size will be right for the current year.

2. Waiting to see how a new product sells and then deciding on the sales force size (a pay as-you-go strategy). 3. Holding the sales force number constant as a percentage of sales. It is important to note that a sales force drives sales and not vice versa. 4. Not allocating enough salespeople for new products.