As the budget year goes on, organizations look for ways to reduce costs, analyse headcount, and optimize results and resources. With this in mind, what is the true cost of employing a sales rep? How do I know if my investment is a good one.?
If we work on the assumption that our sales leads are well qualified, and that we have a good sales funnel, we also need to make sure that the sales rep is providing a good return on our investment First reaction would be to calculate salary, commissions and benefits and call that the break-even. What about all of the overhead, travel and training expenses?
In this post, I’ll look at all of the costs on your Sales P & L and build those costs back into the final sales cost. That will provide a complete picture of all costs associated with having a rep sell your product. Hopefully this will provide you with the true cost of employing a sales rep.
The true cost of employing a sales rep. Here’s how to find out.
The Cost Buckets: A Look at the Sales Profit and Loss Statement
Are your sales reps profitable?
A look at the Sales P & L helps to understand what costs need to be allocated back to get the total cost. Let’s look at the cost buckets that make up the total cost of sale and then review at an example.
- OTE (On Target Earnings) This bucket includes compensation and benefits — salary plus commission plus benefits. This generally captures between 60 to 80% of the total cost of sale.
- Office Overhead This is often referred to as the “load.” This percentage fluctuates between 10% and 40%, depending on the environment.
- Travel Expenses This bucket includes car allowance, millage, hotels, etc. This category can fluctuate widely.
- Training and Enablement This includes training and enablement expenses, including sales kick-off events.
Let’s take a look at a sample calculation:
|Load at 30%||£15,000|
|Travel and Expenses||£2,000|
|Training and Enablement||£2,000|
Some organizations may have additional costs that should be included in the total cost of sale. This is especially true with technology and more complex products. Your organization might not include all of these.
- Sales Support Consider the costs associated with the “deal team.” This includes people like pre-sale analysts and technologists. Their costs should be fully loaded with costs allocated calculated the same as the sales rep.
- Management Overhead In organizations that include regional management, for example, these costs may be allocated back to the cost of sale.
- Sales Operations This includes support functions like resources in pricing, proposal generation, strategy, and commission tracking and preparation.
- Marketing Lead Generation Costs Capture costs associated with lead generation referencing the Marketing P & L. Only include expenses that are true sales support – not branding or global PR.
So What! Why it is important to know the true cost of employing a sales rep.
So you’ve burned up your 10-key with this calculation. How can this number help improve the profitability of this organization?
Well, we now understand how much it costs to sell products. And we also know how much it should cost to keep a sales rep at break-even. From that, we can:
- Plan and generate revenue to arrive at a break-even point
- Determine item pricing on a cost-plus basis.
- Identify profit and loss objectives.
- Establish individual and organizational benchmarks.
- Determine A, B and C player talent for performance and salary evaluations.
- Design territories, considering if each territory has enough opportunity
- Determine headcount. If your existing heads exceed the cost of sale, it may be time to add to headcount.
- Use the benchmark to “fix” the expense or revenue side. If your cost of sale exceeds revenue, you’ll need to either reduce expenses or increase revenue.
How ProAptivity can help you understand the true cost of employing a sales rep.
ProAptivity are an independent CRM solutions provider. We focus on the implementation, training, and support of highly customised CRM software solutions. Our CRM software supported by our sales training provide customers with the tools needed to deliver successful sales process management.
Fundamentally, we help organisations embed CRM best practice throughout their organisation. This helps organisations become more competitive, customer focused and ultimately more profitable, we can provide visibility on the true cost of employing a sales rep
If you need help in understanding why my business needs CRM, maybe some of our eBooks could help! Alternatively visit Maximizer CRM for more information. Contact us today in Belfast on 028 9099 6388 or at our Bedford office on 01234 214004. Alternatively email us on firstname.lastname@example.org. Contact us today for a free CRM consultation that will assess if your business is CRM ready.
Source: Sales Benchmark Index