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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 Commented [VG1]: ¡¡¡¡VER EJEMPLOS EN EL


PAPER!!!!
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 inter-
industry.

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
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 well-
established 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.