Sales Management Group

Sell More, Spend Less – Part II

focusIn our previous newsletter article Specialize: You’ll Sell More and Spend Less – Part I, we described a new sales structure. This article discusses the new structure’s financial impact.

Let’s recap briefly how the sales organization would change:

  • Field Sales has fewer responsibilities and focuses exclusively on face-to-face selling and closing deals.
  • Inside Sales assumes a larger role, not only developing leads, but also selling to bigger accounts and managing customer relationships.
  • Sales Support continues to provide routine customer support but also assists the field sales team with presentations and proposals.

Note that the number of employees in the sales organization actually increases to 12 from 10.

Headcopunt

The Payoff:  Revenues Up, Costs Down

Making this shift can produce a big payoff in increased profitability, which you can see by following our example and reviewing the charts below.

Here is the impact of the shift:

  • Overall
    • Increased Revenue and Profit – Overall, this realignment produces a 14% or $1.5 million increase in revenue and an 18% or $1.6 million increase in profit
    • Reduced Cost of Sales – The cost of sales (selling costs divided by revenue) drops to 13% from 16%.
  • Field Sales
    • Increased Selling Time – With fewer responsibilities, field sales rep selling time can increase by 75% from 2 days a week to 3.5 days a week.
    • Greater Sales Productivity – Increased selling time produces a 50% increase in sales revenue per rep from $2 million to $3 million.
    • Less Dependence on Field Sales – Field Sales revenue responsibility drops to 75% of total revenue from 95%.
    • Reduced Costs – The cost of field sales rep compensation drops by $575,000 due to the lower headcount and the lower per rep compensation of $225,000 ($150,000 base + $75,000 T&E). In the old structure, total cost per rep was $250,000 ($200,000 + $50,000in T&E)
  • Inside Sales/Support
    • Higher Costs – The combined cost of the Inside Sales and Support teams increases by $480,000 due to increased headcount and substantially higher compensation.
    • Greater Sales Productivity – With a more senior team and increased selling focus, the inside sales reps can produce a 50% increase in sales revenue per rep and take responsibility for 25% of overall company revenue, up from 5%.

These charts summarize the comparison between the revenues and sales costs associated with the old structure vs. the new structure.

 Old Structure

 New Structure

 

 Making the Transition

Pot of goldDon’t expect to accomplish this shift overnight. You’ll need to expand your inside sales team and shrink your field sales
team. The entire process could take one to two years.

The first step would be to beef up your inside sales team. That alone could take a year and may require training.

Restructuring the field sales team will be tricky. You need to reduce the size of the team and reduce individual compensation.

As you strengthen the inside sales team, consider letting the lowest performing field sales reps go. Alternatively, if a field rep leaves, you could decide not to replace him or her.

Expect your overall sales costs to go up for at least a year, maybe two. You’ll need to carry the field sales reps at their current compensation for a while. And you may need to pay severance to those you let go.

However, once the transition is complete, you should have a sales team of focused specialists who generate greater profitability because they produce more revenue at a lower cost.

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