Sales organizations put a lot of thought and effort into fine tuning complex sales strategies. But even the best sales strategies will fail without an effective, properly-sized sales structure.
We have previously talked about the advantages and disadvantages of different sales structures, and more recently about the key steps to building a lean sales force.
Let’s dig a little deeper now, and analyze the most commonly used sales force sizing methods, with their pros and cons. As you read through these, think about the strong and weak points of your own sales structure, and decide which method or combination of methods would fit best.
1. The Breakdown Method is probably the most simplistic, but also the most accessible. Divide the total sales figure forecasted at a company level by the sales expected from each rep, and you will get a rough size for your sales force.
The breakdown method has an obvious advantage: it is the simplest, fastest method of all. It does not require complex calculations or a lot of data and time.
The method also has significant disadvantages. The breakdown approach uses the (flawed) assumption that each rep delivers the same level of productivity, and disregards the difference of potential between various markets and territories.
2. The Workload/Buildup Method. Estimate the total workload – the number of hours necessary to cover the entire customer base – then divide it by the selling time available per sales rep to forecast the size of the sales force.
Unless you have a highly homogenous client pool, and sell the exact product or service to all of them, the method can also imply splitting customers into a few main categories.
Organize similar clients into a few main classes, based on how long it takes to service each (for example, mass clients versus small enterprises versus large companies). Estimate the overall effort needed for each category, then add it all up to obtain the workload. Divide this number by the selling time estimated per each rep on average, and get the sales force size.
The workload method represents another quick way to determine an approximate size for your sales force. Additionally, this one also takes into consideration the difference between the main client categories.
However, the workload method also has serious limitations. For example, it does not encompass the fact that even accounts in the same category frequently require different amounts of time. The approach also assumes that sales reps are equally efficient, which is rarely true.
3. The Sales Potential Method represents the next step in the evolution from the workload method, also taking individual productivity into account.
Use the number of salespeople obtained with the workforce method as a starting point. Assume that this forecast is for a team consisting exclusively of “average salespeople”, and consider each “average rep” as a representative unit.
Separately, rank salespeople in your current team as “below average,” “average” or “above average”, according to their performance. Associate an approximate value to a “below average rep” relative to an average one, and do the same for an “above average rep” (for example, 0.5 units versus one unit versus 1.5 units). Using this ranking, determine the difference between the needed representative sales units and the actual units in your sales force. Adjust as needed.
This method offers a more realistic calculation because it takes into account the performance of each sales rep.
However, splitting the sales force into three main tiers will not entirely capture the different abilities and skills that each person on the team has. Also, it is backward-looking, appraising reps based on their past performance alone.
4. The Incremental Method focuses on the comparison between the additional (incremental) cost associated with each new rep and the additional (incremental) sales revenue he/she brings.
Start calculations with the minimum number of reps required in the sales organization. Continue adding reps as long as the additional revenues are greater than the additional selling costs. The goal is to reach that perfect balance, where the total profit is maximized. Going beyond the optimal sales force size, the profit reduces with the addition of each extra sales rep.
The incremental method is the most complex in calculating the sales force size. The results generated will be more accurate than those obtained with the previous methods.
However, conclusions are not impeccable. The main shortcoming of the incremental method is that it relies on the notion that the increase in sales revenue comes from adding sales reps, which is not always true. It is difficult to estimate the additional profit generated by a new rep, and it is, therefore, problematic to extrapolate to the sales force.
Determining the best size of the sales force takes time and expertise. In most cases, it is an ongoing endeavor. What is your take? Don’t hesitate to write and share your experience with me.
Mike Periu, How to Calculate the Size of Your Sales Force