But Resource Planning can be risky business. Increasing the size of your sales force increases costs, but also allows for greater coverage of customers, which results in more sales and increased revenue. On the flip side, reducing the size of your sales force lowers your cost but impacts customer coverage. The net result is a potential drop in sales. So how do you determine the right amount of coverage needed to match selling capacity (measured in available selling hours) with market demand?
Our research shows that most of your peers “swag” it, focusing entirely on the cost/affordability side of the equation while ignoring market potential. I covered some of these cost-only approaches in a previous blog, but here are a few of them:
- If the Sales Force size worked last year, avoid disruption and keep it the same this year. Markets are dynamic and the sales force should be sized to meet potential. Assessing market potential and the corresponding sales force size should be done annually.
- Maintain a sales force size that keeps costs at a constant percentage of sales. Industry average cost-to-sales ratio within your space is a good baseline. But artificially trying to stay at the average may not be the best approach. Companies looking to capture market share should look at strategically increasing headcount rather than cutting or adding reps to maintain a ratio.
- Add headcount when the sales force generates enough sales to afford the increase. This very conservative, risk-averse strategy ignores revenue potential and often misses out on considerable opportunities. Most companies that take this approach undersize their sales force.
In the end, cost-only approaches view the sales force as a cost item that needs to be justified by sales rather than an investment that drives revenue.
So how does a sales leader deploy resources in a way that accounts for market potential? There are four market-based methodologies that can be used to right size the sales force. Let’s look at one – The Pipeline Method.
The Pipeline Method addresses the amount of rep activity needed to cover different market segments. It leverages the sales process to determine coverage needs. By tracking sales force effort and results through the company’s entire sales process, this method accounts for:
- Number of net new target accounts
- Quantity of leads entering the pipeline
- Stages of the Sales Process
- Sales force effort required at each stage
- Conversion rate at each stage
Based on these five inputs, the model calculates the number of reps needed to effectively execute the sales process.