In this post we will discuss how to determine if you are undersized.  Many organizations add heads based on gut feel and budget.  This isn’t a sustainable approach. To hit your number, you need the right amount of reps in the field.  If you’re undersized three things will happen:

 

  1. You’ll miss your number.
  2. Your reps, feeling overworked and undercompensated, will leave.
  3. Your customers will feel neglected.

 

Let’s look at a common scenario:

Bob receives his quota number for the year.  It went up substantially, but the total sales heads did not go up.  Bob asks the CEO how he expects to grow revenue without adding resources  The CEO says he thinks you can get more out of your current team.  Bob disagrees.  The CEO asks if Bob has evidence to support the need for more heads. 

 

Bob is fairly certain he needs more heads, but lacks quantitative evidence.  Bob has two choices. 

 

  1. He can try to squeeze more juice out of the orange.  Keep in mind this orange has been squeezed already.
  2. Bob can prove that he needs more heads.

 

Download the How Many Reps Do I Need Tool

 

Profit Curve VisualBob needs to prove the sales force is in the red circle on the graphic below.  The red circle represents the point where adding additional heads equates to additional profit.  After that point, additional heads produce diminishing returns.  Outside of the red circle, adding heads will be tough to sell to the CEO.

 

Bob decides to prove he needs more heads. He looks at three different methods for determining sales force size. 

 

1. Territory Potential – Top Down

The goal here is to match headcount to market demand.  If you don’t have enough resources to meet demand you are leaving revenue on the table.  This revenue is being captured by your competitors. 

 

Inputs:

 

  • Revenue potential by territory
  • # of prospects
  • Ideal Customer Profile (Firmographics)
  • Average calls required per prospect

 

Top Down Territory Potential Visual

 

2. Activity Approach – Bottom’s Up   

This model is used to determine the workload capacity your team has.  Do you have enough heads to hit the number based on the activity requirements?  If not, you won’t hit the number.  Hiring heads is a must.

 

Inputs:

 

  • Number of Target Accounts
  • Call frequency
  • Annual Call Volume
  • Selling time %

 

(Use this tool to calculate how many reps you need based on the Activity Model)

 

3. Financial – The CEO’s Favorite

The financial model will calculate the time to break even for each new hire.  This is done by calculating the breakeven cost and impact a sales rep has on revenue in a territory. 

 

Inputs:

 

  • Sales per head – Average revenue generated per sales rep
  • Sales expense per sales head – Average cost per sales rep
  • Ramp-time-to-productivity – Average time it takes to get new hires to full productivity
  • Ramp failure rate – Average number of reps who never make quota
  • Sales cycle length
  • Average deal size
  • Carryover % – Percentage of recurring revenue generated in the following year from previous year’s activities
  • Profit per sales head – Average Sales per head less Sales Expense per head

 

Bob currently has 54 quota carrying sales reps.  The Territory Potential Model says he needs 64.  The Activity Model says 60.  The Financial Model says somewhere between 62 and 67 is the sweet spot.  Based on this information Bob builds his case for the CEO.  He takes the average of the models and brings a conservative recommendation to the CEO.  He asks to increase from 54 to 60 heads over the next 6 months.  With all this quantitative data, the CEO agrees. 

 

Most of the revenue from these new hires won’t be realized until 2014.  But Bob is now in a position to hit the ground running next year.  He also has a process that can be applied each year as the metrics change.  The CEO has a new found respect for Bob and his use of analytics.  Bob gains more autonomy by focusing on what is best for the organization.

 

 

 

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ABOUT THE AUTHOR

Scott Gruher

Orchestrates and designs the perfect project strategy, one engagement at a time, to ensure that every SBI client makes their number.
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Scott joined SBI in 2010 with years of hands-on experience in sales leadership and enterprise selling. Since his arrival, he has helped dozens of organizations dramatically accelerate growth, from Fortune 10 organizations like Phillips 66 to fast-growing cloud service organizations like InfusionSoft. Scott specializes in cross-functional alignment. He helps leaders align around the growth goal and design the right processes to bring the strategy to life. His unique combination of real world experience and a pragmatic approach to problem solving have made him one of SBI’s most demanded resources.

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