The relationship between the size of your sales force and its impacts on revenue, costs and gross contribution margin are shown here.
As the size of the sales force increases, so too do sales revenues and sales costs. However, at some point, the returns in margin diminish as the incremental benefit of adding an additional sales rep begins to taper off but the incremental cost continues in a linear fashion. The time to stop adding sales staff should be before the cost curve crosses the margin curve indicating saturation of sales reps based on market opporutnity.
The question is how does one determine that point? World class companies use three sales force sizing approaches:
- Activity – How many reps are needed to perform the necessary selling activities against the prospect/customer universe the company wants to pursue?
- Pipeline – How many reps are needed to manage a sales pipeline sufficient to achieve the annual sales targets?
- Financial – What is the return each channel/division of the sales force produces at different revenue levels?