You have a limited amount of resources, and to top it off, you are being asked to a make cuts in your overall sales investment. As a sales leader, how do you decide how to deploy, cut headcount, and make deeper investments with finite resources? Sales Analysis through a Return On Investment (ROI) technique is an insightful method on how and when to invest dollars into selling resources. It answers the crucial questions of in which territories should I increase my investment, and in which territories should I trim my investment or possibly reallocate to a more profitable portion of my business.
The following discussion details how to use Sales Analysis and the Territory ROI framework to make these crucial decisions.
The steps to quickly and systematically make these decisions using the ROI technique are as follows:
1) Capture Annual Sales by Territory.
2) Capture Territory Cost. Identify the true sales analysis territory cost to serve and support a particular patch. The total territory cost is typically comprised of several key elements:
- Sales Rep Base Salary – the fixed portion of a rep’s salary.
- Sales Rep Variable Salary – this is the variable component of a sales representative’s pay. It could be a simple commission plan tied to each sales or margin dollar sold, or could be a more complex incentive plan tied to benchmarks and long-term account development milestones.
- Manager overlay or support cost. The calculation of this component can be as easy as reviewing the rep to manager ratio. For example, if one (1) manager manages eight (8) reps the ratio is 1:8. Simply take the manager’s total salary (both base and incentive) and multiple by the ratio (1/8 or 12.5%). Add this to the total cost of the territory.
- Fringe benefits. Most organizations use a fixed percentage to estimate this, typically in the 20% – 40% of total salary range.
- Travel and Entertainment. Although this particular cost component is often estimated as a fixed $ amount, the fact is that territories can vary quite significantly based upon structure. A sales organization divided by vertical or industry type is much more likely to rack up higher T&E costs than an organization split by geographically based territories and constraints. For example, a rep in a global sales org who serves a media vertical will likely incur much higher Travel and Entertainment expenses than a rep servicing a concentrated portion of the United States. It costs less to travel short distances.
Sales Analysis – Territory ROI technique
The chart above visually illustrates the top performing territories and highest ROI-yielding territories. You will immediately note that the top performing territories rise to the top left hand quadrant of the graph (APAC #1 in Quadrant A). APAC #1 yielded a $12MM annual sales return while only consuming about $300k in selling cost. Lower returning territories will be positioned in the lower right hand corner, or Quadrant C, like the US – SW territory. This territory only yielded a $5MM sales return with a $700K sales resource investment. Overall, a relatively poor investment.
Sales Analysis provides a clear and concise guide to making solid investment decisions.