This approach will also reveal a huge problem.
As a best practice driven sales consulting firm, we are continually surprised by the number of companies that fail to invest appropriately in two critical areas:
- Many firms have not actually identified their cost to compete in each respective territory. Quite simply, they have never looked at it! When the final analysis is actually completed, they are often shocked at the disparity in efficiency and productivity across territories. Many dollars are often left on the table.
- A sales expense % of revenue has never been communicated or discussed. No formal target exists.
The chart below illustrates an account management organization with a tremendously imbalanced sales expense as a % revenue.
So how can you operationalize this concept for your company? This is an effective way to analyze, calculate and execute the results. It has two simple components:
- Revenue/Sales (or could be any key item you measure and quota your sales force upon). Simply calculate the salesperson’s book of business.
- Territory Expense or cost to serve. This includes several key pieces:
- Territory rep salary
- Make sure that the rep salary is fully loaded. In other words, the expense figure should represent the true financial number required to support a sales person. It will include base salary, any applicable variable comp or commissions, and fringe benefits like relocation, 401k, travel, and healthcare benefits.
- Management Allocation – To determine this cost, calculate the number of reps each manager supports, then spread the manager’s cost over each rep (for example, if the mgr to rep ratio is 4 to 1, and assign 25% of the manager expense to each rep).
- Plot these findings on a bar chart
- Compare your organization’s position to a best in class organization in your respective industry.
In the example below, a best-in-class account management cost was 15.1% selling expense cost of territory sales. This organization was stunned to realize that many of its reps far exceeded this target.
The outcome of this activity is the realization of the need to cut back investment into certain patches that continue to underperform, while investing into richer higher potential regions.
If you wish to learn more about industry benchmarks and world class benchmarks, please join or next webinar on January 12th.