“How much do I have to spend on sales?” This topic has become a common discussion lately for 3forward colleague Dan Hudson and me as we have helped a number of clients develop (or rebuild) new sales teams. It’s a sensible question and to answer it with a realistic measure of accuracy we first work with our clients to identify the following key data points.
Sizing the Sales Force
Revenue goal – The incremental (new) revenue target for the next twelve months.
Sales cycle – The average number of months it takes to move an opportunity from qualification to contract.
Sales Rep efficiency – The number of deals (or bids) one Rep can support at a time.
Closing percentage – Wins divided by total bids. (If you submit 100 proposals to achieve 5 wins, that’s a closing percentage of 5%.)
Average deal size – The average annual value of a bid. (Total annual value for all proposals divided by the number of proposals in the sample).
Granted this is a very simple model, but these metrics begin to forecast how large a company’s pipeline must be to achieve a given revenue target and how many sales representatives will be necessary to develop and manage the necessary deal flow. Many variables can impact the output, but let’s assume a company using this approach determines they need a sales force of seven new sales reps and one new manager to handle that team. What’s next?
Recruiting and Hiring
“With unemployment so high finding sales people should be easier than ever, right?” Careful! Yes, there a good sales people without jobs because of company closures. However the reality is most US unemployment is caused by reductions or layoffs, not company closures. When companies cut sales people they never start with the top performers. Be very alert in this kind of employment market! If you are interviewing someone without a job be more diligent than ever in checking W2 history, references and industry contacts before considering an offer.
Top performing sales people command more compensation in a difficult market, not less. Why? First, the best sales people are still employed and less likely to take a chance on job change in tough times. It will cost more in base and / or bonus to get them to leave. Second, when sales are harder to come by it takes the best reps to bring in the contracts. The best reps cost more because they are accustomed to earning more (and can prove it with past W2’s). Third, the labor supply of legitimate, experienced sales professionals, those capable of managing long term, consultative sales cycles typical of outsourcing services, is less than the demand for that skill set.
Other Sales Hiring Realities
Turnover on professional sales teams is much higher than most companies expect. Industry statistics suggest that fewer than 60% of sales people ‘make their number’ each year, so terminations drive a fair portion of that churn. Professional sales recruiters can be a valuable resource in lowering that percentage. The best recruiters make sure their employer has a reasonable hiring profile and compensation model to allow them to attract the right performers. They will also provide plenty of qualified candidates to evaluate, which allows fit and chemistry to be considered along with past experience. One more point, it takes much longer than most companies expect to find, interview, hire and on-board new sales people. Double or triple your timetable and your probably getting closer to reality.
As always, comments and observations are welcome. Share your sales successes or horror stories and add to the discussion.