Revenue was off in 2009, and you want to stabilize it, or increase it over the next few years. You have existing sales reps that sell, so why not hire an additional one to go out and beat the street for you? Before creating and posting the job description, keep reading:
Are your expectations realistic?
Have you ever interviewed a sales person who says, “I have a HUGE customer base, and I am sure I can do x amount of sales in my first year.” As owners and sales managers, we hyperventilate as we start to add the figures up, and plan for more revenue and bigger profits. And how often does the above scenario materialize into what was discussed in the interview? Anyone who has been in this situation knows: it never does!
Let’s take a step back and determine if you really need that rep. Do you need this person because of the revenue they are promising to bring in or generate? Do you need this rep because they say they will “network,” and you really hate networking? Or, do you need this rep because the phone isn’t ringing, and you feel this rep will stimulate business activity?
What is the True Cost of this Rep?
In the home improvement industry, commissioned sales people are common. We rationalize hiring a new rep as a low risk investment: just a small base + commission. Many of us will look at the base salary as the cost of bringing a new rep on board. While calculating our sales projections we figure, “I can grow my revenue by $500,000 and it’s only going to cost me $30,000.”
Of course, there are other related costs: payroll taxes, health insurance, car allowance, cell phone reimbursements, and workers’ compensation fees. But, the real killers are the hidden costs of networking events, training time, software licenses, customer communication (when hiring, and when firing), close ratio declines, and a perception in the marketplace of what your firm stands for if you don’t hire your exact twin. The truth is, that a new sales rep – the one that was only $30,000 – could really cost you $100,000 in the first 12 months!
Invest in leads, then hire reps
The goal is to ensure revenue growth and build long-term equity, right? So, what if you think about allocating your investment differently? What if, instead of spending $100,000 on the rep, you spend $50,000 on marketing to create more leads and opportunities for your existing staff? How much would morale increase with this new found lead flow and income potential? Maybe you are an owner planning to eventually sell the business; how much would the short-term increase in income help build or restore equity?
Once you have “maxed out” your existing sales force, and you no longer have the capacity to handle incoming leads, that’s when it’s time to hire an additional rep. At this point, the risk will be dramatically reduced for two reasons. First, the rep will start to close new business and earn commissions immediately – locking them in long-term to the business. And second, there will be enough revenue to offset base pay and expenses from day one.
For maximum revenue: balance your sales and marketing portfolio
So why do owners put the cart before the horse – new reps before more leads? Because it feels like you are taking action. Doing something tangible to increase revenue. It’s easy to see how your new sales rep is working hard to produce results! In contrast, marketing doesn’t look like it does very much at all… why is that? Two reasons. First, instead of building a marketing program that works, many companies bounce from one activity to another – never sticking with a plan long enough to see and measure results. Second, most companies spend much less time, money and effort on marketing than they do on sales. So, if you have a lot invested in the sales team and a little in your marketing, it will look like your marketing isn’t doing very much.
Consider this: is your marketing and sales portfolio balanced? Do you have the right mix of marketing (the stuff that creates leads) and sales (the stuff that turns leads into revenue)? In many cases, you can dramatically improve your results, without increasing costs – just by fine tuning your sales and marketing mix.
Tough Decisions
In tough times, these types of tough decisions need the proper analysis and consideration. Bungalo Group provides on-going expert advice and guidance to firms needing to make big decisions. For help balancing your sales and marketing portfolio, and building your business, contact us.
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