Identifying and Breaking Down the Sales Force Growth Barrier

Hamilton Consultants White Paper

Ogden Hammond, Will Rodgers, Anthony Nygren

Over the years, we have noticed a strange paradox: companies in maturing or commodity-like businesses often ignore-or resist-increasing the size of the sales force. Treading water, raising quotas to spur more activity, or even cutting the sales force to lower costs are strategies more often chosen by management than increasing sales by increasing the number of sales people.

One of the primary reasons for this lack of interest is that the idea--when it is even considered--typically meets substantial internal resistance. We call this internal resistance the Sales Force Growth Barrier. At a basic level, any significant change like increasing the size of the sales force is seen as a substantial risk. The CEO, if not from sales him or herself, is often suspicious of "those high-priced sales people." In a company lacking a sales culture, even the sales managers may be against aggressive hiring. After all, there is emotional hassle associated with taking territory away from one salesperson and handing it to a new one. Moreover, managers may fear that new salespeople who do not work out can be viewed by superiors as a "wasted expense," not a hedged bet that failed to produce as well as it could. The strongest resistance to sales force growth, however, often comes from the sales force itself.

While senior management's contribution to the Growth Barrier has to do with risk avoidance, the sales force's resistance is driven by (perceived) self preservation. Salespeople see a potential increase in the size of the sales force as nothing but bad news-more work with less reward. Adding salespeople means territory splits and the potential loss of valuable accounts. As a result, current salespeople see themselves as having to work harder to increase market penetration in order to meet quotas and maintain commission levels.

The Growth Barrier is an affliction that can strike companies large and small, in growing markets and mature markets. It is most damaging, though, to medium and large companies in mature markets for whom any growth is the result of a "war in the trenches" to wrest market share away from competitors.

The Impact of the Growth Barrier
A good example of the potential impact of the Growth Barrier can be found at a company in the construction products business. The company faced a two-year sales downturn that had cost it over 20% of prior revenues. Although the CEO wanted to believe that this decline was due to the ongoing manufacturing recession, evidence indicated that the general economy was not the culprit.

An in-depth investigation identified a number of factors that caused the company to lose competitiveness, not least of which was the evolution of a corporate culture that promoted the Sales Force Growth Barrier by overemphasizing cost cutting. In the quest for cost-efficiency, the CEO overlooked the fact that his company's sales were relationship-driven and began regarding the sales force as a cost center.

Instead of introducing policies to promote growth, the CEO reinforced the Sales Force Growth Barrier with hiring freezes and reduced compensation plans that stagnated the sales force by promoting distrust and discontent. Meanwhile, the company's archrival invested heavily in its sales force, which grew to outnumber that of the subject company by nearly four to one in some sales territories. The company also was exposed to new data that showed they had high market share in some regions and very low in others, suggesting that the product and price were competitive, but market development was spotty. As the facts became clear, the company realized that it needed to rebuild a demoralized and defensive sales force.

Breaking the Barrier
As the preceding case illustrates, the Growth Barrier can have a profound impact on the way a company addresses sub-optimal performance. In truth, identifying a problem with the size of the sales force can only come out of a more detailed understanding of the "potential market" in individual territories as well as the sales process to determine where attention needs to be focused and corrective action needs to be taken.

Once a company has identified territory potential and market shares for individual salespeople, it can determine the optimal size of the total sales force given market conditions and company strategy. To make this effort analytical, rather than simply an exercise in guesswork based on anecdotal evidence, we use the analytical framework presented in Richard Semlow's classic article, "How Many Salesmen Do You Need," which was highlighted in a previous e-newsletter. The article describes a quantitative approach to finding the optimal size of the sales force under variable market conditions. A cornerstone of the article is that salespeople with high sales rates may not be the biggest heroes--their territories may merely be too big, and they need to be split for greater market penetration.

While Semlow's article provides an invaluable analytical tool for determining how many new sales people should be deployed, it is only the first (and likely, the least difficult) step in breaking the Growth Barrier. The additional salespeople must then be hired, trained, and deployed into new territories carved from old ones. Even if senior management can get the sales force to "buy in" to the idea of expanding the sales force, decisions about which territories to split and how to structure incentive plans will almost certainly ignite resistance.

To diffuse this resistance, a company can pursue a policy that drives market penetration while supporting sales force morale through a carefully designed incentive plan. A "keeping whole" policy should be designed to align and integrate the interests of the salespeople with the larger corporate objectives of growth and profitability by offering the sales people whose territories are split a chance to collect commissions and share in the profits generated by new sales. Linking such a plan to elements of corporate profitability that the individual sales person can control is the key to success. Correctly designed and implemented, this policy can mitigate the effects of the Sales Force Growth Barrier and produce a highly motivated and satisfied sales force and increased corporate profits. The construction products company referred to earlier, for instance, successfully employed this approach to turnaround the sales division with results worth millions of dollars in new revenue and profit.

Hamilton Consultants © 2002