HOW MANY SALESMEN DO YOU NEED?
Walter Semlow
Harvard Business Review 1959
Hamilton Consultants Summary
Field selling--often the largest part of the marketing budget--is typically not subjected to the same analytical rigor as other areas of marketing. When it comes to assessing the optimum size of the sales force, in particular, managers tend to put a "good feel" for the market together with a little data about sales performance to arrive at a number that "seems about right." While these decisions are undoubtedly based on a great deal of sales and market experience, they are still largely guesswork.
To provide managers with a way to decide how many field sales people they need, Walter Semlow presents an analytical approach to calculating sales force size that is as valuable today as it was over forty years ago when it appeared in the Harvard Business Review. He begins with a very simple formula:
S(p) - C > 0
Where:
- S=sales volume that each additional sales person will be expected to produce
- p=the expected profit margin on this sales volume
- C=the toal cost of maintaining this salesman in the field
In order to calculate the sales volume expected to be produced by each additional sales person, one must first determine the dollar sales for each 1% of a territory's sales potential.
Semlow then uses actual case data to illustrate how to determine:
- the expected sales volume increases resulting from different numbers of additional sales people
- the costs--fixed and variable--associated with those volume increases
- and the resulting profitability of the additional sales.
The result is that profits increase with sales up a certain point, then plateau and begin to decline.
Finally, Semlow stresses that these calculations must be put into the context of the overall financial goals of the organization. He points out that for some companies--but definitely not all--this point of maximum profit is the point of optimum sales force size. For other companies, however, the optimum size would correspond with the point of maximum return on investment, or of maximum return on sales. Moreover, he concludes, having determined the optimum size of the sales force, one must develop an plan to add the additional sales people in a way that is realistic and financially sound.
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Harvard Business Review © 1959
