Sales force outsourcing by the numbers

An very useful book for any sales manager is John Davis' Magic Numbers for Sales Management: Key Measures to Evaluate Sales Success. This book covers how to measure over 50 aspects across the sales process, from sales planning through to sales performance and review.

In one chapter, Davis covers Independent Sales Representative Analysis.

"Sales management have three basic choices when building their sales force: 100% company-employed sales people, an independent sales force, or a combination of these two"


In essence, the formula compares the overall costs of an employed sales force with that of independent sales representatives and calculates the break-even point below which you outsource and above which you bring it in-house.

To me, this is too simplistic.

The chapter concludes that companies need to consider their situation and longer-term strategic goals. "Costs will influence their decision" says Davis but "other, harder-to-control factors" should be considered.

In my experience, sales outsourcing decisions are seldom made with a straight cost comparison. The most common factors influencing a company's decision to outsource sales include:

Internal capabilities - if the company does not have, or is unable to attract, the capabilities to build a strong sales force, outsourcing to a contracted company is a good option.

Time to market - recruiting a sales team from scratch takes time. An outsourced sales force can bring immediate "feet on the street".

Conserving capital - recruitment fees, infrastructure and tools (laptops, cars, etc) mean that building an in-house sales team is a significant capital investment. A sales outsourcing partner will typically work on fee plus commission structure which can get you in the game for a lot less that hiring your own team.

Fixed versus variable costs - for start-ups and early stage companies this is often the biggest attraction of outsourcing sales.

Of course, costs are an important factor, but strategic value usually plays a more significant part of the decision to outsource your sales force.


Source: Maine Associates



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