Not only do your quarterly sales figures look good, your gut is also telling you there’s even more revenue out there waiting to be hunted down, tied to the roof of the car, and carried home. Your product is a hit; your salespeople are making their quotas, so why wouldn’t you hire a few more? If you add sales capacity, you’ll drive more sales and increase top line revenue, right?
Maybe. Adding to the sales staff requires a bit more thought than that, says Kevin Akeroyd, senior vice president of field operations for gamification provider Badgeville and a former top-dog salesperson himself. Akeroyd advises finance executives, especially of small-to-midsized businesses, to be cautious and do a little calculating before they hire.
For example, if you’ve got nine salespeople, and you take that number up to 12, you’ve increased headcount expenses by 33%. “If productivity doesn’t increase” proportionally, says Akeroyd, if you’ve only increased your top line by, say 10%, all you’ve accomplished (after you finish adding in the cost of supporting the new salespeople and subtracting that from the top-line growth) is to upset “the first nine guys by shrinking their sales commission by a third.”
There has to be a better reason to add sales capacity, says Akeroyd, than a desire for more sales.
“You have to be sure you’ve got a new market or more lead generation,” he says. Otherwise, “You’ll lose your top performers because you’ve taken their territory away.”
And as anyone who’s ever tried to hire a salesperson, a top performer, knows, the good ones already have jobs. That means you’ll have to lure them away from their current organizations, which can get expensive.
So how do you know when it’s time to hire more salespeople? What metrics should you look at? What costs should you examine? Akeroyd suggests covering these three bases:
Examine productivity. Look at the time it takes your current salespeople to make their full quota, what Akeroyd calls “productivity per existing fully-ramped head count.” If that metric is static – meaning your salespeople are working to full capacity – “that’s the only time you add sales team.”
- Practice incrementalism. “If I’m going from three people to four, and the first three are giving me $10,000 a month, I better see that fourth person giving me $10,000. If he does, then maybe I’ll add a fifth guy. If all five are doing $10,000, I’ll add a sixth. But,” says Akeroyd, “if it goes the other way, if I’m getting the same dollars out of five guys that I got out of three, they’re all making less, and I’m spending more. Maybe the marketing’s not right. In any case, you have to figure out what’s wrong and stop hiring.”
- Look at the sales rep as a living, breathing P&L statement. Akeroyd advises CFOs to examine the total cost of the new salesperson as one would when making any investment. What will the new person cost to train? What will it cost to support her in terms of software (extra seat licenses) and tools (tablets, phones, data plans)? Then there’s the cost of customer acquisition. What will it cost in increased marketing investment to generate the leads the new rep will require? “You have more people; what are you going to do to drive more leads for them? Are you ready to make all the investments you need to make that person successful?” Akeroyd asks. “You need to look at the overall ecosystem before you add staff. You need to look at the investments you need to make in order to maintain productivity.”
Not every organization’s sales processes are easily scalable, nor do they contain the data Akeroyd maintains a CFO needs to make scaling up a well-considered choice. Toffer Winslow, general manager of analytics business of software vendor Lavastorm Analytics, points out that businesses must be able to “measure opportunities” before growing the sales team. “In general,” says Winslow, “companies don’t quantify [their] sales processes.” Consequently, he says, they have a hard time predicting the payback of growing the sales staff.
Unless a business can forecast the revenue a new salesperson will bring to the organization with some degree of confidence, and is able to compare that revenue to the cost to acquire the new customer, as well as the lifetime value of that customer, adding staff can be like throwing darts . . . blindfolded. As Akeroyd says, the biggest mistake a business can make is to assume that adding new capacity will automatically drive revenue.
“A lot of people,” he says, “forget what it takes to make the tenth salesperson you hire as successful as the first.”