Key Concept ~ Congratulations! You’ve reached sufficient traction in your burgeoning business to hire your first field sales team. You know it’s an expensive move, but a necessary step in the scaling of your business. But are you sure of what the real costs are of deploying field sales teams? Here are some insights from a project I did a few years ago that shed some well needed light on field sales, and the critical nature of mindfully leading your investment.
Several years ago, I was consulting on business strategy with a custom sales company called SalesForce4Hire®, LLC. I worked with them to help develop something we called Sales Prototyping®. Every company in the world prototypes a product before bringing it into production and the market, but rarely, if ever, did we witness companies prototyping their sales process. The company’s focus is primarily in the medical device space, so a typical sales launch from a traditional company would put upwards of 28 sales reps in the field to launch a new device. This provides ample coverage of the key population centers, and associated physicians and hospitals, around the country. This also represents an investment of around $5 million per year!
As we were refining our strategy, positioning and value proposition, I dug into the research to try to determine the true, albeit hidden cost, of field sales personnel in the industry. As I waded through the research, I was astonished at the inefficiencies that exists in many sales organizations. Two things immediately jumped off the pages of the research. First, industrial, business-to-business sales representatives take a lot of office days. With technology being what it is today, this, to me at least, seemed excessive. The second issue was how much time was wasted in sales meetings. Again, with the online meeting capabilities combined with the mobility enabled by smart phones and tablets, this seemed excessive. Between the two, 98 days a year are spent out of the field! That’s twenty work weeks out of the year or 40% of the available selling days per annum (including a two week vacation, but not including holidays). Forty percent of the company’s investment of $5 million for their sales team is $2 million!
So out of the 132 remaining sales days, how much time do field sales representatives actually spend in face-to-face selling time? According to the research, the typical field sales rep is spending somewhere between two and three hours a day actually selling to prospects (and let’s hope they’re true prospects). This is primarily due to poor planning resulting in excessive windshield time. You’d think with the 78 days of office time taken, sales reps would be more efficient once they got their butts out the door. What we’re left with is somewhere between 33 and 50, eight hour days, of face-to-face selling time for a typical field deployed, industrial sales representative, per annum.
Now, let’s get down to the brass tacks of the real cost of field sales. I’m going to use a fully burdened, annual cost per sales rep of $100,000 per year (this is conservative in many industries, as the annual cost can easily run upwards of $120,000 to $140,000 per year, depending on the geography and industry). At the end of the day, the cost of face-to-face selling time for many companies is running somewhere between $250 and $380 per selling hour. And you thought your attorney was expensive!
I realize a portion of this burdened expense is performance based, and thus variable, but it is critical, especially for a first time entrepreneur, to fully understand the significance of the investment they’re making in field sales professionals. Please keep in mind, these figures reflect fully engaged sales professionals. Rarely have I met a sales person that wasn’t ready to jump ship for greener pastures, and the employee disengagement numbers are simply dismal today (for a detailed analysis on the misalignment of employees today, please visit Igniting Creativity in Business).
The point we brought to the surface through this investigation is you had better have a really solid sales launch plan in place before you decide to deploy a field sales team. We were also able to make a strong case for our value proposition. Without a finely honed, well targeted plan, you may find your sales acquisition costs are exceeding your profitability.
© 2012, Terry Murray.
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