By Rick McPartlin
Does $525,000.00 per month seem high for 8 hours of selling per day?
Who knows what their attorney costs per hour — or their accountant, or plumber, or their receptionist? Almost everyone knows what these services cost per hour.
How about products? Does anyone know what a gallon of gas costs? A cup of coffee at Starbucks? Those in business who manufacture goods almost always know what it costs to produce the goods, so they can price them and improve their profits. So please tell me what it costs for a company to generate 40 hours of selling to get someone to buy those products.
If I said that to get eight hours a day of selling was going to cost $525,000.00 per month, would that seem high? It may seem high, but that is what many SME (small and medium enterprise) companies pay — and large companies pay much more. So why do companies pay $525,000.00 per month for a 40-hour-per-week sales effort?
Where does this ridiculous $525,000.00 come from? Let’s look at the numbers in order to determine the cost for 40 hours of sales. The best way to do that is to determine what one hour costs, and then multiply by 40.
Of course, we need to know the definition of sales before we can measure it. Having asked more than 10,000 CEOs for a measurable definition of sales, we’ve discovered that there is no single measurable or actionable answer. As a cost accountant, however, there is a clear, measurable, and actionable definition: We hire salespeople to move a deal forward when no one else in the organization can do it better or cheaper.
Salespeople are doing other peoples’ job when they are not working to move a deal to closure. If someone else can do part of moving a deal forward better or cheaper, then let them, so your sales staff can focus on what it does best. This approach results in the highest and best use of all resources. We don’t want attorneys making copies or doctors taking our insurance information. So why do we have salespeople spending most of their time on expense forms, entering data, looking for someone to call on, doing customer service, etc.?
So step one is done – “sales is moving a deal forward when no one can do it better or cheaper.” Now we need to know how many hours per week they move deals forward.
After 25 years of studying this question, I’ve discovered that an inbound call center is capable of the greatest percentage of time selling, which can average about 35 percent or 14 hours in a 40-hour week. And if you let people actually leave their desk and the building … well, the best we have ever seen was with one of our World Class Clients (WWC), where the sales staff worked 50 hours per week to actually sell 20 percent of the time (10 hours).
In most studies, the average is closer to one hour per week than 10 hours. Based on this range of one hour per week to 10 hours per week, let’s look at the ramifications in a typical SME business situation.
The goal is to hire a new salesperson who will achieve a $1,000,000.00 quota. We will have to offer a base salary of $75,000.00 with a bonus at quota of half of the base or $37,500.00, plus miscellaneous costs of $37,500.00 to total $150,000.00 total selling cost to reach the quota.
Using this quota and required costs, we can now look at the hours a salesperson sells at the WCC level, and at the normal level. We see that an hour of selling at the WCC level is $312.50, and an hour at the normal level is $3,125.00.
If we multiply the cost for each hour of selling by 40 to arrive at one week of selling, we find the weekly amounts to be $12,500.00 and $125,000.00, respectively. Lastly, multiply these numbers by the average 4.2 weeks in a month to find out a full-time selling cost per month. The range is between $52,500.00 and $525,000.00, and you get to decide.
Once someone measures the “Cost per Sales Hour,” you can see lots of ways to make different decisions to be sure your salespeople get as close to 10 hours of selling as possible. When that happens, you actually will be able to recruit better salespeople, you will need less salespeople to reach your targets, and other organization costs will also decrease.
Here are the first three things to do to reduce your “Cost Per Sales Hour”:
1. Reduce or eliminate cold calling (not a selling activity).
2. Review what else sales people are doing that is not their job and have a less expensive resource pick up that work.
3. Establish the metrics to track “Cost per Sales Hour,” and, based on these metrics, keep improving the process.
Many of us have been blessed in the past. Things were so good, we could afford $525,000.00 per month for a full-time sales position. Those times are gone, though, and now there is a better use for the money — either in the business or in your pocket.
Rick McPartlin is the CEO of The Revenue Game and is a revenue generation consultant and Vistage speaker. McPartlin was a Vistage member development chair from 2002 to 2009.
Originally published: Feb 29, 2012