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.