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Sunday, December 16, 2007

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.

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Posted by: David Regler @ 5:51 pm |   | Links to this post  

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  1. Feedback At 6:33 pm ~ Blogger jamie said...

    i run a lead generation business at www.buyingtime.co.uk - and in my experience clients are very aware nowadays of the risks involved in sales teams. Risk Management is now a major issue with companies who turnover £2m-£10m, and they don't always want to place their destiny in the hands of a sales director whom they have just hired. metrics are all good, but growing companies are nervous about the sales process...
  2. Feedback At 7:05 pm ~ Blogger Alan McKendry said...

    This comment has been removed by a blog administrator.

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