Forcing Sales

Funny how this business works. Before Christmas: no trucks. After Christmas: no freight. Things just aren’t humming along the way they were six months ago. It’s at times like this that people look at new ways to add revenue. One idea is to add a sales representative. How hard can it be? Put an ad in the paper, conduct a few interviews, print some business cards, dust off an old desk and a computer from the O/S/D dock, and presto — watch the freight roll on in.

Don’t get me wrong. A professional sales force can be an effective way to build a service business. My background is in sales, and at my company we’ve made a big investment in supporting our people.

However, adding sales staff is serious business. If you expect it to generate instant profits, you’re way ahead of yourself. First, you have to understand the costs of hiring a sales rep, something few people understand. To come up with an average, I used the proven MCA polling method (McCarron Calling Around):

Annual salary: $50,000
This is an average — the ranges from the low end to the high end is extreme. A 10-years-plus pro with a lot of contacts and a great grasp of the game will expect at least a hundred grand a year. He may be a worth it — if you can find him. Consistent 50-goal scorers are rare in this business.

The other end of the spectrum is the rookie whose only sales experience is selling turtles at the local pet store. He’ll cost you thirty grand a year and a lot of Rolaids.
For our example, let’s use Mr. Average. He will have less than 10 years’ experience, some long-term potential, and some industry contacts. All this for a cool $50,000.

Support: $10,000 per year
Sales reps are expensive to support. You may already have an infrastructure in place to help your sales staff focus on selling — a killer contact management system, software that streamlines your sales leads, a bunch of high-tech tools to keep your guys in the loop when they’re on the road, an admin person or two to handle the paperwork, and your unfailing understanding when times get slow.

If you don’t have all that, and you do just the bare minimum to manage and train a new rep, it’ll cost.

Expenses: $21,000 a year
Sales reps do a lot of driving to chase business and they will expect you to pay for it. You can give them a company car, a monthly allowance, or pay them per kilometre driven.

Regardless, you’ll be hard-pressed to negotiate anything that costs less than $600 a month for a car expense.

Entertainment is something else to consider. A few lunches a week can add up to $5,000 a year. For the high-end guys, factor in lunches and dinners and breakfasts, plus the Canucks tickets and the Club Link membership.

Tools:$12,000 a year
When I started in this business, a sales rep got a phone, a desk, and a stack of business cards. Now, he’s outfitted like Inspector Gadget. The basic tools are a laptop, a cell phone, a fax machine, an e-mail account, Internet access at home, and a BlackBerry.

The top performers will look for all of these plus high-end promotional support — the interactive Web site, the multimedia brochure on CD, elaborate contact management software. It sounds expensive because it is.

Desk costs:$10,000 a year
Every time you hire a new employee it costs you money — the space at the office, the medical benefits, the extra meal at the company Christmas party, etc. For the reasons I’ve outlined so far, sales reps cost more than the run-of-the-mill new hire.

Total: $103,000 a year
And that’s for Joe Average, a third-round draft pick. A hundred-and-three grand before he ever gets a pound of freight.

The next part of the equation will depend solely on your company’s operating ratio — your net profit. Say your OR is 95 — you’re making 5 cents for every dollar of top-line revenue. To cover his $103,000 cost, your new rep must generate over $2.06 million in new revenue in his first year of employment. That’s $172,000 a month before you put one penny in your pocket.

What about Year Two? Let’s say the rep generated $1 million in new business during his first year of employment. In his second year, he’ll have to come up with more than $3 million in new business before you break even. Highly improbable? You bet.

Look, I’m not anti-salespeople. Supported properly, your Joe Average can, in time, develop a customer base that reaps rewards for him and your company. But don’t blindly hire a guy to generate revenue when what you really want are profits. When you do the math, hiring a sales rep doesn’t always add up.