Business Strategy Blog: Education - Sales Force Sizing

Sales Force Size

Size of sales force (SF) is very important for business. Size of sales force smaller than optimal, company will be leaving money on the table and size of SF is larger than optimal company has problems like non-motivated employees and higher cost. SF sizing strategy differs from business to business, for developing business sizing strategy will be entirely different than that of matured business. Thus, business life cycle plays a very important role and dictates the size of SF.

Sizing Strategy for New and Growing Business

Aggressive early investment for growth business enables companies to – (1) capitalize on early stage opportunities, (2) quickly increase sales and profitability, (3) preempt competitors, and develops strong and loyal customer base for sustaining business. Building a sufficiently larger sales force in early stage is a hard decision. If companies are not careful they may leave money on the table. That said, given below are few points that every sales leader needs to keep in mind while deciding the size of their sales force.

1. Don not undersize when uncertainty is low – If company has a well-established product to launch that has been already tested in some markets, company should go with “Quick Build” strategy. Quick Build strategy will most likely be able to produce higher returns (higher sales) in future. Caution is needed to size the SF in case of financial constraints, high degree of uncertainty in market or product and/or best-selling practices have not been established. It is a very delicate balance where sales leaders have to be very careful regarding hiring too quick or too slowly. Increasing SF size too quick may result in unmet sales quote thus need for reduction of SF and in turn employee morale. Increasing SF size too slow may result in lost opportunity.

2. Size cautiously when uncertainty is high – lf market response for the product or service is not well established, companies should be cautious while sizing their SF and they should follow “Play it Safe” approach. For the products where selling features and/or process have not been established, early selling process may reveal venues that may need quick adjustment. In these cases SF will require quick adjustment, which is only possible if the size of SF is small as smaller SF is much reactive than the large once. For new and growing companies it is good to be aggressive (and have larger SF) when uncertainty is low and be conservative when uncertainty is high.

Sizing Strategy for Mature Business

For mature business, sizing of SF may not be very important. There may be instances where a particular segment require mild up-sizing as sales leaders may have been little conservative initially while setting up the sales force. For mature business, there may be some instances where SF requires some down-sizing due to pressure on profitable sale, product maturity and competitive market.

1. Working Smarter is Profitable than Increasing Size – For mature business, smart allocation of SF can yield better results. It is better to focus on the QUALITY of the sales rather than QUANTITY of the sale. Improved allocation of efforts across SF can be done by enhancing sales effectiveness drivers – (1) provide better targeting information to SF, coaching SF for efficient selling, adjusting compensation plan to encourage sale of profitable product line etc.

2. Down-Size Strategically – Movement of business from maturity to decline demands down-sizing of SF; however, this reduction should be very well thought out. In this scenario direct sales people have to be assigned to take care of most critical, high-valued selling activities with most profitable, retainable, and strategically important customers and product lines. Less valued selling (less strategic product lines) can be performed by other low cost sales resources i.e. inside phone sales, internet sales etc.

Sizing Dynamics

TThere are diminishing returns to sales force effort. Adding

Increasing sales force size will increase sales (slower rate) and will contribute very sharp decline in gross contribution margin by incurring additional sales force cost.

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