4 Reasons Why It May Not
One of the things that Advantexe facilitators look for when conducting a Business Acumen Simulation Workshop is the alignment of the simulation team’s strategy to execution. Just like in the “real world,” the executive leadership team sets their strategy and then executes it by making business decisions in the areas of Marketing, Sales, Operations, and Finance. Inevitably the discussion of revenue targets and growth comes up and the first inclination of most teams is to add more and more sales people to increase revenue and achieve the sales targets.
Recently I was leading a strategic planning session for the leadership team of one of our clients and the CEO made an interesting statement during the tactical discussion to support the strategy. “And remember, we need to increase the sales force by at least 50% to increase revenue and meet our growth targets.” I picked up on some interesting looks from the other members of the CEO’s leadership team especially between the Manufacturing leader and the Supply Chain leader. After a few minutes, the Manufacturing leader asked the CEO to take a moment to explain his logic on why adding more sales people guarantees more revenue. “Because our investors said so that’s why.” The CEO went on to share how the investors in his company have “very sophisticated models that illustrate growth” by adding more sales people. Later during a break, one of the senior leaders asked me an interesting question, “Do you think that the answer to growing sales is adding more sales people?” I put on my Consulting hat and gave the only and most appropriate response I could, “It depends.”
It’s a really important Business Acumen question and over the past week I have been thinking about it and asking respected experts to weigh in. At the end of the day, there are two distinct ways of growing revenue through the sales force. One, adding more sales people, or two, getting the existing sales team to become more productive. A few thoughts…
The Perceived Value of Adding More Sales People
The perceived impact of adding more sales people is that they will automatically increase revenue. The typical strategy is to deploy new sales professionals to new geographies to expand the existing footprint or to add sales people to territories that are supposedly underserviced.
Why Perceptions Don’t Turn into Reality
After speaking with a number of respected experts, we came to the conclusion that there are at least 4 significant reasons why simply adding more sales people doesn’t automatically result in increased revenue and goal attainment:
1) Unrealistic timeframes related to expected results
Sales people are never productive the day they start. It takes time to understand their new products/services, understand their accounts, and develop relationships with their customers. Too many people (like investors) look at the current situation and apply principles of basic math to develop a revenue trajectory. How many times have we heard this logic; “Ok, this is easy…you are generating $100 million in revenues with 20 sales people which is about $5 million per sales person. If we want to grow to $150 million next year, all we have to do is add 10 more sales people.” As we all know, it never happens that way.
2) The World of Marketing and Selling has Changed
Marketing and Selling in 2016 is very different than it was just 5 years ago. The Corporate Executive Board (CEB) as part of their Challenger data states that almost 57% of a potential customer’s decision is already made before the customer engages with a sales person. If that is true, then adding more sales people may never be effective as customers are looking for different methods of acquiring the products/services they need. Expanding the Social Selling budget, implementing a lead nurturing program, and/or focusing on search engine strategies could be much more effective in developing demand and sales.
3) Unanticipated Risks
Nothing in business is ever as easy as it seems. Expanding the sales force is fraught with many major risks including but not limited to:
- Acquisition
- Onboarding
- Development
- Turnover
- Lack of a solid sales process
- Inconsistent sales methodology
4) Unplanned Costs
Increasing the sales team by 50% costs a significant amount more than the salaries and potential commissions of the additional hires. There are extra, hidden, and unplanned costs that can have a significant impact on cash flow and profitability before increased revenues kick in. Some of these unplanned costs can include:
- Recruitment fees
- Onboarding
- Travel
- Additional Marketing
- Training
- Infrastructure including computers, software, CRM, etc.
- Sales enablement including tools, brochures, etc.
In conclusion, there is not a clear and clean correlation between simply adding more sales people and increasing revenues. Smart leaders understand the timeframes, changes in selling, unanticipated risks, and unplanned costs and adjust their plans accordingly.
