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When entering a new market, the right sized salesforce will make or break whether the go-to-market strategy is effectively executed. <\/span><\/p>\n Hiring too many reps drains resources and limits the success of salespeople by over saturating the market. Not enough \u2018feet-on-the-street\u2019\u00a0means that a company will lag compared to its competitors, failing to grow during its pivotal first year. <\/span><\/p>\n Because of the challenge of estimating the right size of a sales team in a new market, many executives follow their instincts rather than digging into the facts to optimize market coverage and sales resources. This is a common mistake that can cause companies to miss between <\/span>2-15 percent<\/span><\/a> of profitable revenue growth. <\/span><\/p>\n But there are effective ways that both mitigate risk and maximize revenue.<\/span><\/p>\n This article identifies:<\/strong><\/p>\n First, we encourage growth companies to ensure that they have established a <\/span>concrete sales strategy<\/span><\/a> before they think about sales force sizing. In particular, a company needs proof of a market opportunity, a detailed sales strategy, and the resources to hire salespeople who have proven they can excel in the company\u2019s unique selling environment(s). <\/span><\/p>\n This approach mitigate the risk that resources and time are wasted on new salespeople before they\u2019re ready for a sales team. For example, if an organization regularly changes the goals of the sales organization or hasn\u2019t identified a target market and ideal customer base for each offering, the sales force won\u2019t be able to close the right prospects \u2014\u00a0thus draining resources without contributing to the bottom line. <\/span><\/p>\n Although it\u2019s vital that business leaders identify the ideal size of a sales force, they also need to source candidates with the right skills, experience, and sales DNA to fill the roles. Sales force competency gaps are detrimental to the ability of a company to successfully enter new markets, draining revenue and potentially damaging brand reputation.<\/span><\/p>\n Salespeople need to adapt to multiple stops and starts as well as an extra level of rejection and resistance from leads. Not all salespeople, even the great ones, have the predisposition to be successful in a this kind of an environment.<\/span> Given that, leaders of growth-stage companies need to create selection criteria to matches this unique selling environment. At Peak Sales, we look at candidates for growth-stage companies with the following sales DNA: ambition, optimism, flexibility, a comfort with uncertainty, perseverance, confidence, and an overriding sense of urgency. <\/span><\/p>\n Even for successful start-ups, it can be challenging to entice high-performing salespeople without a record of achievement or reputation within the industry; above-average compensation and the ability to have a material impact on the company as it grows can help usher in new recruits. Although these top performers require upfront investment, they\u2019re <\/span>less expensive than the alternative: mediocre salespeople.<\/span><\/a><\/p>\n Before building a new sales force, executives need to solidify their corporate and go-to-market strategies, assess their ability to pay top-performers, and estimate the expected length of the sales cycle. The longer the cycle, the longer it will be until an organization sees the returns on their investment in new headcount. <\/span><\/p>\n Unfortunately, some business leaders begin with a smaller sales force because they want to minimize headcount costs. They intend to hire more salespeople when costs equal profit. This \u201cwait and see\u201d approach can jeopardize market share, leading to compromised short and long-term profitability. <\/span><\/p>\n In fact, <\/span>research<\/span><\/a> from global consulting firm ZS Associate found that an understaffed sales team limits short-term revenue. Their team studied 11 health-care start-ups and found that the average sales force size was 46 percent smaller than it should be for optimal performance. Of that group, the start-up that outperformed their competitors in the short-term had the largest sales force. <\/span><\/p>\n As cofounder of <\/span>ZS Associates<\/span><\/a> Adris A. Zoltners and writer Sally E. Lorimer summarize in Harvard Business Review, \u201cThe moment signs of success emerge, businesses should increase the size of their sales forces quickly and aggressively. Otherwise, they will forfeit sales and profits\u2014and, perhaps, even their futures.\u201d <\/span><\/p>\n Business leaders, therefore, need to find a balance between preparing a solvent sales strategy before hiring salespeople to execute that strategy.<\/span><\/p>\n Correctly sizing a sales team in a new market also depends on an analysis of the customers. That means leaders need to understand and segment customers to create a robust profile of each territory. From there, an organization can estimate how much selling time each segment requires. The collective, aggregated time from each segment gives leaders a clearer sense of the resources needed to support the customer base.<\/span><\/p>\n Just as executives consider selling capacity for reps, they need to make sure to add the infrastructure necessary to support and enhance selling activities. This can mean adding sales managers, inside sales reps, and administrative support personnel to the headcount. Even A-players can strengthen their impact when they have both administrative support and sales leadership. If you choose to hire sales reps before<\/span> hiring a manager, consider screening for candidates who are player-coaches: They possesses the experience and time to hone strategy, forecast sales, hold reps accountability, and support a healthy culture. <\/span><\/p>\n Building out a sales force means accounting for the structure and support required to achieve quotas. <\/span><\/p>\n By considering the life-stage of the business and assessing both the role of territory penetration and selling capacity, leaders gain a general sense of the ideal sales force size. They can bring extra depth and accuracy to the process by implementing a scientific technique that balances common-sense approaches to these decisions. <\/span><\/p>\n Not only do statistical methods strengthen confidence in sales force sizing, they serve as definitive facts for leaders who need to advocate for sales resources within the organization. <\/span><\/p>\n Although data is not perfect, these two approaches help mitigate risk by pinpointing the optimal sales force size: <\/span><\/p>\n Return on sales optimization (ROS) is widely practiced in sectors with large, established sales forces, but it\u2019s just as relevant to growth organizations trying to break into new markets. This calculation takes into account both cost and revenue, maximizing profit on sales investments while limiting risk. When implemented correctly, it widens the operating profit margin. <\/span><\/p>\n As <\/span>Business Executive<\/span><\/a> summarizes, optimizing ROS depends on several pieces of data: the segment and product profitability, the sales response function, and the costs for sales employees. <\/span><\/p>\n This \u201ctop down\u201d approach is a tool that leaders can use to both target the most profitable sales force size and improve operational efficiency. Like ROI optimization, efficient frontier benchmarking (EFB) identifies the sales force size with the greatest possible return at a limited risk. However, unlike other methods, this calculation accounts for the differences in market potential and teams across regions, calculating the \u201cefficiency frontier\u201d among a company\u2019s distinct sales units. <\/span><\/p>\n To accurately predict EFB, leaders need estimated data on sales revenue, sales costs, and sales activities in ten sales districts, as well as some general insights into competitors\u2019 performance.<\/span><\/p>\n\n
Understand\u00a0the Stage of the Business to Mitigate Risk<\/strong><\/h2>\n
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One of the biggest mistakes growth firms make when determining selection criteria for new sales hires is assuming that experience selling for large companies is desirable. However, selling for a start-up is very different than selling for an established company. While working for an industry leader, salespeople benefit from a <\/span>well-known brand, a stable product, a customer base for references, and the infrastructure to enable big sales.<\/span> At growth-stage companies, there are a lot of obstacles that salespeople at industry-leading firms are not used to experiencing. <\/span>For example, the product offering, value proposition, and target market can evolve quickly. <\/span><\/p>\nMatch Territory Penetration to Sizing Needs<\/strong><\/h2>\n
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As important as it is for leaders to set a clear foundation for hiring through strategy, it\u2019s a mistake to wait too long to expand their sales force. Analysis of 3,800 companies and their performance from <\/span>PIMS<\/span><\/a> (Profit Indicator Market Share) reveals that the strongest indicator of long-term profitability is market share. Companies that are launching a new product or expanding solution sets need to focus on aggressively penetrating new markets to gain an edge on competitors. <\/span><\/p>\n![\"understaffed](\"https:\/\/media.peaksalesrecruiting.com\/wp-content\/uploads\/2024\/01\/Salesforce-Sizing-in-New-Markets-understaffed.png?strip=all\")
The ZS study also found a strong correlation between sales force size and longer term performance. Specifically, they found that, \u201cthe sales force size that maximizes companies\u2019 three-year profits is 18 percent larger, on average, than the size that maximizes one-year profits.\u201d Building out a bigger sales force from the beginning sets the foundation for continued growth.<\/span><\/p>\nAssess the Selling Capacity <\/strong><\/h2>\n
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When leaders have identified the time each segment requires, they can consider the selling hours at the disposal of each rep. The average rep has ~1200 hours of potential time a year. However, organizations need to be realistic about how much time reps have to take away from that for non-selling activities. Plus, they have to account for the differences in performance \u2014 assuming that all<\/span> salespeople will perform and productively contribute at the same level can cause an underestimation in sales force size. <\/span><\/p>\nUse a Sizing Tool or Technique <\/strong><\/h2>\n
Return on Sales Optimization<\/strong><\/h3>\n
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Through this process, leaders compare the marginal profit contribution to <\/span>the incremental cost<\/span><\/a> attributed to each sales employee. The optimal sales force size is when the marginal profit is equal to the marginal cost \u2014\u00a0after that point, the ROS decreases because of the threshold effect and exhausted market potential. <\/span><\/p>\nEfficient Frontier Benchmarking<\/strong><\/h3>\n
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