Your sales team are at the forefront of bringing in revenue. If the sales team isn’t hitting targets, they’ll lose out on commissions and bonuses, but more importantly, under-performance can have a much more serious effect on the company.
Lost revenue put companies in jeopardy.
Deals can take longer than expected to close; customers change their minds or find a better offer elsewhere. Sometimes sales professional just aren’t determined enough to keep following-up with sales leads. Regardless of the reason, sales targets aren’t met, meaning anticipated revenue is also impacted. How can we work out the cost of missing targets?
Costs of employing salespeople in an SME
For example, in a fictitious UK small company, each member of a sales team is employed on a base salary of £35,000. When factoring in additional costs such as employer contributions (national insurance and pensions), insurance, training, and fixed/fluctuating overheads (office bills, a vehicle, phone, laptop, and fuel), our fictional sales employee costs the company circa £80,000.(1) This is how much money the company is spending on them, an investment so that the salesperson has the skills and materials to close deals that exceed the cost of employing them.
The employee’s worth is based upon the revenue they generate, which, naturally, is going to fluctuate month to month. However, as a key part of the employee’s job is to conduct sales meetings and calls, we can calculate from this sum how much each sales meeting costs.
If a salesperson can conduct five sales meetings per day – the crux of their employment – we might assume that they could hold twenty-five per week, or 300 in every 12-week quarter. It’s unlikely, however, that this will happen: planned absences such as staff holidays and training are anticipated to eat up some time, as well as unexpected situations such as sickness or family issues.
Hunting for leads are also bound to cut into time set for meetings. Realistically, we might expect one salesperson to hold 200 sales meetings per quarter.
Working on the £80,000 cost of employing the salesperson, we can work out their cost per quarter as £20,000, paying for 200 expected sales meetings. This means that each sales meeting is worth £100.
If a salesperson is only handling three sales meetings per day, the cost per meeting goes up. For three meetings per day, we might expect 120 per quarter. But with the salesperson still costing £80,000, the price of each meeting goes up to £167. Making it harder to cover their own costs since there are fewer opportunities to generate revenue efficiently.
Lost revenue and opportunities
Let’s take the hypothetical Brian, a salesperson in a small, reasonably new company on a £21,000 salary. In addition to his salary, Brian is supplied with a (shared) office, phone, laptop, car, and gym benefits in addition, which, in addition to the company’s mandatory national insurance, workplace insurance, and pensions, brings his total cost to the company as £47,000.
Brian’s cost to the company per quarter is £11,750. Brian is taking four meetings per day, or 240 per quarter. However, he has, on average, a week’s holiday (minus 20), three days of training (minus 12) and two days off with illness (minus 8) per quarter, which means 200 potential sales meetings in one quarter.
For Brian to break even for his employer, he must make a minimum of (£11,750 ÷ 200) £58.75 per meeting. This amount is simply to cover the company’s expenses so that his employment does not leave them out of pocket.
The business has an expected gross margin of 25% to reach targets. In order to reach that target, Brian must make 25% over his costs of £58.75, in this case, £73.44. Anything less than that, and Brian is failing to reach sales targets.
This week, Brian has had a number of unproductive meetings that have wasted his time without creating any revenue. All of Thursday and Friday morning were similarly unsuccessful – equalling 6 meetings. With a minimum revenue of £73.44 expected per meeting, this equals £440.64 of revenue lost.
The True Cost of a Bad Week
A wasted meeting – or a bad day or week – can be quantified to a specific amount of actual money lost (the cost of employing the team member) or to the potential revenue lost (costs plus gross margin percent), and the calculations above can be extended to apply to a full week, or quarter.
When applying this to your own team and budget, consider the following:
- Are they making enough calls to get enough meetings to make them cost-effective?
- Are they meeting with the highest value accounts often enough? Apply the 80/20 rule.
- Is your pipeline management working?
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