Business decision making- Can I afford a new sales resource?

Business decision making- Can I afford a new sales resource?

 One of the most common questions I get asked by business owners is;

 I want to take on a new sales resource but I don’t know if I can afford them.

Now I know what that actually means! I need more sales but what happens if this person does not generate more sales? How do I target them and how much can I afford to pay them based on when I need to see some upturn in sales? It is this type of decision making that small businesses will find themselves procrastinating over.

My first question is, what will be the payback time? So, if you are thinking of bringing on board a new sales resource, how much time do you need to give them to get up to speed and start to generate new sales?

Are you able to put together a trajectory of how you would expect or like your sales to increase from month 1 onwards for the next year?

This is of course the hard part but I always feel a crucial part to the recruitment process. The sales resource needs to know the size of the challenge and what is expected of them in their first year. Typically however, you should review monthly with them on their progress. How close are they getting to the first sale, how is the order and sales funnel filling up and can we quantify and assign some figures around the likelihood of those orders materialising?

If we are talking about the salary to offer, this is best thought of in terms of when do I need this new resource to payback.

Payback means, if I spend £60,000 in a year for a new resource, when they will generate sufficient sales, which creates £60,000 profit. At that point this resource has paid back.

Here is an illustrated example:

A company has the following profit shape.

£

Sales                                   500,000

Less Cost of sales             250,000

GROSS PROFIT                 250,000

Overheads                          100,000

Net Profit                              150,000

 

If you are deciding whether to take on a new sales resource and the salary is £60,000 per annum, every month this will mean you will incur an additional £5,000 costs.

The current profit shape above shows that for every £1 of sales revenue you make 50p gross profit.

Therefore to cover their monthly costs, the sale resource needs to have generated an additional £10,000 additional sales per month, so that £5,000 gross profit is created.

These figures will help you with your target setting. Also it will enable you to see how long you can sustain this resource with no resulting increasing in sales.

Payback is an excellent measure to use when trying to understand affordability over a period of time. It helps you to set targets for delivery and if measured monthly, can provide a useful tool for you to have some measurable data. Monthly comparison against this data allows you to objectively see how your new resource is performing and what the financial impact is to your business.

If you are procrastinating over your decision making, this is a useful tool, based on hard data, which will help you to speed up this decision making process and grow your business faster.

COMMENTS (1)
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Nicely summarised Hayley and I agree it is a common question from small business owners who feel it is a ‘chicken and egg’ scenario…what comes first? Try and achieve growth in sales to be able to afford new resource, or bring in the resource to grow the sales. Often the business owner is already running at capacity, so really there is only one option. Inevitably there is an initial investment period, which may mean profits are suppressed to allow a new resource to get up to speed, but the above forecasting method can allow that to be factored in and for the owner to see how the investment in capacity will deliver rewards further on.

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