Most building materials companies keep very close tabs on their costs. They know how much they spend on production, materials, shipping, warranty, marketing – and that’s just the beginning.
There’s one exception, however. Most building materials companies don’t understand the cost of their sales team.
They know it on a superficial level. They know the total annual expense, the number that shows up in the budget. But they don’t go deeper than that and consider the details.
Because of that, these companies tend to fire from the hip. As soon as they see a prospect or an opportunity, they shoot a salesperson over to it. There’s rarely any thought about the cost of doing this, or even the odds of succeeding.
That’s one of the great things about a CRM. If you’ve got one, you can actually get your salespeople to report that information so you can start measuring it. Then you’ll be able to answer some important questions and make better informed decisions.
- How much of a salesperson’s time is going to be spent pursuing this opportunity?
- How much will it cost?
- How much does it cost for your salespeople to manage current customers?
- If you shifted some of that work to customer service so your salespeople could spend more time selling new customers, would that be a better investment?
You won’t know unless you start tracking the data. Once you do, you’ll know the real cost of your sales team and how to make the best use of that expense.
Having a sales team is essential but expensive. So, let’s look at a few ways to rethink your sales costs and get better results for your buck.
What Is the Hourly Cost of Your Salespeople?
The cost of a salesperson is everything they make, use or spend on behalf of the company. That includes their base salary, commissions, and bonuses. You also have to count any benefits they take advantage of, travel and entertainment expenses, training, samples and sales materials, meetings and all the other miscellaneous expenses.
Divide this amount by the number of hours worked per year (1,800 hours for a typical full-time employee) to get a rough and ready idea of what a salesperson is costing you per hour.
(Salary and Benefits + Commission & Bonuses + Travel Expenses + Training Costs + Samples/Sales Materials Costs + Meeting Costs + Miscellaneous Expenses) / 1800 Hours Worked = Hourly Cost of a Salesperson
I don’t want to give you a number here, even an approximate one. I want you to do the calculation yourself. That’s because the hourly cost of a salesperson can vary widely based on the company and the role they play in it. A salesperson who works with high-margin products will generally have a higher hourly cost than one who sells low-margin items. A salesperson who works in a call center will have a lower hourly cost than one who travels to meet with high-profile clients.
I also don’t want you to think I’m implying that a high-cost salesperson is always a problem. Some salespeople are worth their weight in gold – their time costs more but it also brings in higher returns. It’s about understanding whether you’re making the best use of an expensive asset.
When you understand how much a salesperson’s time is actually costing you, you can decide whether they’re making the best use of their time. You can assess whether each task is worth the expense and how much you can spend on support staff before it starts eating into your profits. And you can find out which tasks are worth outsourcing instead of keeping in-house.
What Are Your Sales Costs at the Micro Level?
The cost of your salespeople is one of the most significant expenses on your balance sheet. But you can view them in two different ways: at a macro level and a micro level.
At the macro level, you’re taking a broad look at your business and seeing how much your sales department contributes to your bottom line. This gives you a rough idea of whether you’re spending too much or whether you should consider increasing your spending.
At the micro level, you’re looking closely at the individual tasks that are part of your salespeople’s job descriptions. You’re parsing out how much each of those tasks is costing you. This helps you streamline your sales processes and eliminate wasteful tasks. It’s about finding ways to cut costs without getting in your salespeople’s way. If you can reduce expenses without affecting their performance, that means more income going where it should be.
The macro level matters. You want to make sure you’re staying on budget and that your expenses are manageable, year after year. But it’s not enough. You should also take a micro-level look at how your salespeople are doing their jobs and what it’s costing you.
If you can find ways to do it more efficiently, your company will run more smoothly. And that’s good for both you and your sales team.
Where’s the Waste?
Every company wants to believe it’s as lean and efficient as can be. But I don’t think I’ve ever seen a company that didn’t have some kind of waste.
Often, that waste is in the sales department. It’s not because salespeople are slackers or refusing to pull their weight. It’s because most salespeople don’t have a clear process, or they have one that leads them down too many dead ends.
If you have a clear sales process that’s also easy to execute, your salespeople will waste a lot less time. If they don’t have enough guidance, they’ll handle that the way we all do – by doing whatever feels right, even if it’s not the most efficient way to do things.
Your salespeople are probably spending too much time on tasks that don’t produce enough revenue. They’re trying to work hard and work smart, but they’re probably engaging in a lot of wasteful tasks like:
- Making cold calls without a plan or strategy
- Not following up properly after initial contact
- Spending too much time on administrative tasks
- Chasing down unqualified leads
And we’re not talking pennies here. Let’s say you’ve got a salesperson spending two hours per day on administrative tasks that don’t really need to be done – at least not by them. That adds up to about 30 whole days a year, or 15% of their total work hours. If you’re paying them $100,000 per year, those pointless administrative tasks are costing you a total of $15,000 annually. $15,000 that you could easily save by cutting the waste and streamlining that salesperson’s work process.
And that’s just one source of waste from a single employee. Those costs can add up when you consider the entire sales department and every aspect of their jobs.
Even highly valuable tasks can become wasteful if they’re putting too much energy in the wrong place. For example, I regularly advise salespeople to do more research and learn everything they can about a client. But many salespeople will spend hours trying to pinpoint the decision-maker in a company they want to sell. In reality, decision making tends to be more diffuse – it involves input from multiple people, including many who don’t technically have the authority to make key decisions but have a lot of influence over the people who do.
Trying to locate a single decision maker when there probably isn’t one is technically research, sure. But it’s not a great use of a salesperson’s time and it’s a waste of the costs you’re putting in.
Calculating the cost of your salespeople’s time is sort of like peering into a crystal ball. All of a sudden, you can identify all sorts of wasted expenses you never noticed before. Then you can work to eliminate them and make your sales team far more productive and efficient for it.
When Was the Last Time You Evaluated Your Sales Costs?
It’s not enough to have a great sales team. You also need to regularly evaluate their performance.
If you haven’t done this (or if it’s been a while), start with what your salespeople are doing right now. Find out how much it’s costing you, if it could be done better, or if there’s a better way for your salespeople to spend their time.
Are they focusing on the right things? Are they pursuing leads that have a decent chance of converting? Are they doing anything that should be left for another department?
Once you’ve answered those questions, make a plan to help them improve. That could involve training, investing in the right digital tools, or simply outlining a clear sale procedure to keep the waste to a minimum.
When you know what your salespeople are costing you (at the micro level, not just the macro level), you can make decisions based on hard numbers. You’re relying on data, not guesswork. That’s going to result in more sales, higher revenue and more satisfied customers – at a lower cost.
Pull out the spreadsheet or the calculator and get started now. Figure out what you’re actually spending on sales, in detail. Once you have those numbers, you’ll be able to make sure you’re getting value for every dollar you spend.