With all the talk about sales and cold calling, it’s important to step back and run some simple math to see if inside sales even makes sense. Most entrepreneurs fail with their first sales rep for a variety of reasons and really should just hire a sales assistant. Assuming the sales assistant is already in place, let’s run through some logic to see if it makes sense to hire an inside sales rep:
- Take the average gross margin in the business (e.g. 30-80% based on the type of company — let’s say 70% for a Software-as-a-Service business)
- Grab the average deal size in the first year (e.g. $1,000)
- Evaluate the cost of salary and commission to hire the caliber person required to be successful (e.g. $35k base and $75k on target earnings)
- Figure out how many deals are required for the gross margin to match the fully loaded costs of the sales rep
- If the gross margin of the first year is greater than or equal to the expected output of the sales rep, hiring a sales rep makes sense
- Here’s the math for the example above:
$75,000 + taxes for the sales rep = $85,000
70% gross margin times $1,000 per deal times X number of deals = $85,000
121 deals at $1,000 per deal = $121,000 times 70% gross margin = $85,000
121 deals are required for the sales rep to make sense.
So, run the numbers based on educated guesses and see if it makes sense to hire an inside sales rep. Generally, as the average customer value goes up and the sales cycle goes down, inside sales makes more sense.
What else? What are some other thoughts on how to decide if inside sales makes sense?