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| Budgeting For New Sales Rep ‘You gotta spend money to make money, right?’ Ever hear that around the office? Is it your voice you’re listening to? But, there’s spending money and then there’s investing money. I frequently find myself playing the go between in a new sales rep vs company owner/sales manager feud over what should be included as tools for the rep. Not a very comfortable seat to sit in! What I realized is that no budget was determined up front, which means no expectations were set. All the owner/ manager sees is money flying out the door, and the sales rep is using “lack of tools” excuses for non-performance. Well neither would happen if a budget/projection were set and discussed up front. So let’s look at the basics of what should be included. When discussed up front, having a sales forecast and budgeting costs planned out will often pre-empt a problem before it gets to the stage of no return. First, an owner/manager has to look at adding a sales representative as an investment. Because of the nature of the billing cycle in payroll, it is not unusual to be out of pocket for a new sales rep for the entire first year. Before hiring or adding to your sales department it is critical that you understand what you are investing in, what your expectations should be, and what your R.O.I. is going to be. When considering starting or adding to a sales team, approach the decision as you would approach any other business decision, budget and plan. To do this it is important to understand that there is a cost in building and developing a sales team. So, how should you plan, and budget? First, ask yourself, “What are our long term growth expectations?" A payroll company with less than 200 clients that has a 10 year goal of being at 5000 clients is in an entirely different position than the payroll company that is at 1200 clients whose goal is to hit 5000 clients. That is due largely to name recognition in the market place. With a very reserved and passive sales approach, a company can expect 10% growth simply by soliciting referrals from existing clients. If you have a base of 1200 clients, following the passive mode you could expect to add 120 clients over a year, with 200 clients that number is only 20. With an active, well-trained sales representative expectations take a different turn. If a sales rep has a developed territory with let’s say 300 clients in a geographical area and, they actively solicit (through various lead generation modes) new business, a payroll company can expect a 25% growth from that individual, or with a base of 300 clients in a territory, over a year they could add 75 new clients. In a brand new market/territory where there is very little or no name recognition for the company, you are looking at only 40 to 50 new clients in a market of 9,000 to 10,000 businesses, and an extremely disciplined sales plan must be followed. A sample forecast may look like this: |
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| Typically for a 1st year sales rep in a company with average name recognition (a client base of 500 or so) you should expect a cost of 75% to 85% of the annualized revenue that they will sell in their first year. Realize that the average lifetime of a client for an independent payroll service bureau is approximately 3 years with an annual attrition rate of 5%. So if a sales rep brings in $100,000 in their first year, those clients have an average life value of $285,250, thereby making the true acquisition cost of the clients at 27%. To put costs into perspective, if a payroll company were to opt to buy clients at a rate of 2x annualized revenue, they would pay $200,000 for every $100,000 of annualized revenue, or invest in a sales rep at a cost of approximately $78,000. When budgeting, make sure to include some costs associated with marketing. Give your sales rep some wiggle room for developing long term referral sources. Establish, up front, that you have set aside funds for the development of CPA referral sources. After the rep has proven that they are willing to do “the footwork” for 60-90 days, give them a budget for other lead generating activities i.e. referral contest from existing clients, and/or trade shows. Anything that will help them add to their lead generation effort. |
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| Having this quality information allows you to work with your sales rep to grow your client base. Regardless of the current size of your payroll company, or your sales team, taking the steps of preparing a sales forecast, and budget will save you time and aggravation in the long run, give you a solid foundation for planning ,and help to shape the actions necessary to reach your goals.Like G.I. Joe is fond of saying; ‘Now you know, and knowing is half the battle!’ The rest is execution. Good selling! |
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