One of the most common questions business owners ask me is;
I want to hire a new sales resource, but I don’t know if I can afford them.
Now I know what that really means! I need more sales but what if this person doesn’t generate more sales? How do I target them and how much can I pay them based on when I need to see a spike in sales?
My first question is, what will the recovery time be? So if you’re considering onboarding a new sales resource, how much time do you need to give them to catch up and start generating new sales?
Can you put together a trajectory of how you would expect or would like your sales to increase from month 1 onward over the next year?
Of course, this is the hard part, but I always feel like a crucial part of the hiring process. The sales resource needs to know the size of the challenge and what is expected of them in their first year. However, in general, you should check in with them on a monthly basis on your progress. How close are they to the first sale, how is the order and sales funnel filling, and can we quantify and assign some figures on the likelihood of those orders going through?
If we talk about the salary to offer, it is best to think about it in terms of when I need this new resource to recover.
Payback means that if I spend £ 60,000 in a year on a new resource, they will generate enough sales, resulting in a profit of £ 60,000. At that time, this resource has been retrieved.
Here is an illustrated example:
A company has the following form of profit.
Sales 500,000
Less cost of sales 250,000
GREAT BENEFIT 250,000
Overhead 100,000
Net profit 150,000
If you are deciding whether to accept a new sales resource and the salary is £ 60,000 per year, each month this will mean you will incur additional costs of £ 5,000.
The current earnings form above shows that for every £ 500,000 in sales you make, it will cost you £ 250,000 in direct costs, leaving you with £ 250,000 of gross profit. Simply put, for every £ 1 of sales revenue you make, 50p will be kept as gross profit.
Therefore, to cover your monthly costs, the sales resource must have generated additional sales of £ 10,000 per month, so that a gross profit of £ 5,000 is created.
These figures will help you set your goal. It will also allow you to see how long you can maintain this resource without a resulting increase in sales.
Payback is a great metric to use when trying to understand affordability over a period of time. It helps you set targets for delivery, and if measured monthly, it can provide a useful tool for you to have some measurable data. Comparing monthly with this data allows you to see objectively how your new resource is performing and what the financial impact is for your business.
