Optimal Salesforce Sizing and Compensation Cost: A Mathematical Approach

• Published in: Compensation and Benefits Review Vol. 49; no. 1; pp. 26 - 33
• Main Author: Madhani, Pankaj M.
• Format: Journal Article Trade Publication Article
• Language: English
• Published: Los Angeles, CA SAGE Publications 01-01-2017; SAGE PUBLICATIONS, INC
• Subjects: Compensation; Investments; Market positioning; Mathematical models; Sales; Salespeople; Satisfaction; salesforce size; sales compensation; ROI; breakeven ratio; sales productivity; salesforce sizing errors
• ISSN: 0886-3687; 1552-3837
• DOI: 10.1177/0886368717751321

Salesforce constitutes one of an organization’s most productive and most expensive assets and has a major impact on overall performance of the sales organization. Salesforce sizing affects profitably of a sales organization by affecting both revenues and costs. The salesforce size affects customers, salespeople and the overall sales organization. A salesforce that is of the right size is challenged and motivated, but not overworked, connects with customers effectively, sales compensation costs are reasonable and sales as well as profitability of the organization is strong. The organization that is more effective than others (e.g., sales growth, profit contribution, market position and customer satisfaction) has a more optimal salesforce size. There are many internal and external factors affecting salesforce sizing decisions such as strategic objectives, product maturity, competitive environment, market trends and financial goals. All these factors together determine optimal return of investment for salesforce investment. This research provides a mathematical model for practicing managers to determine the optimal size of a salesforce.