Sales force sizing is the strategic and analytical process of determining the optimal number of sellers by role, segment, etc. Since a sales force is an investment in growth, sales force sizing can be measured using ROI analyses. As the ROI of incremental sales headcount exceeds other investments, the sales force should continue to grow.
There are several ways to identify the optimal sales force size. Three common approaches include:
Total Addressable Market (TAM)
TAM references the available opportunity in the market. The number of sellers deployed directly impacts customer and prospect coverage. Generally, a larger sales force manages more opportunities. However, when doing this analysis, you must ensure that new sellers do not cannibalize the opportunities of other sellers. If new sellers reduce the opportunities of existing sellers, the ROI decreases and eventually seller productivity suffers.
For larger organizations, TAM and sales force sizing should be done by customer segments since trends and customer demands may be unique by industry.
Seller capacity is an activity-based analysis. Sellers have limited bandwidth to complete activities like travel, sales calls, internal meetings, pre-call planning, etc. If you understand the demands on the sales force and the capacity of each seller, you can calculate the number of sellers needed to satisfy the demands.
Remember, there is also an opportunity cost for each activity. When a seller does one activity, they likely are not able to do another. This is one of the fundamental challenges with hybrid sellers. If you are asking a seller to manage and service accounts, they might not have as much time for new customer acquisition. Related, sales force sizing is an easy task when the sales role design is focused. It tends to be more complex as sales roles are more broadly designed.
Some organizations – e.g. startups – may have a ton of opportunity to justify a larger sales force but are limited by budgetary constraints. Financial metrics like the costs of sales, costs per seller, and gross contribution margin are helpful in sales force sizing. For example, if an organization is managing to 5% cost of sales and is expected to have $100M in revenue, the sales force investment is $5M. If the cost of each seller is $100k, the sales organization can afford 50 sellers.
Another informative assessment is to calculate the break-even point for incremental sales headcount. The break-even point for a seller is determined by dividing the cost per seller by the gross contribution margin. If the cost of a seller is $100k and the gross contribution margin is 25%, the seller must sell $400k just to cover their costs.
Once complete, these sales force sizing findings help to answer more specific questions like:
- How many strategic account managers do I need?
- How large should my insides sales group be?
- Should we add more business developers to a specific customer segment?
- Do I need to hire more sales managers?
- Should I hire more sales operations and support people?
These are three unique approaches to assess an optimal sales force size. While they can be used independently, the most progressive sales organizations reconcile the output using multiple approaches.