Do we need a direct sales
force?
Jamestown
Case assumptions and analysis
The direct sales force vs. manufacturers’
reps
3/2/99
1
O’Brien’s Cost
Assumptions
Structure assumptions:
Sales force size
Sales force growth of 20% and sales force
size
Span of control, number of managers
Compensation assumptions:
Compensation level: level of experience;
industry
Turnover rate=15%
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2
O’Brien’s Assumptions
Miscellaneous assumptions:
Rep commission rate 12%, not 10%
No growth in compensation or overhead as
the sales force grows
No expenses for the sales manager
Doesn’t subtract start-up costs from savings
Does not include sales information system
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3
O’Brien’s Assumptions
Sales assumptions
Analysis
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4
What should she have done
instead-Sales Force Size?
Breakdown method
N=forecasted sales volume/SP productivity
Causal direction problems
Workload method
N=total work required/expected work from
SP
Total work required= f(# of accounts of each
size, time required for calls, nonselling and
travel time)
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What should she have done
instead-Sales Force Size?
Incremental method
A salesperson should be added as long as
the incremental profit produced by the
additions exceeds the incremental costs
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6
Advantages of Reps
reps can afford to call on small accounts
because they have multiple lines
high travel time between accounts is
absorbed across multiple lines
there may be synergies across multiple
lines
reps in the business for awhile tend to
have both effort and ability
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Advantages of Reps
reps have established contacts,
relationships
savings at lower level of sales (% of
sales) relative to direct
sales expenses a direct function of sales
volume
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8
Drawbacks of Reps
share of mind (many masters)
must bid for attention, sometimes too
diversified
good reps are often taken (and there are
lots of bad ones)
little control- lots of carrots, few sticks
Sum: often highly efficient, but not always
effective
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Use Reps When:
products are not overly complex
little company specific knowledge or
training is required (low specific
assets/investment)
products have a short selling cycle
selling requires no teamwork
output/outcome measures are easily
available
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10
Use Reps When:
some territories are sparse, with high
travel costs (that would be born by the
rep)
many customers are small and may not
warrant visits from a high-cost direct force
products are seasonal or volatileenvironmental uncertainty
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Advantages of a Direct
Sales Force
all their attention is devoted to your
products
eventual savings as a percentage of sales
(as sales grow)
greater control is possible
attention can be directed to particular
accounts and/or activities and/or products
direct force may provide better feedback
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Drawbacks of Direct
heavy fixed costs- salesperson, managers,
information systems
difficult to set up, slow to get up to speed
not easy to manage- benefits of control
may not materialize
Sum: can be very effective, if managed
well- but good management is expensive
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Use Direct When:
after-sale service (e.g., training of
customers) is important
the company desires a balance of effort
among lines and wants to encourage
selling high-margin and new productsbehavior control more likely with direct
sales force than with reps
team-selling is required or there is a long
selling cycle
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Use Direct When:
sales and margins are high enough to
support a direct force and cover fixed
costs
the product line is broad, giving a direct
force some of the synergy advantages a
rep would have with multiple lines
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Sum, Rep vs. Direct: What
to consider
How much behavioral control is needed
support/service
need for team selling
selling focus by product
length of the selling cycle
Product characteristics
complexity
size of the line
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Sum, Rep vs. Direct: What
to consider
Salesperson characteristics
knowledge/expertise
risk averse/risk-seeking
Environmental Factors
quantity and predictability of sales
size of accounts, dispersion of accounts
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Relationship to Control
Systems
Low
High
Control
Control
Mfr.
Reps
3/2/99
Direct with
commission,
low
supervision
Direct with
salary, high
supervision
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