Every salesperson wants to earn more. But how much should salespeople make? Is there a benchmark?
What about a sales team? Is there a certain number of people in a team that is necessary for it to profitably support a manager?
What about the company as a whole? If you are constantly besieged by advertising agencies and marketing firms, all wanting a piece of your budget, what should you invest? Are there some guidelines?
Other than sales and gross profits, is there anything else you should be tracking to keep your sales and marketing costs in line?
The answer to all these questions is the same: YES.
Before we mention any benchmarks, let’s make sure we are using accurate measurement. 30 years ago, in order to create a standard measurement, I developed a measurement we call “Kahle’s Kalculation .” We describe it, with same calculations and spread sheets, in a free E-book here.
Basically, it is a measure of productivity, focused on sales and marketing costs. It compares the contribution of the unit,(salesperson, sales team, company as a while) to the direct costs of that unit, and calculates the ratio. The result of the calculation is a percentage which expresses the measurement of how productive the measured unit is. The smaller the number, the more productive. So, if you are measuring a salesperson, a KK measurement of 25% indicates a more productive salesperson than someone with a measurement of 35%.
Once you are equipped with that measurement, you can compare one salesperson to another, and you compare a salesperson’s recent performance to the same person’s performance last year.
Not only can you measure the performance of a salesperson, but you can also measure the performance of a sales team. So, for example, if you have multiple branches, you can calculate the KK of each branch and compare them.
Finally, you can use the measurement to make some observations about the productivity of your entire sales and marketing effort – your sales and marketing system.
Whenever I get involved with a client company, I recommend creating a base line by calculating the number for last year. Then, begin to measure each level quarterly to track improvements.
So, where should those numbers be? Is there a benchmark?
Yes. But first, let me share where these numbers came from. I have been in practice for over 30 years, and have worked with over 500 companies, personally and contractually. It has been my routine to have every client create these measurements. In addition, my company has performed about a half dozen projects for national trade associations, where we measured the members of that association and published specific industry benchmarks. Overall, I estimate that I have seen these measurements for a couple of thousand companies of almost every size and type.
So, attribute whatever degree of reliability you feel comfortable with. I am convinced of the reliability of these benchmarks.
For a field salesperson, the ideal range for a KK number is in the teens – 13 percent to 19 percent. Less than that, and the salesperson is underpaid. This is often an indication that the salesperson has too much responsibility and that reducing the size of the territory can increase penetration and market share. That number can increase to 25 percent if the company drops ships a large percentage of its product from some other source. If it manufactures or warehouses the product, than the teen guideline holds firm.
If your salesperson’s measure is more than that – say 35 percent, I can say without hesitations that salesperson is probably not profitable for the company.
For the company as a whole, if you are under $35 Million in annual sales, your number should be in the range of 26 percent to 34 percent. More than that indicates that you are not efficient in your sales and marketing efforts. It may be that you are investing now for hoped for returns down the road. You are probably not profitable, and one of the core causes is inefficient sales and marketing efforts.
If your number is below that, then you are probably not growing as you should because you are not investing appropriately in the sales and marketing function. Or it may be that you are, as the owner, taking excess profits out of the business, and the sales system is the victim.
There are, of course, lots of induvial variables that impact these numbers. Use them a rough approximation of what you should be spending on sales and marketing and then fine-tune appropriately.
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