1. Your company currently generates $200 million in revenue selling through 50 indepen- dent sales agencies....

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1. Your company currently generates $200 million in revenue selling through 50 indepen- dent sales agencies. The agencies are paid a flat 5 percent commission on sales they generated. You are wondering whether it would be less expensive to develop your own dedicated sales force. Your industry's trade association conducts an annual compensation survey, which indicated that the average salary for salespeople is $60,000 including ben- efits. In addition, an incentive compensation of 0.5 percent (i.e, one-half of 1 percent) of sales was also typical. You estimate that you would need to hire 100 salespeople to replace the sales agents. Given the information provided, which would cost you less at $200 million in revenue-your own dedicated sales force or independent sales agents? What is the breakeven sales volume for your company; that is, when do the two sales force alternatives cost the same? 2. Upon further reflection on the previous problem, you realize that you have neglected to consider several relevant costs in your calculations. You have one national sales manager and a marketing manager who presently interface with the independent sales agents, but additional management levels will be needed to train and manage the number of salespeople you are anticipating hiring. First, you have decided to divide the nation into two regions with a regional sales manager in charge of each. According to industry sources, a regional sales manager's average salary is $120,000. Second, a number of district managers will be needed to manage the salespeople directly. A span of control of 10:1 (10 salespeople to 1 manager) is believed to be necessary. Salaries for district managers average $90,000. Incentive pay for managers, both regional and district, is expected to be 0.35 percent of sales. Third, it should cost $12,000 to recruit and train each salesperson. Finally, management wants sales to grow by 10 percent next year to $220 million, so more than 100 salespeople will need to be hired. Average sales per salesperson are expected to be $2 million. Given this new information, which type of sales force will be less expensive? What is the breakeven sales volume now? 1. Your company currently generates $200 million in revenue selling through 50 indepen- dent sales agencies. The agencies are paid a flat 5 percent commission on sales they generated. You are wondering whether it would be less expensive to develop your own dedicated sales force. Your industry's trade association conducts an annual compensation survey, which indicated that the average salary for salespeople is $60,000 including ben- efits. In addition, an incentive compensation of 0.5 percent (i.e, one-half of 1 percent) of sales was also typical. You estimate that you would need to hire 100 salespeople to replace the sales agents. Given the information provided, which would cost you less at $200 million in revenue-your own dedicated sales force or independent sales agents? What is the breakeven sales volume for your company; that is, when do the two sales force alternatives cost the same? 2. Upon further reflection on the previous problem, you realize that you have neglected to consider several relevant costs in your calculations. You have one national sales manager and a marketing manager who presently interface with the independent sales agents, but additional management levels will be needed to train and manage the number of salespeople you are anticipating hiring. First, you have decided to divide the nation into two regions with a regional sales manager in charge of each. According to industry sources, a regional sales manager's average salary is $120,000. Second, a number of district managers will be needed to manage the salespeople directly. A span of control of 10:1 (10 salespeople to 1 manager) is believed to be necessary. Salaries for district managers average $90,000. Incentive pay for managers, both regional and district, is expected to be 0.35 percent of sales. Third, it should cost $12,000 to recruit and train each salesperson. Finally, management wants sales to grow by 10 percent next year to $220 million, so more than 100 salespeople will need to be hired. Average sales per salesperson are expected to be $2 million. Given this new information, which type of sales force will be less expensive? What is the breakeven sales volume now?

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