Sales Outsourcing Costs - What Should You Expect?
Sales Outsourcing and Your Budget
Are you considering outsourcing your sales and wondering how it will impact your budget? Different sales outsourcing companies have different pricing structures and compensation models, but the following guide should help you understand the different components of a sales outsourcing campaign and how you can expect for them to be priced.
It can be frustrating to call a sales outsourcing company wanting to know how much you'll pay per sales rep in the field, and find that the pricing depends on how many reps you'll have, which industry you're in, what the sales process looks like, and your geographic area, just to name a few variables. However, the truth is that if a company can quote you an exact figure for sales outsourcing costs during that first phone call, you'll probably get hit with extra charges later or realize that the company simply does not provide good brand representation or sales performance.
While the fees involved in a sales outsourcing campaign can seem confusing at first, the following guide should help you understand the usual way that sales outsourcing costs are broken up, and what you might expect to pay in each area.
There are four major costs in a sales outsourcing campaign:
What this usually refers to is the commission that will be paid to your outsourced sales representatives. This portion of your sales outsourcing costs is variable, meaning that it will depend on how much the sales representatives produce, and may be different from month to month.
Commission structures are typically highly individualized, and depend on your product and sales structure, as well as the Total Targeted Compensation (TTC) that is standard in your industry and geographic area. Your sales outsourcing company should work with you to determine a commission structure that makes sense for your campaign. Once your commission structure has been determined, the sales outsourcing company should be able to provide you with projections for costs and production.
The other part of the puzzle when you are compensating sales representatives is the fixed component, which usually means the salaries paid to them. While in theory it is possible to hire sales professionals who will work on a commission-only basis, most reputable sales outsourcing companies avoid it, since it tends to lead to high turn-over and usually fails to attract the type of stable, high performers you need for a successful sales campaign.
Your sales outsourcing company will be able to determine the TTC for your industry, as well as the ideal salary/commission mix. Typically the TTC will be weighted more heavily toward commissions. For example, they may recommend a TTC of $65,000 with a 40/60 salary/commission mix. That would mean a salary of $26,000 per annum, with projected commissions of $39,000. In general, base salaries for sales representatives can be anything from $25,000 to $45,000. For highly technical fields, salaries can be much higher. Determining the correct TTC and salary/commission mix is vitally important to enable your outsourcing company to attract the best sales talent available.
However, the fixed fee that you pay to your outsourced sales company per representative per month will be higher than a salary, because it will also cover benefits and government fees, including health, dental, vision, 401(k), paid time off, FICA, state and federal unemployment taxes, and workers compensation.
The fixed compensation fee will usually be quoted to you per sales representative, and should scale up and down fairly straightforwardly no matter what size of sales team you need. For some campaigns, a sales manager will also be required, who will receive slightly higher compensation than the sales representatives. Other campaigns will utilize a "selling manager," who is a sales representative, but functions as a sort of team leader, in the absence of an official sales manager.
Program Management Fee
The above sales outsourcing costs relate directly to the sales staff your outsourcing company will hire. The program management fee, by contrast, is what covers all the sales support, and the underlying engine that makes everything run. If you think of your sales outsourcing company as providing you with an instant outsourced sales department, the management fee funds all the background operations that have to happen to keep a sales team running smoothly. The program management fee generally covers functions like the following:
- Sales and product training
- All recruiting, including initial and continuous candidate flow for effective staffing with qualified sales professionals
- Background checks and drug screening
- Account management, including client reporting
- Incidental travel and entertainment
- Technology and licensing, including internet connectivity for sales offices, laptops for all managers, hosting and backup services
- Office rent (where applicable)
- Office equipment and supplies
- IT support
The program management fee is usually quoted and paid on a monthly basis, and usually starts around $4000 or $5000 for a small campaign of 1-5 sales people.
Market Launch Fee
The final element in your sales outsourcing costs is the Market Launch Fee, which covers all the incidental costs for opening a new market. This fee varies from a few thousand dollars for a small campaign to several times that for very large campaigns.
Expansion within a current campaign usually does not entail another launch fee; however, expansion into a new area often requires an additional launch fee.
Ways to Make Sales Outsourcing Costs More Affordable
While a full, turn-key sales outsourcing solution is an ideal fit for many companies, for some smaller businesses the costs can be prohibitive. If a full outsourced sales team doesn't fit in your budget, you can still take advantage of the expertise of a sales outsourcing company by having them recruit your sales force and then hiring it yourself, or scheduling outsourced sales training sessions.
For advice on how to make the best sales outsourcing decision for your company, contact Netpique sales outsourcing experts.