What does a sales rep do? Sell things. And sell lots of things.

In every business, there are two types of members of staff – revenue-generating and non-revenue-generating. Revenue generators bring in sales and non-revenue generators do the work which allows the revenue-generators to sell and fulfils the orders.

What difference can a sales rep make? Modern sales and marketing theory relies heavily on the idea of buying cycles. A buying cycle describes where a potential customer is in terms of the nearness of a potential purchase. Someone is either out of the buying cycle, considering, or actively ready to make a purchase.

Why would someone be out of the buying cycle altogether? If you sell IT and networking systems, there are two factors to consider: fitness of purpose of the current equipment to perform the required roles and any attached finance attached to that purchase. Your client may have bought an IT and networking system, it may be fit for purpose for 5 years, and the finance used to pay for it may be stretched over 5 years. For the vast majority of those 5 years, no matter how good an offer you might make to a potential customer, they will not be in the market. They have no need and they’re still paying for their existing system.

Within 3-6 months of the end of the finance agreement, the client may be “considering” although not in a position to act just yet. If no action is taken within the last 3-6 months, then they are in the market, particularly if there is a need for renewal of their IT infrastructure.

The job of a sales rep is to get commitment to purchase from anyone who is “considering” or in the right part of the buying cycle. Then their job, in conjunction with other colleagues within your business, is to look for upsale opportunities during the lifetime of their service and/or finance contract.

Like we mentioned, your sales rep is just there to sell things. And lots of things.

How much do you pay a sales rep?

A sales rep’s salary is made up, in general, of two different parts – their basic wage and their commission. If possible, try to offer something approaching the average basic salary for experienced sales reps in your area. For the sake of argument for this article, let’s say £30,000 per annum.

Commission

Ideally, the amount of commission on offer should allow the rep to make more from their commission than from their basic pay. Most commission rates advertised on job sites hover around the 10% of gross profit level however some, particularly in the recruitment sector, can be multiple times higher than that amount.

Will they generate their own leads?

Many sales reps are expected to generate their own leads as well as meet potential clients and close the deal.

However, please bear in mind that, if you take this approach, the number of potential clients your rep will see will be constrained by the level of time they have to canvass for leads, their lead generation ability (some reps are great at generating leads but many aren’t), and driving distance between appointments.

You may wish to appoint a part-time telesales rep (available for the minimum wage plus normally a reward per appointment made) to help your rep. Full-time telesales with experience would be better because telephone-made appointments are getting harder and harder however there will be a great cost to this – again, use one of the pay-aggregating websites mentioned earlier to find out information relevant to your sector and your geographical area.

How to factor in these costs to your current business model

This is where the difficult bit comes in. It’s easy adding additional costs to a business but what is much harder is making those additional costs yield additional profit. If you employ a sales rep and a telephone appointment maker and your revenues rise but your profit remains the same, it will not be a worthwhile exercise.

Let’s say that you employ a rep for £30,000 and a full-time telesales rep for £20,000. That’s £50,000 extra a year plus National Insurance Employers’ Contributions of 13.8%. Your additional wage costs are £56,900 a year.

If you’re gross profit margin is 25%, then you need to divide £56,900 by 0.25 to work out how much more in sales you need to generate every year just to cover your costs. In this case, the figure is £227,600 a year or £18,966 a month.

You should only start to pay your sales rep commission once your company has begun to make money from them. We would advise that you set your target at £20,000 worth of sales a month before you pay out 10% commission.

Once they have reached this point, you might be paying out 10% commission on sales. If your sales team member makes £30,000 worth of sales in a month, they’re paid 10% of the £10,000 over and above their minimum target. That £10,000 at 25% profit is equivalent to £2,500 additional profit a month before commission. Commission is paid at 10% of £10,000 so the total amount paid to the rep in commission is £1,138 including National Insurance Employers’ Contribution. Overall, the additional £30,000 your rep brings in will produce £1,362 extra profit per month or £16,344 per annum.

Whatever you do, make sure you set the level at which you pay out commissions work for you. In this case, the additional £227,600 in fixed wage costs produces additional profit of £16,344 a year, a profit margin of 7.1%. If you want to make a higher level of profit (assuming your rep makes the sales), raise the target level at which commissions become payable and/or reduce the level of commission paid to the rep.

Want help figuring out if it’s right for your business?

Expanding a business and taking on or extending a sales team always costs more and takes longer than you budget for so it’s important to work with your TWP contact to make sure that your cashflow can withstand the higher fixed costs before the sales kick in.