The sales function is the connection between the product or service that a business provides and the revenue that they hopefully generate. Determining the optimal number of employees in your sales function is critical for maximizing revenue in the most efficient way possible.
Too few salespeople, and you might miss out on valuable opportunities; too many, and you risk inflating headcount costs. This balancing act is where benchmarking becomes an invaluable tool. In this blog we’ll explore the following:
Looking for sales function benchmarks? Search here
Employee benchmarking involves comparing the number of employees in specific functions within your organization to industry standards or peers. It provides insights into how well-resourced your teams are relative to others in your industry. These insights can then help you to identify inefficiencies, allocate resources more effectively, and ensure that your team structure supports your strategic goals.
In the sales function, employee benchmarking is particularly important because the size and composition of your sales team directly impact your company's ability to generate revenue. By understanding industry norms and best practices, you can make informed decisions about hiring, staffing levels, and overall sales strategy.
Let’s now look at an important benchmarking ratio that every sales leader should track and manage – Revenue per Sales Employee!
One of the most critical metrics for benchmarking employee efficiency in the sales function is the revenue per sales employee. This ratio measures the amount of revenue generated by each sales team member and is calculated as follows:
Revenue per Sales Employee = Annual Sales Revenue / Average Number of Sales Employees in the Year
This ratio provides a clear indication of your sales team’s productivity. A higher ratio suggests that your salespeople are generating more revenue, which typically indicates a more efficient and effective sales function.
On the other side, a lower ratio may signal that your sales team is underperforming or that there are inefficiencies that need to be addressed. But, how do you know whether your Revenue per Sales employee is high or low? With industry benchmarks.
Find industry benchmarks for your sales function here
Industry benchmarks for revenue per sales employee vary widely depending on the sector, company size, and market conditions. For instance, high-tech industries often have higher benchmarks due to the high value of their products, while retail may have lower benchmarks due to the higher volume and lower value of individual sales.
According to a 2023 study by the Sales Management Association, typical revenue per sales employee benchmarks are:
These benchmarks provide a starting point for evaluating your sales team’s performance. If your company falls below the industry standard, it may be time to investigate and identify areas for improvement.
Improving your revenue per sales employee ratio involves enhancing the productivity and effectiveness of your sales team. Here are some strategies to consider:
Invest in ongoing training to ensure your sales team is knowledgeable about your products, services, and sales techniques.
Equip your salespeople with the latest CRM systems, sales enablement tools, and data analytics to streamline their workflow and improve efficiency.
Implement performance-based incentives to motivate your sales team to achieve and exceed their targets (note: this is critical for most salespeople).
Continuously refine and optimize your sales processes to reduce friction and increase conversion rates.
More often than not it can take time to achieve real change and improvements in your sales workforce. So, make sure that you do your homework, set out a clear plan, communicate it, and be realistic about the timeline to achieve the desired results.
Get company-specific benchmarks for your sales function
While revenue per sales employee is a crucial metric to assess your sales workforce, it’s not the only one to consider when assessing the sales function. Here are some other ratios to help you get the full picture:
The sales expense ratio measures the cost efficiency of your sales function by comparing total sales expenses to total revenue. It is calculated as:
Sales Expense Ratio = Annual Sales Expenses (e.g. people, events, direct marketing) / Annual Sales Revenue
A lower sales expense ratio indicates that your sales team is generating more revenue relative to the costs incurred, which is a sign of a more efficient sales function. Comparatively, a higher ratio may indicate cost inefficiency.
The lead conversion rate measures the effectiveness of your sales team in converting leads into customers. It is calculated as:
Lead Conversion Ratio = (Number of Converted Leads / Total Number of Leads) x 100
A higher conversion rate suggests that your sales team is effective at closing deals, while a lower rate may indicate issues with lead quality, sales tactics, or follow-up processes.
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The sales cycle length measures the average time it takes for a lead to move through your sales pipeline from initial contact to closing the sale. It is calculated as:
Sales Cycle Length = Total Time to Close Sales / Total Number of Sales
A shorter sales cycle generally indicates a more efficient sales process, allowing your team to close more deals in less time. Conversely, a longer sales cycle may signal inefficiencies that need to be addressed.
The customer acquisition cost measures the total cost of acquiring a new customer, including marketing and sales expenses. It is calculated as:
Customer Acquisition Cost = Total Sales and Marketing Costs / Total Number of New Customers Acquired
A lower CAC indicates that your sales and marketing efforts are cost-effective, while a higher CAC may suggest that you need to improve your acquisition strategies.
This ratio is once again related to the sales workforce (like Revenue per Sales employee). The sales employee turnover rate measures the rate at which sales team members leave your organization. It is calculated as:
Sales Employee Turnover Rate = (Total Sales Employees Who Left in any given period / Average Number of Sales Employees in the same period) x 100
High turnover rates can disrupt your sales function and increase costs associated with recruiting and training new hires. Monitoring and managing turnover is essential for maintaining a stable and effective sales team.
Sales leaders who are equipped with these ratios are one step ahead. Then those who know how they compare to similar sized companies in the same industry are another step ahead.
Sales benchmarks at your fingertips – Search here
Benchmarking is a powerful tool for optimizing your sales function in many aspects. By understanding and applying key ratios such as revenue per sales employee, sales expense ratio, lead conversion rate, sales cycle length, customer acquisition cost, and sales employee turnover rate, you can gain valuable insights into your sales team’s performance and identify areas for improvement.
Regularly benchmarking your sales function against industry standards and best practices helps ensure that you have the right number of people in the sales function and that they are working efficiently and effectively. This approach not only enhances your ability to generate revenue but also contributes to the overall health and success of your organization in the longer term.
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