Do You Know Your Company's Cost of a Sale?

Understanding the cost of a sale helps businesses identify where excess costs lie. Here are 3 simple questions to get more insight into the true cost of a sale.

4 min read

Be honest. How much time did you spend on Super Bowl Sunday talking about the cost of a single advertisement, and whether or not it was worth the money? Probably a fair amount. Yet it’s quite possible your organization hasn’t given the same thoughtful consideration to how much it spends on a single sales deal.

According to an August 2012 Harvard Business Review article, U.S. companies spend more than $800 billion on sales force compensation every year — three times more than is spent on advertising. For many companies, sales force compensation is the largest marketing investment made.

If you’re not already doing so, spend some time reviewing your incentive compensation plan. Find out how well you currently understand the cost of a sale by asking yourself these questions:

  • How many checks are cut, on average, for one deal?
  • How is payment determined?
  • Does everyone receiving a check contribute to the sale, and do commissions complement the level of contribution?

You can find the answers to these questions in three steps:

  1. Dig Deep: Know how many people you are paying per sale, how you are paying them, and how much you are paying them. You may be surprised to learn that, on average, there are about 14 different checks written for every sales deal closed.
  2. Consider Contribution: Many organizations split up sales incentives, making their ties to action tenuous at best. Instead of splitting, use data from your compensation planning software to assess how much each job contributes to the sale, and develop a pay structure based on this info. Let sales incentives drive and influence specific actions.
  3. Remove Those Not Contributing to the Sale: As hierarchies and sales team org charts change, so do the people who impact a single sale. Be sure to keep up to date on who is contributing to a sale, and make sure compensation plans are current to the situation.

With a solid understanding of the cost of a single sale, you can drive specific actions and increase sales performance while spending less. Learn more about leveraging the power of your incentive compensation plan by viewing our webinar on sales compensation plan strategies.