[We’re pleased to welcome back Pankaj M. Madhani, Associate Dean and Professor of ICFAI Business School (IBS). Dr. Madhani is the author of “Optimal Salesforce Sizing and Compensation Cost: A Mathematical Approach” which appeared in Compensation and Benefits Review and is currently free to read for a limited time. From Madhani:]
Each year businesses across the globe spend a massive amount on salesforce investment. The salesforce is the engine that drives not only revenue of organizations but also represents a large percentage of total costs for sales organizations. As such salesforce is a sales generator as well as a cost generator. Deciding on the proper size of the salesforce is a strategic management issue because it has major impact on sales organization’s revenues, cost and profits. A properly sized salesforce maximize the economic return on investment of selling resources. Determining the most appropriate salesforce size is dependent on a number of factors, such as stages of business life cycle, the use of selling partners, sales carryover rate, productivity of salesforce, and turnover of the sales staff. Hence, looking into complexity and interdependency of these issues, there is need of an analytical model to estimate optimal salesforce size.
In what ways is your research innovative, and how do you think it will impact the field?
Salesforce is one of the most important strategic levers for improving growth, market share, and profitability of sales organizations. However, sales organizations often use decision rules that rely on common sense rather than precise analytics to determine how large their salesforce should be. This research provides an analytical model for practicing managers to determine optimal size of salesforce based on a three-year ROI. This model eliminates two most common errors i.e. type I and II errors and thus help sales organizations make good salesforce sizing decisions. Type I error refers to over sizing error while type II error refers to under sizing errors. With use of the model, salesforce sizing errors could be avoided to boost top line as well as bottom line performance of sales organizations. The model developed in this research mathematically calculated ROI for different break-even ratios and across various levels of sales carry over. This relationship provides a valuable criteria check of whether a salesforce may be undersized, oversized or optimally sized.
What advice would you give to new scholars and incoming researchers in this particular field of study?
With optimal salesforce sizing decision, organizations could improve their performance by changing their salesforce size at a right time. Yet, there are many internal and external factors impacting sizing decisions such as strategic objectives, product maturity, competitive environment, market trends and financial goals. All these factors together determine optimal ROI for salesforce investment. Thus, there is need to empirically establish relationship among these factors to identify mediating variables.
Pankaj M. Madhani earned bachelor’s degrees in chemical engineering and law, a master’s degree in business administration from Northern Illinois University, a master’s degree in computer science from Illinois Institute of Technology in Chicago, and a PhD in strategic management from CEPT University. He has more than 30 years of corporate and academic experience in India and the United States. During his tenure in the corporate sector, he was recognized with the Outstanding Young Managers Award. He is now working as an associate dean and professor at ICFAI Business School (IBS) where he received the Best Teacher Award from the IBS Alumni Federation. He is also the recipient of the Best Mentor Award. He has published various management books and more than 300 book chapters and research articles in several refereed journals. He has received the Best Research Paper Award at the IMCON-2016 International Management Convention. He is a frequent contributor to Compensation & Benefits Review and has published more than 20 articles on sales compensation. His main research interests include salesforce compensation, corporate governance and business strategy. He is also editor of The IUP Journal of Corporate Governance.