When The 80/20 Rule applies to a company’s sales team, both revenues and expenses are impacted. We will explore these impacts separately.
Revenue Impact
The revenue impact can be demonstrated using a simple example. Let’s assume that Sample Company has ten salespeople, and annual sales for the company are $10 million. If the 80/20 Rule applies to Sample Company’s sales force, here is how annual sales are distributed:
Twenty percent of ten salespeople equals two salespeople (10 x .20). These two salespeople generate 80 percent of Sample Company’s sales, or $8 million ($10 million x .80). Divide $8 million by the two salespeople, and the revenue per salesperson is $4 million.
Similar calculations can be made for the remainder of Sample Company’s sales force. Eighty percent of ten salespeople equals 8 salespeople (10 x .8). These eight salespeople generate 20 percent of Sample Company’s sales, or $2 million ($10 million x .20). Divide $2 million by 8 salespeople, and the revenue per salesperson is $250,000.
Now, consider a couple of “what ifs”. What if Sample Company increases the proportion of top performers on its sales team from 20 percent to 30 percent? Table 2 shows the revenue impact of this change:
By replacing one of its lesser performing salespeople with one additional top performer (10 percent of the sales team), Sample Company increases its total revenue by 37.5 percent!
What if Sample Company increases the proportion of top performers on its sales team from 20 percent to 40 percent? Table 3 shows the revenue impact of this change:
By replacing two lesser performers with two top performers (20 percent of the sales team), Sample Company increases its total revenue by a whopping 75 percent!
Expense Impact
Clearly, increasing the proportion of top performers on a sales team beneficially impacts revenue. However, increasing the proportion of top performers also beneficially impacts expenses. Why? Because there is usually less turnover among top sales performers than there is among lesser performers. When turnover is reduced, companies don’t need to invest as much time and money in recruiting, selecting, and training new salespeople.
Bottom Line Impact
The bottom line impact of increasing the proportion of top performers on a sales team can be summarized with the following equation:
HIGHER REVENUES – LOWER EXPENSES = INCREA$ED PROFIT$