Article Contributed by Guy Kingston

It might seem crazy to be talking about hiring – yes, hiring – more staff in a recession. Most companies are worrying about having to lay people off.

It might seem doubly insane, in one sense at least, to be talking of hiring in the sales department of all places. After all, when you have to make cuts, you must make them first of all in the variable costs rather than the fixed costs of a business – and a properly run sales department should be the ideal example of a variable cost. It should cost more when sales are high and less when they are low. Indeed, in theory, the perfect sales department would be based entirely on commission so that it would cost nothing if there were no sales, and expenditure would rise in direct proportion with income.

The reality is that sales demand some prior investment. Even the best salesmen are reluctant to rely entirely on commission. They know their value to a business and are usually confident enough to demand a basic salary up front. The only people prepared to work for commission only are the desperate. It is therefore one of several paradoxes in sales that those who are most likely to be able to live on commission alone are the very people who are most likely to demand more than just commission.

Since you do not want your business to be represented by losers – even losers who cost nothing up front – you need to reconcile yourself to paying a basic salary to your sales staff before they sell anything.

So, in practice, the sales department is not the variable cost that it should be in theory.

Yet it is still a cost, and in a recession, one should cut costs – right?

Not necessarily. A business should always be looking for opportunities to cut surplus expenditure in order to maximise its cost effectiveness, and its competitiveness in terms of price. This should be a constant discipline and it is obviously particularly important in time of recession.

However, it should be equally obvious that it is false economy to cut expenditure that is necessary for the proper operation of the business. After all, the only business with zero expenditure is a business that is not doing business.

So simply reducing costs is not the correct response to a recession. It may be necessary in the short term, but in the longer term it can only lead to oblivion.

The alternative to decreasing costs is increasing income. In fact, a good recession strategy will contain elements of both.

Increasing income means investing more in sales. This may sound risky but it is actually more risky to do nothing. In a recession competition becomes tighter. You must fight harder for every customer. As business becomes ever more ruthless, you must fight to keep your customers and to pick up any new customers who might still have money to spend. To invest less in sales at such a time means losing customers to those who invest more.

Remember that there are new customers to be found even in a recession. When a company goes bust, its customers do not die suddenly of neglect. Most are still alive, still solvent, and still spending. They will probably be looking for a new supplier of whatever the fallen company provided. That is an opportunity for its competitors.

On the supply side, recession is also an excellent time to pick up experienced sales staff from bankrupt competitors. Such people usually bring with them address books full of former customers and other useful contacts.

Of course, spending more money on sales staff in a recession is a risk. Yet all investment in business is a risk. Recessions do not alter the rules of the game. They simply makes the odds tighter. Competitors become more competitive, and the chances of failure increase – but so do the rewards of success for those who keep their nerve.

About the Author
Guy Kingston produces and presents the Mind Your Own Business podcast, offering free business advice to entrepreneurs and business owners. As well as audio podcasts there are more articles like this, compelling videos and a must-read blog. All at www.myobpod.com or you can network and join in discussions on the MYOB Facebook group.

• 1 Comments

  

Comments

I don’t believe you should hire more sales people in times of recession and financial crises.
In the western world we simply cannot hire 20 more salespeople, whenever a sales process doesn’t work - We have a higher living standard to protect and therefore have to “work smarter not harder”. You should use information - Business Intelligence - to drive innovation and performance in sales processes. One why to stop losing your must valuable asset – your customers - is to collect data of lost business and use this knowledge to improve future performance towards customers. Lost trades are requests from customers that did not turn into actual trades. And some of the must successful sales organizations have been doing this for years. I wrote a book on this topic: “The Lost-Trade System” and you might want to read more at www.lost-trade-systems.com

Regards
Jesper Thorlund
Author

 Posted by: Jesper Thorlund at February 1, 2009 11:19 AM

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