How to Calculate the Break-Even Point for Sellers

You’ve been asked to calculate the cost of your organization's sellers. Put another way, how much would a seller need to sell for your organization to break even? SBI's Break-Even Analysis Tool helps CFOs and sales operations leaders evaluate the size and profitability of their sales team.  

This tool considers the various cost buckets that are integral to the sales profit and loss statement

1. OTE (On Target Earnings): Comprises salary, commission, and benefits; it typically accounts for 60% to 80% of total sales cost. 
2. Office Overhead: Often referred to as the “load,” this includes costs like office space and utilities; it can fluctuate between 10% and 40%.
3. Travel Expenses: Covers all travel-related costs on a per-day basis; it varies significantly based on the seller's scope, i.e., if they are national or in-house.
4. Training and Enablement: Includes training and enablement expenses, as well as sales kick-off events. 

Some organizations may have additional costs that should be included in the total cost of sale, e.g., sales support, management overhead, sales operations, marketing lead generation costs. This is especially true for organizations with more complex products/product suites. Your organization might not include all of these. 

How Can This Number Improve Your Organization’s Profitability?

After determining how much it costs to sell products, we should also know how much it costs to keep a seller at break even. From there, we can:

• Plan and generate revenue to arrive at a break-even point.
• Determine item pricing on a cost-plus basis.
• Identify profit and loss objectives.
• Establish individual and organizational benchmarks.
• Determine A, B, and C player talent for performance and salary evaluations.
• Design territories, considering if each territory has enough opportunity.
• Determine headcount. If your existing heads exceed the cost of sale, it may be time to add to headcount.
• Use the benchmark to “fix” the expense or revenue side. If your cost of sale exceeds revenue, you’ll need to either reduce expenses or increase revenue.

The Cost of Sale Is a Powerful Metric

While this number takes a bit of perseverance to calculate, once you have it, it'll be the metric you use to support planning and forecasting. It'll allow you to know exactly what it costs to sell a certain product. You’ll have a benchmark for evaluating seller performance. And you’ll have an expense/revenue lever to pull when results don’t measure up. Can you afford not to know this number?

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