The Swafford Company’s sales have
been expanding rapidly in the past several years and are expected to continue
increasing throughout the next several years.
In order to meet this demand, Lanny Larson, Swafford’s sales manager,
has hired a number of sales representatives and expects to hire about 6 to 10
salespeople per year in the foreseeable future.
In the past, Swafford hired only
experienced reps, but lately the company has been recruiting at universities
and hiring recent marketing graduates.
While the new grads don’t have experience, they often have a high level
of motivation and a good understanding of overall marketing planning. However, the less-experienced reps need more
training – on both company policies and sales procedures – before they are
effective in making sales calls.
Consequently, Larson is designing
an intensive, two-week training program that will provide the necessary
training at the lowest possible cost.
Currently, Swafford does not have a
training program. The new hires just
spend a week in a territory with an experienced rep, and then they are given
their own territory. While this system
was satisfactory with experienced people, it is not adequate for the
inexperienced people the company is now hiring.
Lanny Larson
has suggested to the president of Swafford, Pat Mattison, that the company
institute a one- or two-week training program at company headquarters. Larson has suggested two options. The first option is to hire a staff recruiter
/ trainer who would spend half of his or her time on recruiting and the other
half on training. The new staff
specialist would be paid a salary of about $70,000 a year – so the added cost
with respect to the training responsibilities would be $35,000 a year.
The second
option is to contract with an outside company that specializes in sales force
training. That company would provide a
specialist to set up and conduct a training program at a cost of approximately
$15,000 per week (or $30,000 for two weeks, which is the expected length of the
program).
Larson was
just concluding her presentation to Pat Mattison. “I feel that a training program would
increase the average annual sales per rep a minimum of 5 percent. So, on average, our reps generate one million
dollars in sales volume. With this
program, we expect that will increase to an average of $1,050,000 per rep.”
Mattison
replied, “I am not convinced that the training would improve performance enough
to justify the costs. First, keep in
mind our cost of goods sold is about 50%, so only half of that increased sales
is profit. And the training costs also
include many expenses that you have not yet mentioned. For example, we would have to pay for travel
and lodging for all the new hires to be at company headquarters for two weeks,
plus I’m sure there will be significant training materials costs. I just want to be sure that the sales
increase would more than cover all of the training expenses.”
Larson
started calculating these costs in her head.
She knew that bringing a rep into headquarters would cost $250 per
person for travel and roughly $1,000 for lodging and meals for the two-week
period. She expected that the training
materials would add $100 per rep, and that the audio-visual equipment might run
$500 per training session. These costs
would be relevant to both options.
Mattison
suddenly had a thought for a third option: “Have you ever thought about
developing an online training program?
Everything I read says that the top companies are moving toward this –
and I heard they save bundles in the process.”
Larson, who
had already looked into the online option, replied, “These online programs have
significant upfront costs. We’d need to
develop a customized program, and that would cost a minimum of $300,000 to
develop. Of course, once it’s in place,
the cost to keep it going would be minimal – I’d guess $3,000 a year to keep it
updated. Besides, I think an online
program works best for refresher training or for introducing new product
information, not for teaching basic selling skills. Face-to-face is much better for that. So, in other words, I don’t see any way we
would get the 5 percent increase in sales with an online program.”
“Well,
okay,” said Mattison, “you put together an analysis that considers the profit
or loss of all three of these options; and then make a sound recommendation to
me.”
Lanny Larson
headed for her office to crunch the numbers.
She knew that Mattison would want to make an informed decision, and was
relying on her recommendation.
Questions:
- What is the expected profit/loss of
each of the three options for training new reps?
- Which of the three training options
is best for the Swafford Company? What
is the reasoning for your recommendation?
- What characteristics of the Swafford
Company make online training (as opposed to face-to-face) more/less
attractive? Discuss.
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