Question

1. You manage a company that produces medical laboratory equipment. You have until now hired and managed your own salesforce. A new CEO has taken over the company and has directed you to outsource the selling activities. You are concerned about this new direction and want to demonstrate your position to him using a quantitative approach.

Currently, the company pays each of the 10 salespersons $60,000.00 per year and also incurs a total $20,000.00 in insurance expenses for all of them. Additionally, the company pays them a 2% commission on anything that they sell. The company plans to pay its external salesforce 6% in commission only.

At which sales volume does outsourcing make economic sense?

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Let sales volume = $ X, at which the cost of both the alternatives are same Cost of outsource = cost of maintaining sales force inhouse $x*6% = ((60000*10)+20000+($x*2%)) $x* (6%-2%) = (600000+20000) $ X = 620000/4% $ X = $ 15500000 at $ 15500000 sales volume the cost will remain the same and if the sales volume is less than $ 15500000 then it is better to outsource as sales cost will be less in that case as all the cost is variable in case of outsoucing of sales job - So the correct answer is - Any sales volume less than or equal to $ 15500000 make economic sense in outsourcing