Wheels, Inc. is a manufacturer of bicycles sold through retail bicycle shops in the southeastern United States. The company has two salespeople who do more than just sell the products—they manage relationships with the bicycle shops to enable them to better meet consumers’ needs. The company’s sales reps visit the shops several times per year, often for hours at a time. The owner of Wheels is considering expanding to the rest of the country and would like to have distribution through 1,000 bicycle shops. To do so, however, the company would have to hire more salespeople. Each salesperson earns $40,000 plus 2 percent commission on all sales. Another alternative is to use the services of sales agents instead of its own salesforce. Sales agents would be paid 5 percent of sales.
At what level of sales would it be more cost efficient for Wheels to use sales agents compared to its own sales force? (show work) To determine this, consider the fixed and variable costs for each alternative. What are the pros and cons of using a company’s own sales force over independent sales agents?