Brown, Inc. is a manufacturer of furniture sold through retail furniture outlets in the Southeastern United States. The company has two salespeople who do more than just sell the products, they manage relationships with retail customers to enable them to better meet consumers' needs. The company's sales reps visit retail customers several times per year, often for hours at a time. Brown is considering expanding to other regions of the country and would like to have distribution through 1,000 retail customer accounts. To do so, however, the company would have to hire more salespeople. Each salesperson earns $50,000 plus 2 percent commission on all sales. Another alternative is to use the services of sales agents instead of its own sales force. Sales agents would be paid 10 percent of sales.
Solve and discuss questions 1 and 2. Where appropriate, show the formula(s )used to solve the math problem.
1. Determine the number of salespeople Brown needs if it has 1,000 retail customer accounts that need to be called on five times per year. Each sales call lasts approximately 1.5 hours, and each sales rep has approximately 1,250 hours per year to devote to customers. (AACSB: Communication; analytical Reasoning; Reflective Thinking)
2. At what level of sales would it be more cost efficient for Brown to use its own sales force as compared to sales agents? 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? (AACSB: Communication; analytical Reasoning; Reflective Thinking)