Question

Suppose the expected sales volume of a company is $30,000,000, if the salary and administration cost of the company sales force equals to $700,000 and they receive a commission of 2.5%, while the commission for the independent sales force equals 5%, should the company hire independent sales force or use internal sales force?

Answer 1

Firstly we need to understand the difference between Company Sales force which is the internal sales force of the company and Independent Sales force.

Independent Sales Force are hired by a company to make sales and in return the company pays them commission on the sales made by them. If they donot make any sales they donot get paid. Independent Sales Force work for commission and they will not be paid salaries that are paid to the Company's Sales force.

Company's Sales force will receive their salary and they will also be paid commission when they make sales.

Therefore we will choose such an alternative in which the cost to the company is lowest.

Alternative 1 - Use Intenal Sales force

Salary and Administration Cost = $700,000

Add : Commission @2.5% on Sales = $750,000

(2.5% of $30,000,000)

Total Cost = $1,450,000

Alternative 2 - Use Independent Sales force

Commission @5% on Sales = $1,500,000

(5% of $30,000,000)

Total Cost = $1,500,000

As the cost of employing internal sales force is less than cost of hiring independent sales force the company should use its Internal Sales Force.