Question

Wheels, Inc. manufactures bicycles sold through retail bicycle shops in the southeastern United States. The company has two salespeople that 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 2,250 bicycle shops. To do so, however, the company would have to hire more salespeople. Each salesperson earns 35,000 plus 5 percent commission on all sales annually. Another alternative is to use the services of sales agents instead of its own sales force. Sales agents would be paid 8 percent of sales. Each sales call lasts approximately 3 hours and each sales rep has approximately 750 hours per year to devote to customers. Wheels needs 18 salespeople if it has 2,250 bicycle shop accounts that need to be called on two times per year. At what level of sales would it be more cost efficient for Wheels to use to sales agents compared to its own sales force? 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 versus independent sales agents?

Answer 1