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Is It More Effective to Cut Headcount or Outside Vendors?

by | 2 minute read

As a sales manager, your entire plan will likely have to be reworked this year. You may be trying to decide if you should reduce headcount or vendors to keep your expenses under control. When we comes out of the sudden and steep slowdown, perhaps during the summer, you may still be struggling with your budget. Here are a few details to consider.

Headcount

Before you make a quick decision, consider the value of each resource at your disposal. Have all of your employees been pulling their own weight this year? Be honest. Until a couple of weeks ago, the roaring economy made it easy for slackers to hide in plain sight. After all, if your organization was making its numbers and you were busy managing growth, you may not have been paying attention. Perhaps you haven’t had time to manage reps who haven’t been performing at the level you’d hoped.

Sales managers are loath to reduce headcount. They worry that when the good times return, they’ll have a real challenge convincing management to let them increase the size of their department. The truth is, says C. Lee Smith, President and CEO of SalesFuel, “Good sales managers should always be actively working to get low performers to improve or move them out the door.”

It’s never easy to let a rep go, especially during a time when they may have trouble finding another job. Unfortunately, sales managers have to make these difficult decisions for the benefit of the entire department.  

Outside Vendors

But some sales managers won’t terminate a low performing rep. Instead, they’ll grab at low-hanging fruit when they need to cut expenses. They’ll look at the list of vendors they’re doing business with and decide one of those vendors can go. On the surface, this looks like an easy decision to make and one that will generate the same result. After all, they won’t face the same negative internal reaction as they would when they terminate an employee.

Reduce Headcount or Outside Vendors

What happens if you cut the wrong vendor? Careful analysis on your part can help in this situation.  

  • Does the tool generate more money than it costs?
  • Are all of your salespeople using the service or product supplied by the vendor you’re thinking of cutting?
  • Are your reps telling you that they need the tool?
  • What would the cost be to productivity if they have to go without this tool?
  • And how does the cost compared to the sales rep you could terminate?

As you think about this situation, consider this analogy from C. Lee Smith. “Let’s say you have a fleet of ten cars. Which scenario will give you the better outcome — nine cars full of gas or 10 cars with no fuel?”

Few businesses have the strong economic outlook we all enjoyed just a month ago. Think through the long term consequences of whether it's better to reduce headcount or outside vendors. The answer may come down to WHICH headcount and WHICH vendors.

reduce headcount or outside vendors, Is It More Effective to Cut Headcount or Outside Vendors?
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-owner of several small businesses in the health care services sector.