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There are many benefits of outsourcing – less stress, quicker setup, less liability – but one of the main considerations of our clients is always the cost.
So what are the true costs of hiring an in-house sales team that you need to be aware of before deciding if outsourcing is for you?
To help you consider those costs, we have researched and completed this definitive guide on the true cost of hiring an in-house sales team. For the purposes of our calculations, we have based the figures on a small team of 3 SDRs and 1 Sales Manager based in the UK.
Some variable costs are incalculable and will depend on your business, but we have tried our best to consider all known fixed and likely costs and provided the links to our data sources.
Step 1: Recruitment
As of Q2 2021, there has been a record rise in the number of vacancies (+356K) advertised in the UK and a significant corresponding increase in pay of 7.3%, reflecting the distortion in the job market (source: Reuters).
So with pay on the increase and with significant competition for the best staff, it is more likely than ever that you will need to use a recruitment company to source candidates and promote your opportunity.
The pay that you offer your new staff needs to reflect the market conditions (see Step 2), which could affect your recruitment costs.
However, let’s assume you are a shrewd negotiator and agree on a fixed cost of £7000 each for all four of your new recruits (recruitment costs can be up to 30% of annual salary).
Recruitment Costs: ÂŁ28,000 per annum
Step 2: Annual Salary + Benefits + Commissions
In today’s competitive employment landscape, your remuneration package must reflect the market conditions. You want the best staff, right, so this will be a major consideration (consider other perks such as gym membership, free food, travel costs, and holidays).
According to research from Glassdoor, they have found (with a high degree of certainty) that the average base salary of an SDR in the UK is ÂŁ31,525. Note this may not include the data on the recent upward pressure on salaries in the UK.
The average base salary of a Sales Manager in the UK has been found by Glassdoor to be ÂŁ44,444.
Employment costs don’t stop at salaries, let’s add a conservative 15% of the base salary for each employee for commissions, that’s around ÂŁ20,850.
Any employer will know that employee costs don’t stop there, but for the purposes of producing a reasonable calculation, let’s assume another £750 per employee for additional employment benefits and incidentals (expenses, perks, gym membership, Friday drinks etc). That’s a total of £3000. So where do we stand?
Total Annual Salary + Benefits + Commissions: ÂŁ162,869 per annum
Step 3: Employers NI and Pensions
As a UK employer, you will be liable for Employers’ national insurance. The Accountancy Partnership have this handy online calculator, we’ve done the sums for you based on the numbers above (don’t forget the commissions!).
Using this online guide, the employers’ NI cost per SDR is approx ÂŁ3783, and your sales manager is coming in at ÂŁ5833 (ouch!).
Automatic enrolment in the UK means employers must ensure they contribute to staff pension schemes. The latest contribution rates can be found on the pension regulator website, but on average, employers face 3% of the salary costs as additional pension contributions. That’s around £4796 per annum in pension contributions.
Total Employers NI and Pension Contributions: ÂŁ21,987 per annum
Step 4: Training Costs
According to Statista the average number of days per employee spent training is around 4.5. However, when recruiting new staff, this can be considerably higher.
So whether you do your training in-house (paying other staff members to run) or you, outsource this or do this online, it all has to be paid for.
For the purposes of our total, let’s be cautious and assign an annual training cost of only £1250 per employee. That’s a total of £4000 for training.
Total Training Costs: ÂŁ5,000 per annum
Step 5: Overhead Costs
Every employee will carry a share of your company’s overhead costs. Everyone will need a computer, phone, software, paper, pens, desk, chair, tea (we’re English!), coffee, lights, heating, and accommodation.
Even if you have already invested in some of these necessities, your business still carries the cost on your balance sheet (in relation to computers, rent liabilities etc).
According to the IPD Blue Chip Office Index 2016, the average employee cost as a share of overhead was £4,800. This seems to be the latest reliable data available, so let’s fast-forward to 2021, and we can safely say that will be a minimum of £5,000 per employee.
Total Overhead Costs: ÂŁ20,000 per annum
Step 6: Anticipated but unknown costs
You will know that with any business, having staff is an essential but stressful endeavour.
Most staff members will get sick, and in 2021 we are just coming out of a global sickness pandemic. On average (pre-covid), the average number of sick days per employee in the UK was 5.8 (source: Statista). That is 23 days per year for your 4 staff (or a whole month across your team) that your team is not selling.
You may also need cover for maternity leave, bereavement leave, or other likely but unquantifiable life events.
You may also need HR or legal support in case of any dispute, and of course, should one of your team leave, you are back to the recruitment and training costs in steps 1 and 4.
However, not all of these events will happen yearly, so let’s just include reliable data on sickness, which costs you both lost salary and productivity.
What you may lose is unquantifiable, so for calculation purposes, we will take an average salary cost per day per employee from steps 2 – 4 above and multiply this daily total by the average 23 days of sickness per annum across your team.
Anticipated Sickness Costs: ÂŁ4,513 per annum
Other Likely Costs (maternity, legal, etc): Unknown
The Grand Total
As you may be aware and have been identified in this guide, the true cost of an employee is much more than just a salary.
As a reminder, we have assumed a team of 3 x SDR on a base salary of ÂŁ31,525 and a single Sales Manager on a base salary of ÂŁ44,444.
So what is the grand total for your small in-house sales team (not including all of the additional but unknown costs)?
Total Annual Sales Team Cost:Â | ÂŁ242,369 |
Average Annual Cost Per Sales Employee:Â | ÂŁ60,592 |
Average Daily Sales Team Cost*:Â | ÂŁ928 |
*based on 261 working days per year.
Conclusion
As a rule of thumb, and supported by various studies in the UK, the true cost of hiring employees ranges from 1.5 – 2x their base salary.
This only takes into account known costs and doesn’t include your costs (measured in time) as a Manager or Director of a business or the costs of inactivity or lost opportunities due to performance, sickness, holidays, etc.
Should you outsource your sales team?
Companies outsource their Sales Team for many reasons, from lack of space to reducing stress, to testing a new product or service.
However, cost is always one of the top considerations when deciding whether to outsource your sales team.
So before you commit to over ÂŁ900+ per hour for a small sales team, why not give Automaly an opportunity to offer a fixed-price outsourced SDR service, complete with data, reporting, management and trained staff?
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