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C A S E N E T

CETUS Computer Corp. Sales Force

Bruce Greenwald

Columbia University

CETUS Computer Corporation manufactures and sells high-speedscientific workstations (i.e., powerful personal computers). Since its

founding in 1979, by three former Hewlett-Packard engineers, CETUShas distributed its products through third parties, either specially retail chainsor value added resellers like the DuCommen Corp. which adds its ownsoftware to CETUS computers and sells the resulting system through its owncontact sales force, or original equipment manufacturers who special purposesystem (e.g., for monitoring chemical reactions). Prior to 1985, CETUS hadonly a very limited force of technical sales representatives who dealt withthese highly sophisticated third parties and represented CETUS at tradeshows and conventions. CETUS had no salespeople who called directly onend-use customers. In early 1985, however, the head of Product Developmentat CETUS, who was also Director of Sales, became uneasy with these indirectmarketing arrangements. Lack of direct final-customer contact placed CETUS

at a disadvantage in several significant ways. First, technical information andcustomer requirements for new product applications filtered through toCETUS only via third parties, adversely affecting CETUS productdevelopment efforts in its rapidly changing technical market. Second, withouta contact sales force, CETUS could not develop long term relationships withlarge customers, a necessary part of selling effectively to those customers.Finally, CETUS felt that third parties sometimes failed to take full advantageof the capabilities of CETUS products; but, lacking direct knowledge of theways in which its machines were used, CETUS could not effectively coach thethird party vendors in refining and extending their use of CETUS Products.As a result, CETUS decided to develop its own sales force for dealing withlarge end-use customers and was faced with decisions on how to staff thatsales force.

The first step in this process was to identify those accounts that would bethe focus of the new direct-contact sales forces efforts. Based on a carefulreview of existing and potential customers, consultants to the Director of Sales

1

This case was prepared by Bruce Greenwald, Columbia University, to serve as the basis for class discussion rather

than to demonstrate the effective or ineffective handling of an administrative situation. Copyright 1996

Bruce Greenwald. Published by South-Western College Publishing.

ISBN 0-538-87511-9. For information regarding this and other CaseNet cases, please visit CaseNet on the World

Wide Web at casenet.thomson.com.CaseNet is a registered service mark used herein under license.

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identified 2,700 such accounts covering 265 companies. A single largecompany like IBM, AT&T or General Electric would be organized into manyseparate accounts. Each of these 2,700 accounts was, therefore, of roughlycomparable size.

The second step was then to estimate the cost of sales representatives whowould staff the new direct contact sales force. Here, CETUS was faced with

two basic alternatives: it could hire highly experienced technical computersales representatives from existing competitors (like Hewlett-Packard, DEC,Sun, or Apollo) or it could hire less experienced salespeople with little or notechnical sales experiences. CETUS had neither the time, the expertise, nor theresources to develop sales representatives from scratch.

There were both benefits and costs to hiring highly experienced technicalsales representatives. The chief benefit was their greater efficiency in selling.Working with a standard sales territory of 30 accounts, a highly experiencedsalesperson could expect to sell about 18 CETUS computer systems per yearat an average value of $20,000 each. This was derived from an average salescycle of 4 days, a success rate in attempted sales of about 50%, and about 144selling days per year. In contrast, a less experienced salesperson would sellonly about 8 systems per year at $20,000 each in a standard 30-accountterritory. The difference lay predominantly in the lesser ability of the latter inidentifying sales opportunities. In a 30-account territory, a less experiencedsalesperson was typically limited by his or her ability to identify only 1620sales opportunities per year of which slightly less than half would beconverted to actual sales. Thus, in contrast to the highly experiencedrepresentatives whose number of sales did not increase with territory size(being constrained by available selling time), a less experienced salesrepresentative could be expected to sell an average of 12 systems per year in a60-account territory and 15 systems per year in a 90-account territory (eachworth $20,000 in revenues). On the cost side, however, highly experiencedsales representatives would command average salaries of $60,000 per yearcompared to $36,000 per year for less experienced salespeople. (Overall

annual salesperson costs are presented in Exhibit 1). Highly experiencedsalespeople were scarce. At a $60,000 per year salary, CETUS could expect tohire 30 highly-experienced representatives. In order to attract any moreexperienced representatives, CETUS would have to raise its salary offer by30%; at that salary, CETUS could hire about 45 highly-experienced salesrepresentatives (more than 45 could not be found within a year). In contrast,CETUS could expect to find up to 200 less experienced sales representatives atthe $36,000 per year salary.

Finally, the contribution of direct sales to CETUS profits would be about50% of revenues generated. The cost of producing, shipping, installing, andservicing a $20,000 system was about $9,500 and each salesperson received acommission of $500 on such a sale. (Note: commissions would not increasebenefit costs which were tied to salary).

The questions facing the CETUS sales manager were: 1) how many, if any,highly experienced sales representatives to hire, and 2) how many, if any, lessexperienced representatives to hire.

2 CaseNet South-Western College PublishingCETUS Computer Corp. Sales Force ISBN 0-538-87511-9

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South Western College Publishing 3ISBN 0-538-87511-9 Bruce Greenwald

Exhibit 1 Cost Per Sales Representative Per Year (Not Including Commissions)

*This difference is largely behavioral (and aIso a recruiting inducement to highly experienced salespeople) and, for less experienced salesperson, would not

increase significantly with territory size.

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NOTES

4 CaseNet South-Western College PublishingCETUS Computer Corp. Sales Force ISBN 0-538-87511-9