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2. A pharmaceutical company is considering to hire new sales people to increase profitability. The marketing analytics team need to do some analysis. The company
2. A pharmaceutical company is considering to hire new sales people to increase profitability. The marketing analytics team need to do some analysis. The company currently have 100 sales reps in total and achieve $1,000 million sales. The gross margin is 10%. The compensation cost of each sales rep is $0.2 million. The following table shows how much sales an additional sales rep can bring in if the company hire more sales reps. For instance, the first newly hired sales rep can generate $10 million sales, the second newly hired sales rep can generate $6 million sales..... 3 Please help the company (1) to make the decision on how many new sales rep they should hire to achieve the maximum level of profitability [10 points]; (2) to calculate the maximum level of profitability [10 points). For both questions, you need to show the calculation process. New sales rep Additional sales brought in by the sales rep First $ 10 million Second $ 6 million Third $ 3 million Fourth $ 1 million Fifth $ 0.5 million Sixth $0 million Hint: 1) The way to calculate the profitability is sales *gross margin-compensation cost per sales rep * the number of sales reps For example, the current profitability is $1,000 million*10%-$0.2 million*100=$80 million 2) Hiring additional 6 sales reps hits the saturation level, as the sixth additional sales rep brought in 0 sales. Thus, the optimal level is between hiring additional 0 to 6 sales reps. 3) The benefit that each sales rep brings in is the additional sales*gross margin. When the compensation cost is greater than the benefit, it is not wise to hire that rep
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