outsourcing_sale - -2 on the sales above $600 million The...

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MIT 15.010/011 Sloan School of Management Outsourcing Sales? Susan stared in her glass of beer. This was the first time she was in charge of the whole consulting project. Making it a success was a must. Her client was a medium-sized television station. In a drive to cut costs, they were considering to outsource sales. Susan had just participated in the board meeting in which the key contender presented its proposal. The board had a positive impression but wanted to hear Susan's reaction. According to the sales company's proposal, they would be compensated on a variable basis. In particular, they proposed the following scheme: - 10% on the first $400 million in sales - 5% on the next $200 million in sales (i.e. on the part between $400 and $600 million)
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Unformatted text preview: -2% on the sales above $600 million The sales company argued that their sales force was much more effective: for similar clients, their revenue generated per dollar spent on sales was about 30% higher than what the client currently achieved. The client had about $500 million in advertising sales and had no other sources of revenue. Their fixed cost was $450 million, which went mainly to the purchasing of television programs and to general overhead. Finally, they had $50 million in sales expenses, all of which was variable (in function of the number of ads sold). If you were Susan, would you advise your client to accept the proposal?...
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