“THE OUTSOURCE DILEMMA: DO DOLLARS & CENTS ALWAYS MAKE SENSE?”

Abstract

Having started the company from scratch a mere 10 years before, Tom Pettie, the owner and Chief Executive Officer (CEO) of Triangle Electronics, found himself faced with a crucial decision. To minimize fixed costs at the start of the company, Triangle Electronics elected to outsource its sales function to a group of manufacturer representatives who were familiar with potential clients and who had developed connections in the industry. So far, the ability to limit the costs involved with hiring and training an in-house sales department has served Triangle well. Since their cost to capture each sale was a straight percentage based on the dollar volume of the customer’s order, Triangle knew that these costs would not overwhelm them, but they also realized that this cost would steadily increase as the business grew. The representatives have pushed for a higher commission rate for several years; however, Tom was convinced that the increase requested was just too much and would have a significant impact on the bottom line for the firm as it continued to grow. To get a better understanding of the costs and implications, the CEO decided it was time to get the advice of a trusted friend and accountant.