Sales Organization Structure and Salesforce Deployment · PDF fileEvaluate the advantages and...

Sales Organization Structure and

Salesforce Deployment

Learning Objectives

1. Define the concepts of specialization, centralization,

span of control versus management levels, and line

versus staff positions.

2. Describe the ways salesforces might be specialized.

3. Evaluate the advantages and disadvantages of sales

organization structures.

4. Name the important considerations in organizing

strategic account management programs.

5. Explain how to determine the appropriate sales

organization structure for a given selling situation.

Learning Objectives

6. Discuss salesforce deployment.

7. Explain three analytical approaches for determining

allocation of selling effort.

8. Describe three methods for calculating sales force size.

9. Explain the importance of sales territories and list the

steps in the territory design process.

10. Discuss the important “people” considerations in

salesforce deployment.

Sales Organization Concepts

• The degree to which individuals perform some of the required tasks to the exclusion of others.

• Individuals can become experts on certain tasks, leading to better performance for the entire organization.

Specialization

• The degree two which important decisions and tasks performed at higher levels in the management hierarchy.

• Centralized structures place authority and responsibility at higher management levels.

Centralization

Sales Force Specialization Continuum

Some specialization

of selling activities,

products, and/or

customers

All selling activities

and all products to

all customers

GeneralistsCertain selling

activities for certain

products for certain

customers

Specialists

Centralization

Span of Control vs. Management Levels

Flat Sales Organization

Span of Control

Ma

na

ge

me

nt L

eve

ls

National

Sales

Manager

District

Sales

Manager

District

Sales

Manager

District

Sales

Manager

District

Sales

Manager

District

Sales

Manager

Span of Control vs. Management Levels

Tall Sales Organization

National Sales

Manager

Span of Control

Man

agem

en

t Leve

ls

District

Sales

Manager

District

Sales

Manager

District

Sales

Manager

District

Sales

Manager

District

Sales

Manager

District

Sales

Manager

Regional Sales

Manager

Regional Sales

Manager

Line vs. Staff Positions

National Sales Manager

Regional Sales Managers

District Sales Managers

Sales Training Manager

Sales Training Manager

Salespeople

Staff Position

Line Position

Selling Situation Contingencies

Should the salesforce be specialized?

If the salesforce should be specialized,

what type of specialization is most

appropriate?

Selling-Situation Factors and

Organizational Structure

OrganizationalStructure

EnvironmentalCharacteristics

TaskPerformance

PerformanceObjective

SpecializationHigh Environmental

UncertaintyNonroutine Adaptiveness

CentralizationLow Environmental

UncertaintyRepetitive Effectiveness

Customer and Product Determinants

of Sales Force Specialization

Geographic Sales Organization

Product Sales Organization

Market Sales Organization

Functional Sales Organization

Identifying Strategic Accounts

Large

Small

Complexity of Account

Siz

e o

f A

cco

un

t

Large

Account

Simple Complex

Strategic

Account

Regular

Account

Complex

Account

Strategic Accounts Options

Comparison of

Sales Organization Structures

OrganizationalStructure

Advantages Disadvantages

Geographic

•Low Cost•No geographic duplication•No customer duplication•Fewer management levels

• Limited specialization• Lack of management

control over product or customer emphasis

Product

• Salespeople become experts in product attributes & applications

• Management control over selling effort

•High cost•Geographic duplication•Customer duplication

OrganizationalStructure

Advantages Disadvantages

Market

•Salespeople develop better understanding of unique customer needs

• Management control over selling allocated to different markets

• High cost• Geographic duplication

Functional• Efficiency in performing selling

activities

• Geographic duplication• Customer duplication• Need for coordination

Comparison of

Sales Organization Structures

Salesforce Deployment

How much selling effort is needed to cover accounts

and prospects adequately so that sales and profit

objectives will be achieved?

How many salespeople are required to provide

the desired amount of selling effort?

Hybrid Sales Organization Structure

Salesforce deployment decisions can be viewed as

providing answers to three interrelated questions.

Salesforce Deployment

Interrelatedness of

Salesforce Deployment Decisions

How much selling effort is needed to cover

accounts and prospects adequately so that sales

and profit objectives will be achieved?

How many salespeople are required to provide the

desired amount of selling effort?

How should territories be designed to ensure proper

coverage of accounts and to provide each

salesperson with a reasonable opportunity for

success?

Allocation of

Selling Effort

Salesforce

Size

Territory

Design

Interrelatedness of

Salesforce Deployment Decisions

2,000 accounts x 25 sales calls/account = 50,000

sales calls required to cover accounts

50,000 sales calls required ÷ 1,250 sales calls/

salesperson = 40 salespeople needed

40 territories needed to provide each salesperson

with opportunity for success and to ensure proper

coverage of accounts (e.g. 50 accounts per territory)

Allocation of

Selling Effort

Salesforce

Size

Territory

Design

Analytical Approaches to

Allocation of Selling Effort

Single Factor Models

• Easy to develop and use; low analytical rigor

• Accounts classified into categories based on one factor, such as market potential

• All accounts in the same category are assigned the same number of sales calls

Market PotentialCategories

Average Sales Calls toan Account Last Year

Average Sales Calls toan Account Next Year

A 25 32

B 23 24

C 20 16

D 16 8

Single Factor Model Example

Portfolio Models

• Account Opportunity - an account’s need for and ability

to purchase the firm’s products

• Competitive Position - the strength of the relationship

between the firm and an account

Portfolio Model Segments and Strategies

Decision Models

Simple Basic Concept - to allocate sales calls to

accounts that promise the highest sales return

from the sales calls

Optimal number of calls in terms of sales or profit

maximization

Sales Force Size: Key Considerations

• Sales Productivity• Ration of Outputs to Inputs

• Sales Growth as a Result of Adding Salespeople is Curvilinear

• Diminishing Marginal Returns

• Salesforce Turnover• Usually Very Costly

• Should be Anticipated and Managed

• Organizational Strategy

• Growth Targets

• Selling Costs

• Market Share

Sales and Cost Relationship

Salesforce Size Decisions

Analytical Tools: Breakdown Approach

• Uses sales forecast to determine salesforce size

• Easy to use and understand

• Conceptually weak - assumes sales drives the

need for salespeople

• Best suited in stable selling environments

Salesforce size = Forecasted sales / Average sales per salesperson

Analytical Tools: Workload Approach

• Estimation of selling effort needed is used to

determine salesforce size

• Estimating selling effort needed may be simple

or complex

• Conceptually sound

Number of salespeople = Total selling effort needed

Average selling effort per salesperson

Analytical Tools: Incremental Approach

• Uses Marginal Profit Contribution and Marginal

Costs to Determine Salesforce Size

• Quantifies Important Relationships Between

Salesforce Size, Sales, and Costs,

• Most Rigorous Method and Difficult to Develop

• Not appropriate for New Salesforces

# of Salespeople Marginal Contribution Marginal Cost

100101102103

$85,000$80,000$75,000$70,000

$75,000$75,000$75,000$75,000

Salesforce Size: Other Considerations

• Turnover

• Salesforce Size Calculations Should Incorporate

Turnover Rates

• Example: Desired Size is 100; Annual Turnover is

20%; Recruiting, Selecting, and Training Should be

Based on Salesforce Size of 120.

• Outsourcing the Salesforce

• Need salesforce quickly and/or for short period

• Flexible

• Contractual arrangements vary

Calculating Turnover

For any given time frame (e.g., month quarter, year),

divide the number of salespeople leaving their jobs

(e.g., terminated, quit, promoted) by the total number of

salespeople employed at the mid-point of the time

frame.

Example: Time Frame – 1 Year

Separations – 50 Salespeople

# of Salespeople at Mid-Point – 200

Salesforce Turnover = 25%

Designing Territories

• Territories consist of whatever specific accounts are assigned to a specific salesperson. The territory can be viewed as the work unit for a salesperson.

• Territory Considerations• Trading areas

• Present effort

• Recommended effort

Territory Design Procedure

Territory Design: Using Technology

• Software Optimizes Territory Design Using

Multiple User-Defined Criteria

• Compare Multiple Methods Quickly and Easily

• Examples

• Sales Territory Configurator

• Tactician

• TerrAlign

• Alignstar

“People” Considerations

• Analytical models don’t

account for “people”

considerations

• Individual differences in buyers

and accounts

• Salesperson intuition

• Sales managers should

temper the analytical results

with people considerations

before making final

deployment decisions.

DEVELOPING FORECASTS

Appendix 4

Why Forecast?

• Determining Sales Force Size

• Designing Territories

• Establishing Sales Quotas and Selling Budgets

• Determining Sales Compensation Levels

• Evaluating Salesperson Performance

• Evaluating Prospective Accounts

Types of Forecasts

Market Potential

Sales Potential

Market Forecast

Sales Forecast

Industry Level

Firm Level

Best

Possible Results

Expected Results

for Given Strategy

Top-Down vs. Bottom-Up Forecasting

• Forecast made at the “front-line” level and then aggregated up the levels of the organization

Bottom– Up

• Forecast made at the business unit level then broken down by zone, region, district, territory, and account forecast.

Top –Down

Top-Down Approach

Bottom-Up Approach

Company Sales Forecast

Combined into district, region, and zone forecasts

Combined into territory forecasts

Salespersons’ forecasts of accounts

Company Forecasting Methods

• Moving Averages• Uses historical averages to forecast future sales

• Averages are calculated using a predetermined number of previous periods (e.g., two-year moving average; four-year moving average)

• Exponential Smoothing• Weighted moving average

• Usually most recent period is weighted heavier

• Decomposition Methods• Breakdown historical sales data into four components (trend,

cycle, seasonal, erratic)

• Evaluate the components and then reincorporate to create forecast

Moving Averages Forecast Example

Year Actual Sales Two-Year Four-Year

2008 $8,400,000

2009 $8,820,000

2010 $8,644,000 $8,610,000

2011 $8,212,000 $8,732,000

2012 $8,622,000 $8,428,000 $8,520,000

2013 $9,484,000 $8,418,000 $8,574,000

2014 $9,674,000 $9,054,000 $8,740,000

2015 $10,060,000 $9,579,000 $8,998,000

2016 ? $9,868,000 $9,460,000

Exponential Smoothing Forecast

Example

Year Actual Sales α = 0.2 α = 0.5 α = 0.8

2008 $8,400,000

2009 $8,820,000 $8,400,000 $8,400,000 $8,400,000

2010 $8,644,000 $8,484,000 $861,000 $8,736,000

2011 $8,212,000 $8,516,000 $8,627,000 $8,662,000

2012 $8,622,000 $8,455,000 $8,420,000 $8,302,000

2013 $9,484,000 $8,488,000 $8,521,000 $8,558,000

2014 $9,674,000 $8,687,000 $9,003,000 $9,299,000

2015 $10,060,000 $8,884,000 $9,339,000 $9,599,000

2016 ? $9,119,000 $9,700,000 $9,968,000

Moving Averages Forecast Example

$6,000,000

$7,000,000

$8,000,000

$9,000,000

$10,000,000

$11,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

Actual Sales Two-Year Four-Year Exp. Smoothing

Breakdown Methods

• Use factors influencing sales at the

region, district, and territory levels

to adjust forecasts made at the

business unit level (top-down

method).

• Buying Power Index (BPI) is often

used to adjust forecasts.

• Factors should be continuously

evaluated.

Even Allocation vs. Breakdown Methods

Company Sales Forecast = $1,000,000

Region A Portion= .33 Forecast = $333,333

Region B Portion = .33 Forecast = $333,333

Region C Portion = .34 Forecast = $333,334

Company Sales Forecast = $1,000,000

Region A Breakdown Factor = .20

Forecast = $200,000

Region B Breakdown Factor = .30

Forecast = $300,000

Region C Breakdown Factor = .50

Forecast = $500,000

Bottom-Up Approach Methods

• Survey buyer intentions

• Survey buyers purchasing intentions

• Aggregate

• Jury of executive opinion

• Executives or other experts estimate sales at the account level

• Estimates are averaged or otherwise agreed upon to generate forecast

• Delphi (A form of jury of executive opinion)

• “jury” is anonymous and estimates are redistributed for revision

• “jury” review and revise estimates until consensus is reached

• Sales force composite

• Salespeople create forecasts for the accounts and territories

• Forecasts are aggregated

Forecasting with Regression Analysis

• Statistical technique using predictor variables

(factors) to forecast sales

• May be complex

• Requires collection of

predictor variable data

• Analysis may be

linear or logarithmic