Controlling the Salesforce

8/7/2019 Controlling the Salesforce

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Controlling theSalesforce

March 19, 2011


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LearningObjectives

To know criteria and types of salesforce expense plans

To understand salesforce audit and its evaluationprocess

To learn evaluation of effectiveness of a sales

organisation through sales, cost, profitability, and

productivity analysis To know purposes and procedure for evaluating and

controlling the performance of salespeople

To understand ethical, social, and legal responsibilities

of sales managers and salespeople

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Salesforce ExpensePlans

Salesforce expenses include travel, meals, lodging,telephone, and customer entertainment

Firms have salesforce expense plans to ensureproper spending

Objectives / Criteria of effective expense plans are:

It should be Fair to the salesperson and company

Simple and economical to administer

Clear to prevent misunderstanding

Reimbursed without much delay Allowing differences in expenses among

different territories

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Salesforce Expense Plans(Continued)

Four types of salesforce expense plans

Salespeople pay all expenses

Merits: Simple, less cost for company, salespeople

get income tax advantage

Demerits: Less control on salespeoples activities;non-selling activities not done properly

Company pays all expenses / Unlimited payment

plan

Merits: Good control on salespersons activities; no

anxiety for sales people on spending money

Demerits: Salespeople spend more and may make

money unethicallyMarch 19, 2011


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Salesforce Expense Plans(Continured)

Company partially pays expenses / Limited payment plan

Merits: Useful in budget planning; less disputes; better control on

salespersons activities

Demerits: Needs more time to set expense limits and administer;

Inflexible plan, not liked by good salespeople

Combination plan / Expense-quota plan

Combines limited and unlimited plans

Advantages of both plans

Company has control on selling expenses; salespeople have

flexibility within total expense budget

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SalesforceAudit

Salesforce or sales management audit is a part of marketing audit

A marketing or salesforce audit is a comprehensive, systematic,diagnostic, and prescriptive tool, to be used periodically

Purpose. To assess adequacy of process, improve performance,

recommend changes

Evaluation process of salesforce audit. It has 3 stages. Company

management should find out:

What happened by comparing actual performance with goals

Why it happened by identifying factors contributing to negative

variance. Difficult and time consuming task

What to do about it by taking corrective actions

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Evaluation of Effectiveness of SalesOrganisation

To know what happened, companies analyse their sales,costs, profits, and productivity

Effectiveness model of a sales organisation

Effectivenessof aSales

Organisation

Sales Analysis

Cost Analysis

Profitability Analysis

Productivity Analysis

We shall examine each of the above factors

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SalesAnalysis

Sales analysis of a company can be done in different ways:

Different alternatives are shown in a framework below:

Sale

sAna

ly

sis

All levelsIn Sales

Organisation

DifferentType of

Sales

DifferentType ofAnalysis

National and/or international levels sales organisati

Regional level

Branch /district level

Territory level

Individual level

Total sales of the company

By type of products

By type of distribution channels

By type of customer classifications

By size of orders

Comparisons with sales quotas / targets

Comparisons with previous periods

Comparisons with industry / competitors

Comparisons within sales organisations

Comparisons with sales forecasts

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Sales Analysis(Continued)

Sales analysis is done at all levels of the sales organisation

Reasons

(1) For evaluation and control: sales analysis needed at differentorganisation levels like regional, district, territory

(2) For identifying problems:

Use hierarchical sales analysis. E.G.

Sales performance at national level below sales volume budget

Find which regions have problems in achieving sales quotas

Focus sales analysis of branches reporting to problematic regions

Do sales analysis of territories under problematic branches

Further analysis of problematic territories to be done by talkingto salespeople, customers, branch managers

Corrective actions can then be taken to improve sales Extend hierarchical sales analysis to different type of sales

Out of different type of analysis, comparisons with sales quotas arewidely used

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Marketing Cost and ProfitabilityAnalysis

Purpose: To measure profitability of companysmarketing units such as territories, market segments,

products, channels, & customers This information helps to decide which marketing units

to be expanded, reduced, or eliminated in future.

Procedure

State purpose of the analysis Identity major functional (or activity) expenses

Convert natural accounting expenses into functionalexpenses

Allocate functional expenses to marketing units

Prepare profitability of marketing units, by using full-

cost approach, or contribution approach

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Purpose of the Analysis

Before starting cost and profitability analysis, it is necessary to

know for which marketing units the analysis would be done

This helps to classify costs into direct and indirect. E.G.Salespersons salary is direct cost for territory analysis, but

indirect cost for analysis of products or segments

Identify Major Functional Expenses

The company should prepare a list of major functions oractivities with respect to marketing expenses

E.G. Personal selling expenses, order processing expenses,

packing and delivery expenses, warehousing and inventory

expenses, administration expenses

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C t N t l A ti


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Convert Natural AccountingExpenses into

Functional Expenses Natural or traditional expenses are to be converted to

functional expenses, for doing marketing cost analysis

An example will make this point clearNatural /

TraditionalExpenses

Total Functional Expenses

PersonalSelling

Adv. andSales

Promotion

Warehousing &Inventory

Administration

Salaries 20,000,000 10,000,000 4,000,000 2,000,000 4,000,000Rent 10,000,000 2,500,000 1,000,000 5,000,000 1,500,000

Travel 5,000,000 5,000,000 __ __ __

Adv. andSalesPromotion

15,000,000 __ 15,000,000 __ __

Total 50,000,000 17,500,000 20,000,000 7,000,000 5,500,000

A better method for allocating costs is activity-based costing(ABC), which allocates costs based on cause of expenses

Note: All figures are in Rupees

ll i l


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Allocate Functional Expenses toMarketing Units

Functional expenses are allocated to the marketing unit understudy, depending on several bases shown below, as examples

Function Bases of allocation of expenses

Personal selling Directly to sales territories

Selling time given to each product and marketsegment

Sales calls x average time per call to customers &channels

Advertising andsales promotion

Circulation of media to sales territories

Media space for each product & market segment

Equal charges to customers & channels

Administration Equal charges for all marketing units

Above allocations are done to find marketing costs andprofitability of marketing units


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Prepare Profitability ofMarketing Units

This is done by preparing profit & loss statements for

the marketing units under study Two approaches are available in allocating marketing

costs for profitability analysis: (1) Full-cost, (2)

Contribution

Full-cost approach: All marketing costs, both direct &

indirect, are allocated to the marketing unit

Useful for long-term profitability studies of products

and market segments

Contribution approach: Only direct marketing costs

are allocated to the marketing unit

Useful for short-term decisions like profitability of

branches / regionsMarch 19, 2011

An E ample of Profitabilit


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An Example of ProfitabilityAnalysis

SNo Particulars Full-cost

Approach

Contribution Approach

Western Region Branch A Branch B Branch C

1 Sales 400 150 130 120

2 Cost of good sold 300 112.5 97.5 90

3 Gross margin (1-2) 100 37.5 32.5 30

4 Branch sellingexpenses

12.7 4.5 4.2 4

5 W. Region direct sellingexpenses

12.0 - - -

6 Contribution (3-4-5) 75.3 33.0 28.3 26.0

7 Allocated indirectexpenses

36.3 - - -

8 Net profit (6-7) 39.0 - - -

Note: All figures are in Rupees million

P d ti it


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ProductivityAnalysis

Productivity is generally measured by ratio between output & input

Some of the productivity ratios in sales management are:

Sales per salesperson (used by many companies)

Selling expenses per salesperson

Sales calls per salesperson

Improvement in productivity leads to increase in profitability

Some of the methods used by firms to improve productivity Reducing salesforce size

Hiring manufacturers reps. or agents on commission basis

Using the internet, telemarketing, direct mail to reach customers

Increasing sales volume substantially

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Evaluating & Controlling Performance ofSalespeople

Purposes / objectives / importance of performanceevaluation of salespeople are:

Mainly to find how salespeople have performed

This information is used for other purposes, such as:

Improving salespersons performance, by identifyingcauses of unsatisfactory performance

Deciding salary increments and incentive payments Identifying salespeople for promotion

Determining training needs

Motivating salespeople through recognition and reward

Understanding strengths and weaknesses of salespeople

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Procedure for Evaluating andControlling

Salesforce Performance

The steps involved in the procedure are:

Set policies on performance evaluation and control

Decide bases of salespersons performance evaluation

Establish performance standards Compare actual performance with the standards

Review performance evaluation with salespeople

Decide sales management actions and control

We shall describe above steps briefly

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Set Policies on Performance Evaluation &


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Set Policies on Performance Evaluation &Control

Most companies establish basic policies. Examples are:

Frequency of evaluation. Mostly once a year. Who conducts evaluation? Mainly immediate

supervisor

Assessment techniques to be used. E.G.

Management by objectives (MBO), 360-degreefeedback

Sources of information. Sales analysis, newbusiness reports, lost business reports, call plans,etc

Bases of salesforce evaluation. (next slide)

Conducting performance review sessions withsalespeople

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Decide Bases for Salespersons PerformanceEvaluation

A firm should decide which of the following bases / criteria it woulduse: (1) result / outcome based, (2) efforts / behavioural based, or

(3) both results & efforts based A company selects performance bases or criteria from a list of

alternatives, some of them shown below:

Quantitative results /

outcome bases / criteria

Quantitative efforts /

behavioural bases / criteria

Qualitative efforts /

behavioural bases / criteria Sales volume

In value / units

Percentage of quota

by products &

segmentsAccounts / customers

New accounts nos.

Lost accounts nos.

Customer calls

No. of calls per day

No. of calls percustomer

Non-selling activities overdue paymentscollected

No. of reports sent

Personal skills

Selling skills

Planning ability

Team player

Personality & Attitudes Cooperation

Enthusiasm

E t bli h P f


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Establish PerformanceStandards

Performance standards are also called sales goals,

targets, sales quotas, sales objectives Performance standards for quantitative results are

related to the companys sales volume or market

share goals

Performance standards for efforts / behaviouralcriteria are difficult to set

For this, companies do time and duty analysis

or use executive judgement

Performance standards should not be too high ortoo low

After establishing standards, salespeople must be

informed

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Compare Actual Performance withStandards

Salespersons actual performance is measured and

compared with the performance standards

For this, sales managers use different methods or

forms:

Graphic rating scales

Ranking

Behaviourally anchored rating scale (BARS)

Management by Objectives (MBO)

Descriptive statements Companies combine some of the above methods for

an effective evaluation system

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Review Performance Evaluation with


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Review Performance Evaluation withSalespeople

Performance review / appraisal session is conducted,after evaluation of the salespersons performance

Sales manager should first review high / good ratings,and then review other ratings

Both should decide objectives / goals and action planfor future period

After the review, sales manager should write aboutperformance evaluation & objectives for the future

Guidelines for reviewing performance of salespersons

First discuss performance standards / criteria / bases

Ask the salesperson to review his performance Sales manager presents his views

Establish mutual agreement on the performance

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Decide Sales Management Actions and


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Decide Sales Management Actions andControl

Many companies combine this step with the previousstep i.e. performance review

During performance review meeting withsalesperson, sales manager does the following:

Identifies the problem areas. E.G. Sales quotas notachieved

Finds causes. E.G. less sales calls, poor marketcoverage, or superior performance of competitors

Decides sales management actions E.G. trainsalesperson, redesign territories, or review

companys sales / marketing strategies If a salespersons performance is good, he / she

should be rewarded and recognised

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Business Ethics and Sales


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Business Ethics and SalesManagement

Sales managers and salespeople have ethical

responsibilities

Some of the ethical situations are:

Relations with the company. EGs. Expense

statements, credit for damaged merchandise

Relations with customers. EGs. Gifts, false

information to get business, customer entertainment

Ethical guidelines

A code of ethics developed by the company would beeffective if it is enforced by top management

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Social


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SocialResponsibilities

Corporate social responsibility means distinguishing right fromwrong and doing the right

Social responsibility is the managements responsibility to takedecisions and actions for welfare and interests of society andthe company

A company has following four responsibilities to its eightstakeholders: Customers, Community, Creditors, Government,

Owners, Managers, Employees, and Suppliers, acronym:CCCGOMES

Ethical responsibilities. Deal with fairness, equity,impartiality

Legal responsibilities. Follow laws and regulations

Economic responsibilities. Produce and market goods /services that society wants, and make reasonable profits

Voluntary responsibilities. Make social (EG philanthropic)contributions

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Legal Responsibilities and Sales


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Legal Responsibilities and SalesManagement

Laws and regulations by local, state, or central

governments have impact on sales management

Price discrimination. As per MRTP act, 1969, seller

should not discriminate prices among similar buyers

(e.g. retailers)

Price fixing. Under MRTP act, it is unlawful for suppliers

to fix prices

Consumer protection. As per Consumer Protection Act,

1986, it is illegal to make false or misleading claims

about products / services

Bribes. Payment of money or giving gifts to gain a

customer is illegal under Indian Contracts Act 1872 and

Sale of Goods act, 1930. Sales managers must take

responsibility that laws are not violated

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KeyLearnings

Salesforce expenses include travel, meals, lodging, telephone,

and customer entertainment

Salesforce expense plans consists of (1) salespeople paying

all expenses, (2) company paying expenses partially, (3)

company paying all expenses, (4) combination plan

Salesforce audit is done to access process adequacy, improve

performance, and recommend changes

For evaluating effectiveness of a sales organisation, the

company analyse sales, costs, profits, and productivity

Sales analysis is done at all levels in a sales organisation, for

(a) evaluation and control, and (b) identifying problems

Purpose of marketing cost and profitability analysis is tomeasure profitability of companys marketing units

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Key Learnings


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Key Learnings(Continued)

Two approaches for profitability analysis are: full-

cost and contribution Most commonly used productivity ratio in sales

management is sales per salesperson

Main purpose of performance evaluation of

salespeople is to find how salespeople haveperformed

Sales managers have ethical, social, and legalresponsibilities

Corporate social responsibility is distinguishingright from wrong and doing the right

March 19, 2011

Documents

Controlling the Salesforce