Tutorial 2

19–1

PERSONAL SELLING
 Personal Selling – Definition

 Defined as a two-way flow of communication between a

potential buyer and a salesperson
 Use of personal selling depends partially on the nature
of product
 Key role played by salesperson in providing information
about product
 Use personal selling when products are
 New and different
 Technically complex
 Expensive and require negotiation

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

 The Role of Personal Selling

 “Personal touch” is more effective than mass-media

 High flexibility
 More Persuasive way of communication

 Two way communication

 Immediate customers’ feed back

 More effective to close the sale

 High cost per contact / most costly communication/

 To build and Maintain Customer relationship
 Effective for key accounts management
 Effective for B2B selling
 Effective for high tech products

3
 Types of Salespeople (cont’d)
19–4

 Support Personnel: sales staff members who

facilitate selling but usually are not involved solely
with making sales
 Missionary salespeople
 Support salespersons who assist the producer’s customers in
selling to their own customers
 Trade salespeople
 Salespersons involved mainly in helping a producer’s customers
promote a product
 Technical salespeople
 Support salespersons who give technical assistance to a firm’s
current customers
 …
19–5

 Team selling and cross-functional team

 Team Selling- sending two or more salespersons in a team for
sales call
 Effective for sales calls requiring long negotiations ( team selling
gives more negotiation power and synergetic impact )
 Can be used to provide on the job training to new sales persons

 Cross Functional Team- a sales team comprising of different

departments in the organization (marketing, finance, legal etc)
 Effective for extended business deals with a lot of technical details
 Allows all concerned department to contribute in developing the
business contract
 Clear terms and conditions can be communicated and all the
authorities are working closer which helps in closing the deal
 19–6

General Steps in
the Personal
Selling Process

FIGURE 19.1
 Elements of the Personal Selling Process
19–7

 Prospecting
 Developing a list of potential customers
 Sales records, trade shows, commercial databases, newspaper
announcements, public records, telephone directories, trade
association directories
 Reponses to advertisements with information request forms
 Referrals—recommendations from current customers
Elements of the Personal Selling Process (cont’d)
19–8

 Preapproach (before contacting the customer)

 Finding and analyzing information about the prospect
 Specific product needs
 Current use of brands
 Feelings about available brands
 Personal characteristics
 Additional research
 Identifying key decision makers
 Reviewing account histories and problems
 Contacting other clients for information
 Assessing credit histories and problems
 Preparing sales presentations
 Identifying product needs
Elements of the Personal Selling Process (cont’d)
19–9

 Approach
 The manner in which a salesperson contacts a potential
customer
 Purpose is to gather information about the buyer’s needs and
objectives
 Important to create a favorable first impression and build
rapport with prospective customer
 Typical approaches
 Referral by another customer to a prospective customer
 “Cold canvass” call without prior introduction to the customer
 Repeat contact based on prior meeting(s) with the potential
customer
Elements of the Personal Selling Process (cont’d)
19–
10

 Making the Presentation

 During the presentation:
 Attract and hold the prospect’s attention.
 Stimulate interest in the product.
 Spark a desire for the product.
 Listen and respond to the prospect questions and comments.

 Ways to enhance the presentation’s effects

 Have the prospect touch, hold, or use the product.
 Use audiovisual technology to heighten the impact of the
presentation.
Elements of the Personal Selling Process (cont’d)
19–
11

 Overcoming objections
 Anticipate objections and counter them during the
presentation
 Generally, best to handle objections as they arise

 Closing the sale

 Closing is the stage in the selling process when the
salesperson asks the prospect to buy the product.
Elements of the Personal Selling Process (cont’d)
19–
12

 Closing strategies
 “Trial” closing: asking questions (what, how, or why) that
assume the customer will buy the product
 Asking for a tryout order: low-risk way for customer to try
out the product
 Following up
 Determining if the delivery and
setup of order was completed
to the customer’s satisfaction
 Ascertaining the customer’s
future product needs
 Sales Management

SALES MOTIVATION AND

COMPENSATION
Major Sales Management Decision Areas
19–
14
 Management of the Sales Force
19–
15

 Establishing Sales Force Objectives

 Objectives tell salespeople what they are to accomplish during
a specified time period.
 Objectives for the total sales force
 Sales volume: total units or dollars of product sold for a period
of time
 Market share: unit or dollar percentage share of the total market
for a product
 Profit: dollars or percentage of return on investment (ROI)
 Objective for individual salespersons
 Quotas: dollars or units sold, or average order size, average
number of calls, or ratio of orders to calls by an individual
salesperson
 Management of the Sales Force (cont’d)
19–
16

 Determining Sales Force Size

 Size of sales force affects
 Compensation methods for salespersons.
 Morale of salespersons.
 Overall sales force management.

 Methods for determining optimal sale force size:

 Dividing the number of sales calls necessary to serve customers by
the number of sales calls a salesperson makes annually
 Adding additional salespersons until the cost of adding one more
salespersons equals the additional sales that would be generated
by that person
 Management of the Sales Force (cont’d)
19–
17

 Recruiting and Selecting Salespeople

 Recruiting
 Developing a list of qualified applicants for sales positions
 Establish a set of qualifications that best match the firm’s
particular sales tasks
 Prepare a job description listing specific tasks
 Analyze successful salespeople among current employees

 Sources of applicants
 Other departments in the company • Other firms
 Employment agencies • Educational institutions
 Job ad respondents • Employee referrals
 Management of the Sales Force (cont’d)
19–
18

 Training Sales Personnel

 What to teach?
 The company, its products, or selling methods
 Whom to train?
 Newly hired or experienced salespeople, or both
 When/where to train?
 In the field, at educational institutions, in company facilities
 Before or after initial field assignment
 Frequency, sequencing, and duration of periodic training
 Who will train?
 Sales managers, technical personnel, outside consultants
 How to train?
 Materials and instructional methods
 Management of the Sales Force (cont’d)
19–
19

 Compensating Salespeople
 Compensation objectives
 Attract, motivate, and retain effective salespeople
 Maintain the desired level of control
 Provide acceptable levels of income, freedom, and incentive
 Encourage proper treatment of customers
 Management of the Sales Force (cont’d)
19–
20

 Compensation Plans
 Straight salary
 Paying salespeople a specific amount per period of time
 Straight commission
 Paying salespeople according to the amount of their sales in a
given time period
 Combination compensation
 Paying salespeople a fixed salary
plus a commission on sales volume
 Management of the Sales Force (cont’d)
19–
21

 Motivating Salespeople
 Motivation should be provided on a continuous basis.

 Motivational incentives
 Enjoyable working conditions
 Power and authority
 Job security
 Opportunities to excel

 Motivational methods
 Sales contests
 Recognition programs
 Awards (travel, merchandise, and cash)
 Management of the Sales Force (cont’d)
19–
22

 Managing Sales Territories

 Creating sales territories
 Based on similar sales potential or requiring about the same
amount of work
 Setting differential commission rates to compensate for
differences in the characteristics of territories (density and
distribution of customers)
 Management of the Sales Force (cont’d)
19–
23

 Managing Sales Territories (cont’d)

 Routing and scheduling considerations
 Geographic size and shape of the territory
 Number and distribution of customers
 Sequence of customer calls
 Routes and distances traveled
 Minimizing salesperson’s travel and lodging costs
 Management of the Sales Force (cont’d)
19–
24

 Controlling and Evaluating Sales Force Performance

 Sales objectives, determined by the sales manager, stated in
terms of
 Sales volume
 Average number of calls per day
 Average sales per customer
 Actual sales relative to sales potential
 Number of new customer orders
 Average cost per call
 Average gross profit per customer
 Motivation
 Inner force that drives goal oriented
behavior
 Motivation leads to effort.
 Effort leads to performance.
 What leads to motivation?
Motivation: Intrinsic vs.
Extrinsic

Intrinsic Extrinsic
When doing When rewards
the job is such as pay
inherently and formal
motivating recognition act
as motivators
Motivation
 Maslow: Hierarchy of Needs

 You have had this before

 Physiological
 Safety/Security Needs
 Social Needs
 Esteem Needs
 Self Actualization
 How do you relate this hierarchy with different levels of
sales positions and various compensation plans ?
 Herzberg: Two Factor theory

 Hygiene factors ( dissatisfies) & Motivators

 Motivators ( Intrinsic forces) create motivation
when present and no motivation when absent
 The job itself, recognition, promotion , the work environment etc
 Dissatisfier ( Hygiene factors) :create dissatisfaction
when absent and no motivation when present
 Salary, benefits, allowance etc
 Herzberg ‘s intrinsic motivators

 Motivation is associated with:

 Achievement

 Recognition

 Challenging Work

 Advancement
 Herzberg Useful?

 Have Clear Policies and Procedures

 Don’t have to be equal but must be seen as “fair”

 Pay is not a great motivator – but is a great

demotivator (Do Not Make Salary Info Public)
 Non Pay Factors are Key to Motivation
 Expectancy Theory

Yes Yes High

Expectancy Instrumentality Valence Motivation

No No Low

Unmotivated
Expectancy Theory
 Expectation
 Effort  Outcome

 Instrumentality
 Outcome  Reward

 Valence
 Reward has Value

 Must have all 3 to be motivated!

Expectation
Must expect that
effort will lead to
performance outcome

Studying = Knowledge
Instrumentality
Results must be
instrumental in
achieving reward
Valence: reward must be valuable

Low Valence High Valence

 Designing a Compensation
Plan
 Compensation plan is intended to have the
sales force do what management wants,
how it wants it, and within the desired time.

 First, need to decide what it is that

management wants.
Major Issues
 People have different personal
characteristics and different valances for
various kinds of rewards.
 Ideally want to have unique
compensation program for each person.
 It ain’t gonna happ’n!!!!
 Too complex to administer
 Question of fairness

 Changes over time

 Need to update continuously
Assessing Situation/Objectives
 How are salespeople allocating time?
 How good are the current outcomes?
 Job Analysis
 Recruitment and selection
 Company records
 Company marketing & sales objectives
 Account management
What do you reward?
 Performance outcomes
 Behaviors
 Need to align the sales forces’
objectives with that of the company.
 Can strive to achieve multiple
objectives, but not too many at once.
 Use mixed-incentive plan
Behaviors & Activities to Reward
 Higher $ volume sales  Service/Maintain
 Increase sales of more existing customers
profitable items  Retain customers
 Push new products  Encourage team
 Higher penetration: cooperation
products, customers  Balanced (full-line)
 Larger average order selling
size  Lower sales costs
 New customers  Increase calls
 Prompt paperwork
Valance
 Need to determine what drives the
current sales force at this time.
 Survey
 Conjoint analysis
 Managers don’t necessarily have an
accurate perception of their
salespeople’s valances for different
rewards.
Appropriate Compensation Mix
 Determine gross amount necessary to
attract, retain, and motivate right type
of salespeople.
 Then allocate to salary, commission,
bonus, benefits, prizes.
 Varies with type of sales job, size of
company and sales force, and policies.
 What do competitors pay?
 Pay low, high, or average?
Dangers of Paying Too Much
 Increases selling costs  lowers profits

 Can cause resentment and low morale

among non-sales employees and
managers

 Not necessarily a motivator

 Maslow
 Herzberg Theory
Dangers of Paying Too Little
 You get what you pay for.
 Attract only weak people
 Leads to poor results

 High turnover, especially among good

people. Only the less capable will stay.
 Leads to higher costs for recruiting, and
training.
 Lost sales

 Managers always recruiting and hiring

 Compensation Components

 Commission
 Salary
 Incentive/Bonus
 Benefits
 Sales Contests
Compensation: Commission
 Payment based on short-term results
 Usually a % of $ sales, or $/volume
 Direct link between performance and
payment
 Motivates high level of selling effort
 Encourages sales success
Compensation: Salary
 Fixed sum of money paid at set intervals
 How most of the country is paid
 Function of experience, competence,
tenure, past performance
 Motivate effort on non-sales activities
 Adjust for differences in territory potential
 Motivate investment in long-term sale
Compensation: Incentive/Bonus
 Additional commission tied to sales or
profitability (e.g. + 1% after
$2,000,000)
 Bonus for meeting or exceeding target
 Direct effort to strategic objectives
 Provide additional rewards to top
performers
 Encourage sales success
Compensation: Sales Contests

 Encourage extra effort at specific short-

term objectives
 Can offer:
 Cash
 Merchandise (TV, Car, Shopping, Golf, Dinner)

 Travel (Can also be a team building event)

 Offer multiple opportunities for prizes

 Needs to be achievable to be motivating
 Cannot be too easy, or won’t be motivating
Compensation: Benefits
 Health insurance, sometimes disability and
life insurance
 Pension plan
 Not everyone offers, especially if contract
(real estate agent) or manufacturer’s rep
 Salespeople are then forced to buy plans
through professional associations
 Provides security, especially important to
people with families, or getting older
Compensation Plans
 Straight Salary

 Straight Commission

 Combination Plan (most common)

Straight Salary
 If non-short-term sales goals are
important
 If difficult to measure individual’s
contribution to the sales effort
(missionary, team selling)
 Provide salespeople with steady income
 Easy to manage and administer

 $ not tied to performance

 Lowers/clouds instrumentality
 No motivation to perform
Straight Commission
 Direct link between selling and reward
 Motivating
 Inherently fair: rewards to best performers
 Usually easy to compute/administer
 Vary directly with sales volume & $

 Lose control over sales force

 No motivation for non-selling activities
 Milk existing customers, no service
 Unstable income, tough to predict
 Can establish draw, but may be deep hole
 Combination Plans
 Most common form
 Smaller commissions, but with base salary
 Can also offer bonuses for reaching target
(e.g. % of quota)
 Can manipulate (not often, or too much)
to motivate performance or activities
 Gives salespeople both security and
incentive to work hard and perform
Other Issues
 Appropriate size of incentive/base (25%+)
 Incentive Ceiling: Arguments on both sides
 When is a sale a sale?: order acceptance, allowances
or returns, shipment, payment?
 Group incentive? Allocation? Can pay both
group and individual components: Linkages
 How often to pay incentive? Monthly (52%),
Quarterly (24%), or Annually (21%)
Sales Contests
 Clearly define and specify the objectives
 Have an exciting theme
 Have a reasonable probability that
most/all salespeople can win a prize.
 Attractive prizes
 Promotion and follow through

 Borrowed sales
 Hurt cohesiveness & morale
 Necessary if good compensation plan?
Non-Financial Rewards
 Promotion
 Career Development
 Valence declines with age
 Add perquisites (perks) with position:
 Car
 Better working conditions (hours, facility)

 Compensation, Profit-sharing
 Sales Role Perceptions : I

 Role Accuracy: Knowing what is expected

 Role Conflict: Incompatible demands from different

role partners (firm, boss, customer, family)

 Role Ambiguity: Believe that they don’t know what is

expected, how they should meet expectations, or how
they will be evaluated & rewarded
 Sales Role Perceptions II:
Consequences

 Role Inaccuracy, Conflict, and Ambiguity lead to:

 Dissatisfaction

 Mental Anxiety

 Salesperson Turnover

 Absenteeism

 Poor Job Performance

 Sales Role Perceptions III:
Improvement

 Close (not stifling) supervision

 Training

 Salesperson experience

 Include salesperson when establishing expectations

 Sales Quotas

 Goals assigned to salespeople for

specific time period.

 Three Purposes
 Motivate salespeople
 Evaluating performance
 Controlling salespeople’s effort
 Problems with Quotas

 Not apples/apples
 Different levels of difficulty in territories

 May be tough to apply to teams

 Can be expensive to establish
 If not done well, may focus efforts too much in one
area.
 Characteristics of Good Quotas

 Attainable
 Motivation requires reasonable chance
of attainment

 Easy to understand
 Too complex  suspicion and mistrust

 Complete
 Cover all criteria to avoid imbalance
 Types of Quotas

 Volume
 Units, Dollars, Points

 Activity
 # cold calls, proposals, displays, service calls, meetings,
collections, demonstrations
 Financial
 Expenses, Gross Margins, Net Profit
 How to Set Quotas

 Volume
 History
 Territory Potential

 Activity
 Sales reps and managers; sales reports; research

 Financial
 Based on financial goals of firm
 Adjust to meet needs
Performance Criteria
 Total Sales Volume; Increase over last year.
 Percentage of Quota Attainment.
 Selling Expenses; Decrease from last year.
 Profitability of sales; Increase over last year
 New Accounts
 Improved administrative duties (paperwork)
 Improvements in customer service
 Rewards
 Money: salary, bonus, commission
 Promotion
 Non-financial: (Contests, travel, prizes, etc.)
 Special Recognition (clubs, awards, etc.)
 Job security
 Feeling of self-fulfillment
 Feeling of worthwhile accomplishment
 Opportunity for personal growth and development
 Opportunity for independent thought/action
 .

EVALUATING
SALES
PERFORMANCE
 Effectiveness of Organization
Sales Organization Effectiveness:
 Sales-force Outcome Performance

“Salespersons performance contributes to, but does not completely

determine sales organization effectiveness”

 Sales-force Characteristics

 Organizational Factors

 Environmental Factors
 Organizational Effectiveness Framework
Sales Analysis

Cost Analysis

Sales Organization
Profitability Effectiveness
Analysis

Productivity
Analysis
 Sales Analysis Framework

 Organizational level of Analysis

 Sales Organization, Zones, Regions, Districts, Territories, Accounts.

 Type of Sales
 Total Sales, Type of Product Sales, Type of Account Sales, Type of
Distribution Sales, Order Size Sales.

 Type of Analysis
 Comparisons within Sales Organization, with Forecasts, Sales Quotas,
between Industry/ Competitors.
 Cost Analysis Framework
 Costs incurred by Sales Organization.

 Selling budgets as the benchmarks.

 Evaluation - percentage of Sales.

Cost to Serve = Total Cost to serve account

Revenue from the account

 Usually decline with revenue

 Help identify best accounts

 Downsizing & Profits

 Profitability Framework
 Income Statement Analysis
Consider different levels and types of sales as different functions
 Full Cost Approach: allocate the shared costs to individual units
based on some type of cost allocation procedure.
 Contribution Approach: Only Direct costs are included.

 Activity-based Costing
 Based on factors that cause the cost.
 Allocates cost to individual units that actually spend.

 Return on Assets Managed Analysis

 Includes asset investment considerations (inventory, accounts
receivables).
 Productivity Framework

 Sales Force Productivity

 Sales / Salesperson

 Expenses / Salesperson

 Calls / Salesperson

 Proposals / Salesperson

 New accounts/ salesperson

 Can be compared across the entire organization and other

sales organizations
 Productivity and Profitability are inter-related, Productivity
is more managerially oriented.
 Why Evaluate Salespeople?
 To link compensation and rewards to
performance.
 To identify salespeople capable of promotion.
 To identify training and counseling needs.
 To identify criteria for recruitment and
selection.
 To clarify work expectations.
 To motivate salespeople.
 To help salespeople set career goals.
 Performance Evaluation Methods

Behavior-based Perspective
 Considerable monitoring of salespeople.
 High levels of managerial direction of salespeople.
 Subjective measures of salespeople characteristics, activities and
strategies.

Outcome-based Perspective
 Little Monitoring of salespeople.
 Little Managerial direction of salespeople.
 Straightforward objective measures of results.
 A Sales Force Evaluation Model
Set goals and objectives for
sales force, including:
Revenues
Contribution profits
Market share
Expense ratios

Design sales
plan
Set product performance standards for:
Organization Salespeople
Regions Accounts
Districts

Measure results
Take Corrective Action
against standard
 Evaluating Salespeople- Outcome based
Call Productivity Ratios
Calls per day = # Calls
# Days worked

Calls per account = # Calls

# of Accounts

Planned Call = # Planned calls

Total # Calls

Batting Average = # Orders

Total # Calls
 Evaluating Salespeople- Outcome based
Expense Ratios

Expense to Sales = Expenses

Sales

Cost per Call = Total Costs

# of Calls
 Evaluating Salespeople- Outcome based
Account Related Ratios
Sales to Account = Dollar Sales _
# Accounts

Average Order Size = Dollar Sales

# Orders

Growth Ratio = # New Accounts

Total # Accounts

Account Success = Accounts sold_

Total # Accounts
 Evaluating and Controlling Salespeople
Models Combining Input & Output Controls

Inputs Inputs Outputs

Behavior
• # Calls • # Orders
• Attitude
• Days worked • Order Size
• Motivation • Expenses • # New, lost,
• Skills • Selling vs. non- or active
selling time accounts
• Abilities • Quotas
• Job Perception
Output Measures Used in Sales
Force Evaluation
Output Measures Used in Sales Force Evaluation
Sales Profit
Sales volume dollars Net profit
Sales volume previous year’s growth Gross margin percentage
Sales to quota Return on investment
Sales growth Net profit as a percentage of sales
Sales volume by product Gross margin dollars
Sales volume by customer Margin by product category
New account sales Accounts
Sales volume in units Number of new accounts
Sales volume to potential (market share) Number of accounts lost
Orders Number of accounts sold
Number of orders Number of accounts buying full line
Average order size
Batting average (orders/calls)
 Output Measures Used in Sales
Force Evaluation
Percent Percent
Performance Measure Using Performance Measure Using

Sales Profit
Sales volume dollars 79% Net profit 69%
Sales volume previous year’s sales 76 Gross margin percentage 34
Sales to quota 65 Return on investment 33
Sales growth 55 Net profit asa percentage of sales 32
Sales volume by product 48 Margin by product category 28
Sales volume by customer 44 Gross margin dollars 25
New account sales 42
Sales volume in units 35
Sales volume to potential 27 Orders
Accounts Number of orders 47
Number of new accounts 69 Average size of order 22
Number of accounts lost 33
Number of accounts buying full line 27
Input or Behavior Bases Used in
Sales Force Evaluation
Input or Behavior Measures Used in Sales Force Evaluation

Expenses Effort

Total expenses Number of calls

Selling expenses to budget Number of calls per day

Selling expenses as a percentage of sales Number of calls to quota

Nonselling Activities Number of days worked

Advertising displays set up Number of reports turned in

Number of service calls Number of prospecting phone calls

Number of customer complaints Selling time vs. non-selling time

 Input or Behavior Bases Used in
Sales Force Evaluation
Percent Percent
Base Using Base Using

Selling expenses to budget 55% Number of calls per day 42%

Total expenses 53 Number of reports turned in 38
Selling expenses as a % of sales 49 Number of days worked 33
Number of calls 48 Selling time vs. nonselling time 27
Qualitative Bases Used in Sales Force
Evaluation
Qualitative Bases Used in Sales Force Evaluation

Attitudinal and Personality Factors Time management

Attitude Ability to plan

Enthusiasm Appearance and manner

Cooperation Knowledge

Creativity and resourcefulness Product knowledge

Initiative and aggressiveness Pricing knowledge

Motivation Knowledge of competition

Selling Skills Ethical and moral behavior

Communication Skills Team player

 Qualitative Bases Used in Sales
Force Evaluation
Percent Percent
Base Using Performance Measure Using

Communication skills 88% Time management 63%

Product knowledge 85 Cooperation 62
Attitude 82 Judgment 62
Selling skills 79 Motivation 61
Initiative and aggressiveness 76 Ethical/Moral behavior 59
Appearance and manner 75 Planning ability 58
Knowledge of competition 71 Pricing knowledge 55
Team player 67 Report preparation and submission 54
Enthusiasm 66 Creativity 54
 Sales Data for Ethio-Computer

1 2 3 4
Company Percentage Industry Company
Volume Change from Volume Market Share
Year ($ millions) Previous Year ($ millions) (percent)

2013 26 + 8.3 300 8.6

2012 24 +14.3 219 10.9
2011 21 +23.5 165 15.7
2010 17 --- 125 13.6
 Comparing Dollar and Unit Sales at
the Ethio-Computer Company
----------2012 Sales---------- ----------2013 Sales----------
Thousands Avg Price Thousands Avg Price
Products of Dollars Units Per Unit Of Dollars Units Per Unit
Computers $16,800 560 $30,000 $18,200 520 $35,000
Accessories 4,800 4,000 1,200 5,200 4,727 1,100
Software 2,400 1,200 2,000 2,600 1,280 2,031
Total $24,000 5,760 $26,000 6,527
 Expense Analysis by Product Line,
Ethio-Computer Company, 2013
CGS and CGS as a Contribution
2013Sales Commission Percentage Contribution Margin
Products (000) $ Of Sales Margin Percentage

Computers $18,200 $12,740 70 $5,460 30

Accessories 5,200 3,120 60 2,080 40
Software 2,600 520 20 2,080 80
Total $26,000 $16,380 63% $9,620 37%
Evaluating Sales Force Performance:
Cost Analysis
 What costs are relevant?

Net Sales
Less Variable Costs: Cost of Goods Sold
Sales Commissions
Equals: Contribution Margin
Less: Direct Fixed Selling Costs
Equals: Profit Contribution
Evaluating Sales Force
Performance: Product Costs

 CGS + Commissions higher for computers

 paying too much for parts

 competition has driven down selling prices

 salespeople cutting computer prices to make deals -- possible

actions:
 limit price negotiation capabilities
 shift to a gross margin commission
 change commission structure to emphasize
accessories and software
 Measuring Sales Force Output for
Ethio-Computer Company
1 2 3 4 5 6 7 8
Market
Sales ‘12 Sales ‘13 Potential Sales Percentage Sales
Jan-Sept Jan-Sept Dollar Sales Index Quota of Quota Variance
Territory (000) (000) Change Growth (percent) (000) Achieved (000)

Jones $750 $825 + $75 10.0% 26% $943 87% – $118

Smith 500 570 + 70 14.0 15 543 105 + 27

Brown 1,025 1,110 + 85 8.3 32 1,160 96 -50

West 960 1,000 + 40 4.2 27 977 102 + 23

$3,235 $3,505 $270 100% $3,623

 Measuring Territory Profit Output
for Ethio-Computer Company
Territory Performance (thousands)
Jones Smith Brown West
Net Sales $825 $570 $1,100 $1,000
Less CGS and Commissions 495 428 744 660
Contribution margin 330 142 356 340
CM as a percentage of sales 40% 25% 32% 34%
Less direct selling costs
Sales force salaries 55 35 55 65
Travel 15.5 4.1 3.5 5
Food and lodging 12.5 4 3.2 4.5
Entertainment 11.4 0.3 0.5 1
Home sales office expense 4.5 2.3 2 4.5
Profit contribution $231.10 $96.30 $291.80 $260.00
PC as a percentage of sales 28% 17% 26% 26%
Ranking Salespeople on 10 Input /
Output Factors
Ranking Factors Ford Bell Shaw Mann Gold
Dollar Sales 1 2 3 4 5
Sales to Potential 5 3 4 2 1
Sales to Quota 5 4 2 1 3
Sales per Order 5 1 4 3 2
Number of Calls 2 5 1 3 4
Orders per call 4 2 5 3 1
Gross Margin Percent 5 1 3 4 2
Direct Selling Costs 4 3 5 1 2
New Accounts 1 4 2 5 3
Number of Reports Turned In 4 3 1 5 2
Total of Ranks 36 28 30 31 25
Ranking Salespeople on 10 Input /
Output Factors
Performance factors Pete Jones Ann Smith
Sales (annual) $1,400,000 $1,100,000
Days worked 210 225
Calls 1,200 1,500
Orders 480 750
Expenses $19,000 $14,900
Calls per day 5.7 6.7
Batting average (orders per calls) 40% 50%
Sales per order $2,916 $1,466
Expenses per call $15.83 $9.93
Expenses per order $39.58 $19.86
Expenses as % of sales 1.35% 1.35%
 Conditions when Outcome versus
Behavioral Systems are preferred
Outcome Systems(OS) Behavioral System(BS)
• Customers need • Salespeople lack
information experience
• Customers trust the • No need to protect the
salesperson brand image
• There are ways to close • Nonselling behaviors
the deal are a priority
• Sales environment is • Difficult to assign sales
competitive credit
Call Productivity Ratios
Sales to Account = Dollar Sales
# Accounts

Average Order Size = Dollar Sales

# Orders

Growth Ratio = # New Accounts

Total # Accounts

Account Success = Accounts Sold

Total # Accounts
Expense Ratios

Expense to Sales = Expenses

Sales

Cost per Call = Total Costs

# of Calls
Account Related Ratios

Sales to Account = Dollar Sales

# Accounts

Average Order Size = Dollar Sales

# Orders

Growth Ratio = # New Accounts

Total # Accounts

Account Success = Accounts Sold

Total # Accounts
Models Combining Input & Output
Controls: Ranking Procedures
 Widely used, simple to use, easy to understand
 Add ranks for overall performance measure
 Alternatives to sales/salesperson
 Sales to potential -- good coverage of (limited) market
 Sales to quota -- ability to increase revenue
 Sales per order -- profitability relative to size of customer
 Batting average -- efficiency of calls
 Gross margin percentage -- ability to control price
selling best mix of products
 Variation -- weight importance of each criterion
Cost Analysis

 Object affects direct vs. indirect cost classification:

Cost By Territory By Product

P-O-P Display Direct Direct

Salesperson Salary Direct Indirect

Product Manager Salary Indirect Direct

VP Operations Salary Indirect Indirect

Models Combining
Input and Output Controls
 Four Factor Model

Calls Orders Sales $

$ Sales = Days worked x
Days Worked Calls Orders

$ Sales = Days worked x Call Rate

Batting Average
Average Order Size
 How can sales be increased?
 Optimum number of sales calls to
maximize profits?
 Who is doing better?
 What management strategies for each
sales person?

…
That’s All …

Stay Blessed