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Copyright © 2000 by Harcourt, Inc. All rights reserved. (1)
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Module 10
Evaluating the Effectiveness of Evaluating the Effectiveness of the Organizationthe Organization
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Sales Organization Effectiveness Sales Organization Effectiveness vs. Salesperson Performancevs. Salesperson Performance
(Figure 10.1)
EnvironmentalFactors
OrganizationalFactors
SalesforceSellingBehavioralPerformance
SalesforceOutcomePerformance
SalesOrganizationEffectiveness
SalesforceCharacteristics
SalesforceControlSystem
SalesforceNonsellingBehavioralPerformance
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Sales Organization AuditSales Organization Audit
• A comprehensive, systematic, diagnostic, and prescriptive tool
• Purpose - to assess the adequacy of a firm's sales management process and to provide direction for improved performance and prescription for needed changes.
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Sales Organization Audit Sales Organization Audit FrameworkFramework
(Figure 10.2)
Sales Organization Environment• Extraorganizational Factors• Intraorganizational Factors
Sales Organization Planning System
Sales Management FunctionsSales Management Evaluation
Salesforce ManagementAuditor
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Sales Organization AuditSales Organization Audit Observations
• Performed on a regular basis
• Performed by someone from outside the sales organization
• Expensive and time-consuming
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Improving Sales Improving Sales Organization EffectivenessOrganization Effectiveness
Benchmarking
An ongoing measurement and analysis process that compares an organization’s current operating practices with the “best practices” used by world-class organizations.
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Benchmarking Process(Figure 14.3)
Plan Gather DataAnalyze &
CommunicateImplement &
Control
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations
Complex task because:– Separate sales analyses need to be performed
for the different levels in the sales organization– Many different types of analyses can be
performed to evaluate sales, cost, profitability, and productivity
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations Sales Analysis
Evaluation of sales generated throughout the sales organization
• Analyze sales dollars or sales units?
• Three critical decision areas: the organizational level of analysis, they type of sales, and the type of analysis.
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Sales OrganizationZonesRegionsDistrictsTerritoriesAccounts
Total Sales Type of ProductType of Account Type of DistributionOrder Size
Sales Analysis FrameworkSales Analysis Framework (Figure 10.5)
Sales Analysis
Organizational Level of Analysis
Type of Sales Type of Analysis
Comparisons• within organization• with forecasts• with sales quotas• with previous period• with industry/ competitors
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Example of Hierarchical Sales AnalysisExample of Hierarchical Sales Analysis(Figure 10.6)
Region 1
SalesOrganization
Region 2 Region 3 Region 4
District 1
Territory 1 Territory 2 Territory 3 Territory 4 Territory 5 Territory 6
District 5District 4District 3District 2
Sales
Sales
Sales
$62,000,000 $62,000,000 $56,000,000 $73,000,000
$11,000,000 $12,000,000 $13,500,000 $7,000,000 $12,500,000
$1,100,000 $1,300,000 $1,250,000 $1,400,000 $750,000 $1,200,000
AdditionalAnalysis
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Example of Type-of-Sales AnalysisExample of Type-of-Sales Analysis(Figure 10.7)
ProductType A
ProductType B
ProductType C
AccountType A
AccountType C
AccountType Sales
ProductType Sales
Sales $175,000 $275,000 $300,000 $290,000 $175,000 $285,000
AccountType B
Territory 5
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations
Types of Analysis Examples(Exhibit 10.5)
SalesDistrict 1 District 2 District 3 District 4 District 5
Sales Quota $11,250,000
Sales Growth 3% 9% 6% 3% 16%
Market Share 26 29% 29% 18% 27%
Effectiveness Index 98 104 102 70 109
$11,000,000$11,000,000$12,000,000
$10,000,000$7,000,000
$12,750,000$13,000,000
$11,500,000$12,000,000
Sales Last Year $10,700,000 $10,350,000$6,800,000$12,250,000$11,050,000
Industry Sales $42,000,000 $45,000,000$40,000,000$45,000,000$42,000,000
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations Cost Analysis
Evaluation of costs incurred in generating sales throughout the sales organization
• Comparison of actual to budgeted
• Comparison of actual to budgeted as a percentage of sales
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Establishing Selling BudgetsEstablishing Selling Budgets
• Selling Budget– The total resources earmarked for personal
selling
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Selling Expense CategoriesSelling Expense Categories
• Compensation Expenses
– Salaries
– Commissions
– Bonuses
• Travel Expenses
– Lodging
– Food
– Transportation
– Miscellaneous
• Administrative Expenses
– Recruiting
– Training
– Meetings
– Sales Offices
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Methods for Determining the Methods for Determining the Selling BudgetSelling Budget
• Percentage of Sales Method
• Objective and Task Method
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Region 1Region 2Region 3Region 4
Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations
Cost Analysis Examples(Exhibit 10.8)
Compensation Costs
Actual Cost$3,660,000$3,500,000
$4,200,000$3,150,000
Budgeted Cost$3,600,000$3,700,000
$3,900,000$3,400,000
+$ 60,000- $200,000
+$300,000 - $250,000
Variance
Training Costs
Actual Cost$ 985,000$2,110,000
$2,340,000$ 830,000
Budgeted Cost$1,030,000$2,040,000
$2,160,000$1,060,000
-$ 45,000+$ 70,000
+$180,000 - $230,000
Variance
Region 1Region 2Region 3Region 4
Compensation Costs
Actual % Sales6.1%5.8%
6.0%5.4%
Budgeted % Sales6%6%
6%6%
Training Costs
Actual % Sales2.9%3.1%
3.1%2.6%
Budgeted % Sales3%3%
3%3%
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations
Profitability AnalysisEvaluation of sales/cost relationships throughout the
sales organization • Income Statement Analysis
– Full cost approach - attempts to allocate the shared costs to individual units based on some type of cost allocation procedure
– Contribution approach - only the direct costs are included in the profitability analysis
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations
Profitability Analysis Example(Exhibit 10.10)
SalesCost of Goods Sold
Profit Contribution
Net Profit
Gross MarginDistrict Selling Expenses
Allocated Portion of Shared Zone Costs
Region Direct Selling Expenses
Region
$ 24,000,000
$ 8,000,000
$ 45,000,000$255,000,000$300,000,000
$ 11,000,000
$ 16,000,000
$ 10,000,000
Full CostApproach
$180,000,000
District 1 District 2 District 3
$ 6,500,000 $ 8,000,000 $19,500,000
$ 11,500,000 $11,500,000 $22,000,000$28,000,000$50,000,000
$58,500,000$70,000,000
$168,500,000
$ 2,500,000$ 3,500,000$ 5,000,000---------
Contribution Approach
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations
Profitability AnalysisEvaluation of sales/cost relationships throughout the
sales organization
• Activity-Based Costing (ABC)– Allocates costs to individual units on the basis of how
the units actually expend or cause these costs.
– Exhibit 10.11 - Activity-based Costing Example
• Return on Assets Managed Analysis (ROAM)ROAM = Profit Contribution % of Sales * Asset Turnover Rate
= (profit contribution/sales) * (sales/assets managed)
• Income Statement Analysis
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations
Return on Assets Managed (ROAM) Example
(Exhibit 10.12)District 1
8,000,000
12,000,000 12,000,000$24,000,000
7,200,000
$24,000,000
District 2 District 3 District 4
4,000,000 16,000,000
12,000,000 10,000,000 10,000,000 14,000,000$24,000,000
14,000,000$24,000,000
12,000,000
8,800,000 5,200,000 9,600,000Profit Contribution 4,800,000 2,400,000 4,800,000 1,200,000
8,000,000 4,000,000 16,000,000 16,000,000 8,000,000 32,000,000
4,000,000 4,000,000 8,000,000
20% 10% 20%1.5 3.0 .75
SalesCost of Goods Sold
Accounts Receivable
Gross MarginDistrict Selling Expenses
InventoryTotal Assets ManagedProfit Contribution PercentageAsset TurnoverROAM 30% 30% 15%
5%3.0
15%
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations
Productivity Analysis Evaluation of output/input relationships throughout
the sales organization
• Productivity improvements are obtained in one of two basic ways:– Increasing output with the same level of input– Maintaining the same level of output but using
less input
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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations
Productivity Analysis Example(Exhibit 10.13)
SalesSelling Expenses
Sales/Salesperson
Sales CallsProposals
District 1
$ 1,000,000
9,000 2,000,000$20,000,000
200
$24,000,000
District 2 District 3 District 4
$ 800,000 $1,000,000
7,500 8,500 10,000 3,000,000$24,000,000
3,000,000$20,000,000
2,400,000
270 260 180Number of Salespeople 20 30 20 30
Expenses/Salesperson $ 100,000 $ 80,000 $ 150,000Calls/Salesperson 450 250 425
$ 800,000 $ 100,000 333
Proposals/Salesperson 11 6 13 9
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