controlling salesforce

7/30/2019 Controlling Salesforce

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SDM-Ch.7 1

Controlling the Salesforce


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SDM-Ch.7 2

Learning Objectives

To know criteria and types of salesforce expense

plans To understand salesforce audit and its evaluation

process

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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SDM-Ch.7 3

Salesforce Expense Plans

Salesforce expenses include travel, meals, lodging,

telephone, and customer entertainment

Firms have salesforce expense plans to ensure proper

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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SDM-Ch.7 4

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 unethically


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SDM-Ch.7 5

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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SDM-Ch.7 6

Salesforce Audit

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 negativevariance. Difficult and time consuming task

What to do about it by taking corrective actions


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SDM-Ch.7 7

Evaluation of Effectiveness of Sales Organisation

To know what happened, companies analyse their

sales, costs, profits, and productivity

Effectiveness model of a sales organisation

Effectivenessof a

SalesOrganisation

Sales Analysis

Cost Analysis

Profitability Analysis

Productivity Analysis

We shall examine each of the above factors


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SDM-Ch.7 8

Sales Analysis

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

Different alternatives are shown in a framework below:

S

alesAnalysis

All levelsIn Sales

Organisation

DifferentType of

Sales

DifferentType ofAnalysis

National and/or international levels sales organisation

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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SDM-Ch.7 9

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 talking to

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 are

widely used


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SDM-Ch.7 10

Marketing Cost and Profitability Analysis

Purpose: To measure profitability of companys

marketing 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 functional

expenses

Allocate functional expenses to marketing units

Prepare profitability of marketing units, by using full-

cost approach, orcontributionapproach


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SDM-Ch.7 11

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 segmentsIdentify Major Functional Expenses

The company should prepare a list of major functions or

activities 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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SDM-Ch.7 12

Convert Natural Accounting Expenses intoFunctional Expenses

Natural or traditional expenses are to be converted to functionalexpenses, for doing marketing cost analysis

An example will make this point clearNatural /

Traditional

Expenses

Total Functional Expenses

Personal

Selling

Adv. and

Sales

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. and

Sales

Promotion

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


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SDM-Ch.7 13

Allocate Functional Expenses to Marketing Units

Functional expenses are allocated to the marketing unit under study,

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 market

segment

Sales calls x average time per call to customers &channels

Advertising and

sales 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 and profitability of

marketing units


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SDM-Ch.7 14

Prepare Profitability of Marketing 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 areallocated to the marketing unit

Useful for short-term decisions like profitability of

branches / regions


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SDM-Ch.7 15

An Example of Profitability Analysis

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 selling

expenses

12.7 4.5 4.2 4

5 W. Region direct

selling expenses

12.0 - - -

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

7 Allocated indirect

expenses

36.3 - - -

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

Note: All figures are in Rupees million


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SDM-Ch.7 16

Productivity Analysis

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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SDM-Ch.7 17

Evaluating & Controlling Performance of Salespeople

Purposes / objectives / importance of performance

evaluation of salespeople are:

Mainly to find how salespeople have performed

This information is used forother purposes, such as:

Improving salespersons performance, by identifying

causes of unsatisfactory performance Deciding salary increments and incentive payments

Identifying salespeople forpromotion

Determining training needs

Motivating salespeople through recognition andreward

Understanding strengths and weaknesses of

salespeople


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SDM-Ch.7 18

Procedure for Evaluating and ControllingSalesforce Performance

The steps involved in the procedure are:

Set policies on performance evaluation and control

Decide bases ofsalespersons 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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SDM-Ch.7 19

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, new business

reports, lost business reports, call plans, etc

Bases of salesforce evaluation. (next slide)

Conducting performance review sessions with

salespeople


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SDM-Ch.7 20

Decide Bases for Salespersons Performance Evaluation

A firm should decide which of the following bases / criteria it would use: (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 per

customer

Non-selling activities overdue payments

collected

No. of reports sent

Personal skills

Selling skills

Planning ability

Team player

Personality & Attitudes

Cooperation

Enthusiasm


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SDM-Ch.7 21

Establish Performance Standards

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 / behavioural criteriaare difficult to set

For this, companies do time and duty analysis or

use executive judgement

Performance standards should not be too high or too low

After establishing standards, salespeople must be

informed


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SDM-Ch.7 22

Compare Actual Performance with Standards

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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SDM-Ch.7 23

Review Performance Evaluation with Salespeople

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 plan for 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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SDM-Ch.7 24

Decide Sales Management Actions and Control

Many companies combine this step with the previous step

i.e. performance review

During performance review meeting with salesperson,

sales manager does the following:

Identifies the problem areas. E.G. Sales quotas not

achieved

Finds causes. E.G. less sales calls, poor market

coverage, or superior performance of competitors

Decides sales management actions E.G. train

salesperson, 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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SDM-Ch.7 25

Business Ethics and Sales Management

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 be

effective if it is enforced by top management


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SDM-Ch.7 26

Social Responsibilities

Corporate social responsibility means distinguishing right from

wrong and doing the right

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

company

A company has following four responsibilities to its eight

stakeholders: 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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SDM-Ch.7 27

Legal Responsibilities and Sales Management

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 acustomer 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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SDM-Ch.7 28

Key Learnings

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 to

measure profitability ofcompanys marketing units


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SDM-Ch 7 29

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 have

performed

Sales managers have ethical, social, and legal

responsibilities Corporate social responsibility is distinguishing

right from wrong and doing the right

controlling salesforce

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