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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
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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
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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
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