Evaluating and Controlling SalespeopleInput system -- Behavioral-based
• Subjective evaluations– Qualitative measures (Table 16-2)– Use rating scales -- e.g., Likert– Can have bias & halo effects
• Generating data– Computerized Call Reports (Fig. 16-3)– Management by Objectives (MBO)(Fig. 16-4)
• non-quantitative -- difficult in solution sales– Behavioral Observation Scales (BOS) (Fig 16-5)
• Job Dimensions -- critical incidents for job success
Evaluating and Controlling Salespeople
Combining Input & Output Measures 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 and Controlling Salespeople
Combining Input & Output Measures
Expense Ratios
Expense to Sales = Expenses Sales
Cost per Call = Total Costs # of Calls
Evaluating and Controlling Salespeople
Combining Input & Output MeasuresAccount Related Ratios
Sales to Account = Dollar Sales _ # Accounts
Average Order Size = Dollar Sales # Orders
Growth Ratio = # New AccountsTotal # Accounts
Account Success = Accounts sold_ Total # Accounts
Evaluating and Controlling Salespeople
Models Combining Input & Output Controls
Inputs
• Attitude
• Motivation
• Skills
• Abilities
• Job Perception
InputsBehavior• # Calls• Days worked• Expenses• Selling vs. non- selling time• Quotas
Outputs
• # Orders• Order Size• # New, lost,
or active
accounts
Evaluating and Controlling SalespeopleModels 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
Evaluating Sales Force PerformanceCost 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 PerformanceCost Analysis
• Object affects direct vs. indirect cost class:
Cost By Territory By ProductP-O-P display Direct Direct
Salesperson
Salary Direct Indirect
Product Manager
Salary Indirect Direct
VP Operations
Salary Indirect Indirect
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 & software
Evaluating Sales Force Performance
District Costs
• Sales managers vary in ability to control expenses
• 3-way: district by product by cost
– watch for price cutting by salespeople
– watch for excessive emphasis on low margin goods
Evaluating Sales Force Performance
Account Cost to Serve
Total Cost to serve account• Cost to Serve =
• Usually decline with revenue
• Help identify best accounts
• Downsizing & Profits (T 15-7)
• Consider using DEA (Programming)
Revenue from Account
Table 15-1 Output Measures Used in Sales Force Evaluation
Performance MeasurePercentUsing Performance Measure
PercentUsing
SalesSales volume dollarsSales volume previous year’s salesSales to quotaSales growthSales volume by productSales volume by customerNew account salesSales volume in unitsSales volume to potential
AccountsNumber of new accountsNumber of accounts lostNumber of accounts buying full line
79%7665554844423527
693327
ProfitNet profitGross margin percentageReturn on investmentNet profit as a percentage of salesMargin by product categoryGross margin dollars
OrdersNumber of ordersAverage size of order
69%3433322825
4722
Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, “Examining the Bases Utilized for Evaluating Salespeoples’ performance,” Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 61.
Table 15-2 Input or Behavior Bases used in Sales Force Evaluation
BasePercentUsing Base
PercentUsing
Selling expenses to budget
Total expenses
Selling expenses as a % of sales
Number of calls
55%
53
49
48
Number of calls per day
Number of reports turned in
Number of days worked
Selling time vs. nonselling time
42%
38
33
27
Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, “Examining the Bases Utilized for Evaluating Salespeoples’ performance,” Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 62.
Table 15-4 Comparing Dollar and Unit Sales at the Bear Computer Company
ProductsThousandsof Dollars Units
Avg PricePer Unit
ThousandsOf Dollars Units
Avg PricePer Unit
Computers
Accessories
Software
$16,800
4,800
2,400
560
4,000
1,200
$30,000
1,200
2,000
$18,200
5,200
2,600
520
4,727
1,280
$35,000
1,100
2,031
Total $24,000 5,760 $26,000 6,527
1996 Sales 1997 Sales
Table 15-5 Expense Analysis by Product Line, Bear Computer Company, 1997
Products1997 Sales
(000)
CGS andCommission
$
CGS as aPercentage
Of SalesContribution
Margin
ContributionMargin
Percentage
Computers
Accessories
Software
$18,200
5,200
2,600
$12,740
3,120
520
70
60
20
$5,460
2,080
2,080
30
40
80
Total $26,000 $16,380 63% $9,620 37%
Table 15-6 Qualitative Bases used in Sales Force Evaluation
BasePercentUsing Performance Measure
PercentUsing
Communication skills
Product knowledge
Attitude
Selling skills
Initiative and aggressiveness
Appearance and manner
Knowledge of competition
Team player
Enthusiasm
88%
85
82
79
76
75
71
67
66
Time management
Cooperation
Judgment
Motivation
Ethical/Moral behavior
Planning ability
Pricing knowledge
Report preparation and submission
Creativity
63%
62
62
61
59
58
55
54
54
Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, “Examining the Bases Utilized for Evaluating Salespeoples’ performance,” Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 63.
Table 15-8 Measuring Territory Profit Output for Bear Computer Company
Territory Performance (thousands)a
Jones Smith Brown West
Net Sales $825 $570 $1100 $1000
Less CGS and Commissions 495 428 754 660
Contribution margin 330 142 356 340
CM as a percentage of sales 40% 25% 325 345
Less direct selling costs
Sales force salaries 55 35 55 65
Travel 15.5 4.1 3.5 5.0
Food and lodging 12.5 4.0 3.2 4.5
Entertainment 11.4 .3 5 1.0
Home sales office expense 4.5 2.3 2.0 4.5
Profit contribution $231.1 $ 96.6 $291.8 $260.0
PC as a percentage of sales 28% 17% 26% 26%
aSales figures are from Table 15-7.
Table 15-9 Evaluating Performance Using Behavior and Outcome Data
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%
Table 15-10 Ranking Salespeople on 10 Input/Output factors
Dollar Sales 2 3 4 5Sales to Potential 5 3 4 2 Sales to Quota 5 4 2 3Sales per Order 5 4 3 2Number of Calls 2 5 3 4Orders per call 4 2 5 3 Gross Margin Percent 5 3 4 2Direct Selling Costs 4 3 5 2New Accounts 4 2 5 3Number of Reports Turned In 4 3 5 2Total of Ranks 36 28 30 31 25
Ranking Factors Ford Bell Shaw Mann Gold
Figure 15-3 Ranking Salespeople on 10 Input/Output factors
3.87
3.66
3.44
3.23
3.02
2.80
2.59
2.38
2.16
1.95
1.74
1.53
1.31
1.10
COMPROMISERS
Avg sales $3.17Avg contribution $1.13Avg contribution % 35.8Age 45Calls 1122Number of salespeople 18
STARS
Avg sales $2.91Avg contribution $1.09Avg contribution % 37.4Age 37Calls 888Number of salespeople 11
Avg sales $1.78Avg contribution $ .64Avg contribution % 35.8Age 44Calls 958Number of salespeople 11
LAGGARDS
Avg sales $2.03Avg contribution $ .75Avg contribution % 37.1Age 35Calls 921Number of salespeople 16
SLOWPOKES
Millions$
Contribution Margin (%)
34.8 35.1 36.0 36.6 37.2 37.8 38.7
SALES YR 2
Table 15-11 Relative performance efficiency for Sales Rep 22
Value ifValue 100%
Variable Type Variable Name Measured Efficient Slack
Output Percent Quota Attained (%) 100 120 20
Output Supervisor Evaluation 5 5 0
Output Sales Volume ($) 45,000 50,500 5,500
Input Sales Training 5 5 0
Input Salary ($) 20,000 18,000 2,000
Input Management Ratio 3 2 1
Input Territory Potential ($) 60,500 50,000 10,500
InfluenceSalesperson 7 0.49Salesperson 20 0.43Salesperson 45 0.08
Reference Set Efficiency = 0.85
Iterations = 10
Source: James S. Boles, Naveen Donthu, and Ritu Lohtia, “Salesperson Evaluation Using Relative Performance Efficiency: The Application of Data Envelopment Analysis,” Journal of Personal Selling & Sales Management, Vol. 15, No. 3 (Summer 1995), p. 44.
Figure 15-2 A Model of Salesperson Evaluation
Input-based System
BehaviorCallsReportsComplaintsDemonstrationsDealer meetingsDisplay set upTravel/entertainment
expenses
ResultsSales revenuesSales growthSales/quotaSales/potentialNew accountsContribution marginsContribution
percentage
Output-based System
SalespersonEvaluation
Table 15-7 Measuring Sales Force Output for Bear Computer Company
1 2 3 4 5 6 7 8Market
Sales ‘96 Sales ‘97 Potential Sales Percentage SalesJan-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% 26.0% $ 943 87.0% – $118
Smith 500 570 + 70 14.0 15 543 105 + 27
Brown 1025 1110 + 85 8.3 32 1160 96 – 50
West 960 1000 + 40 4.2 27 977 102 + 23
$3235 $3505 +$270 8.3% 100.0% $3623
Figure 15-1: A Sales Force Evaluation Model
Set goals and objectives forsales force, including:
RevenuesContribution profitsMarket shareExpense ratios
Design sales plan
Set product performance standards for:Organization SalespeopleRegions AccountsDistricts
Measure results against standard Take Corrective Action
Evaluating Sales Force PerformanceFleet Car Management -- A Motivator
• Salesperson owned car (per mile travel allowance)
– Salesperson gets car preference– Allowances rarely cover full salesperson car costs
• Company owned & managed cars– Ties up a lot of cash– Costs less than salesperson owned car
• Leased sales fleet of cars– Frees up cash– Company performs routine maintenance
Evaluating and Controlling Salespeople
Models Combining Input & Output Controls• Four Factor Model
– How can sales be increased?– Optimum Number of sales calls to maximize profits?– Who is doing best? Ann or Pete?– What management strategies for Pete? for Ann?
$ Sales = Days worked x Calls Orders Sales $Days Worked Calls Orders
$ Sales = Days worked x Call Rate BattingAverage
Average Order Size
Evaluating Sales Force Performance
Profitability AnalysisFull Cost
Sales
Less: C of GS
Equals: Gross Margin
Less: Operating Expenses
(Direct +
Indirect Allocated)
Equals: Profit Contribution
Contribution MarginSales
C of GS & Other
Variables Costs
Contribution Margin
Direct Allocable
Fixed Selling Costs
Profit Contribution
Evaluating Sales Force Performance
Profitability Analysis
• “Full Cost” Approach
– charge recruiting, training, sales promo &
other marketing expenses to sales manager
– allocation is somewhat arbitrary
– not under sales manager control
Evaluating Sales Force PerformanceIn-Class Exercise 15-1 -- “Which Profits?”
1. Why would a company that used to use only
sales as a performance criteria for its sales force
wish to consider profitability?
2. What criteria should be established to construct
a workable performance evaluation system?
3. What are the pros and cons of alternative profit
measures?
4. What other problems need to be considered?
Evaluating and Controlling Salespeople
In-Class Exercises 16-1“I Know These Sales Figures Stink”
1. What activities should be completed in the performance evaluation process?
2. What should take place prior to a performance review meeting?
3. What is covered in the meeting?
4. What to do if an employee disagrees with the performance ratings?
5. What are additional suggestions for providing feedback to others?
Evaluating and Controlling SalespeopleIn-Class Exercises 16-1
“I Know These Sales Figures Stink”
6. How do you handle hostile reactions?
7. What additional questions should Sherrie ask of the veteran sales manager?
8. What consideration should be given to a large customer going out of business?
9. Is sales, the bottom line, the only measure that should be used for evaluating performance?
10. What are the companies responsibilities in this role play?
Evaluating and Controlling Salespeople
Input vs. Output Systems
Salary Compensation Commission
Input System favored Output
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
1. How do the six salespeople compare with one another? -- Rank them for 1 to 6 overall.
2. Which of the six would you promote to Field Sales Supervisor (sales manager position)?
3. If you were opening a new territory which is promising to be quite high in sales potential and thus both lucrative and challenging, and you had to assign one of the six to that territory, which salesperson would you transfer to that territory?
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures4. If you had to reduce the sales force to only 5
salespeople, and thus had to terminate one of the salespeople, which one would you terminate? Why?
5. If you had a $10,000 budget for bonuses for your sales force and had to pay it all out, how much of the $10,000 would you give to each of the salespeople? You may allocate the $10,000 in any manner you wish, as long as the total is exactly $10,000.
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
• Results of a sample of 242 sales managers
– How do your results compare with the managers?
– Situation specific evaluations
– Overall evaluations
– Situation Specific Predictive Ability• which model works best?
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
1. How do the six salespeople compare with one another? -- Rank them for 1 to 6 overall.
2. Which of the six would you promote to Field Sales Supervisor (sales manager position)?
3. If you were opening a new territory which is promising to be quite high in sales potential and thus both lucrative and challenging, and you had to assign one of the six to that territory, which salesperson would you transfer to that territory?
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures4. If you had to reduce the sales force to only 5
salespeople, and thus had to terminate one of the salespeople, which one would you terminate? Why?
5. If you had a $10,000 budget for bonuses for your sales force and had to pay it all out, how much of the $10,000 would you give to each of the salespeople? You may allocate the $10,000 in any manner you wish, as long as the total is exactly $10,000.
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
• Results of a sample of 242 sales managers
– How do your results compare with the managers?
– Situation specific evaluations
– Overall evaluations
– Situation Specific Predictive Ability• which model works best?
Evaluating and Controlling Salespeople
Summarizing Sales force Performance• Performance Matrix
– Shows interaction of 3 or more variables at a time– Identifies reps for rewards and punishments– Helps find subtle interactions– Findings in Figure 16-6
• Reps begin career selling high margin mix of products
• Reps end career by sacrificing margins for revenue
• Laggards represent a plateauing problem
• Laggards should make more contractor calls
• If looking for $$ -- reward compromisers
• If looking for profits -- reward the stars
Evaluating Sales Force Performance
Profitability Analysis• Residual Income Analysis
– Sales growth is desirable as long as profits exceed cost of capital
– Most comprehensive single measure of
sales force performance– Existing control factors all included – Expressed in dollars makes it easier to set
sales manager incentives
– Directly related to corporate objectives
Evaluating Sales Force Performance
Profitability Analysis• Return on Assets Managed (ROAM)
Profit Contrib. Sales
Sales Assets Managed
• Assets under sales management control
• District Analysis– Assets managed poorly in District 4
– Profit contribution greatest in District 1
X
Evaluating Sales Force Performance
Profitability Analysis• ROAM disadvantages
– focus on lower assets (inventory + acct. receivable)– does not consider sales level or growth
• Solution: Residual Income Analysis (RIA)Profit Contribution
Less: Acct receivable costs
Inventory carrying costs
Equals Residual Income
Evaluating Sales Force PerformanceSales Force Evaluation Model
• Sales Analysis Principles– 80/20 -- 20% of customers yield 80% sales– Iceberg -- sales figures tip of iceberg -- need more
• Gathering Sales Data– DSS– hand held computers for field
• Steps in Sales Analysis– Pick unit for analysis - by division, district, etc.– Select variables for cross classification - by product– Choose performance measures -- sales to quota, etc.
Evaluating Sales Force Performance• The Big Picture
– Start with aggregate sales by year– Look for changes and trends -- market share, volume
• Refining through Cross Classification– Sales by Region
• reward areas of strength?• move into areas of weakness
– Sales by Product Line• Are you selling what firm wants? or what
salespeople want?• Balance long vs. short term goals
Evaluating Sales Force Performance• Refining Through Cross Classification
– Dollar Vs. Unit Sales• When price change (inflation) distorts dollar
figures• Good for big ticket items
– Sales by Distribution Channel• tends to change over time• asks who customers really are
– Sales by Customer Type• illustrates 80/20 principle• how to deal with small accounts
Evaluating Sales Force Performance
• Cross Classification Techniques
– Multi-way Tables
– Varying Customer Classifications
– Product Lines vs. Product Categories
– Brands as Product Class
Table 15-3 Sales Data for Bear Computer Company
1 2 3 4 Company Percentage Industry Company
Volume Change from Volume Market ShareYear ($ millions) Previous Year ($ millions) (percent)
1997 26 + 8.3 300 8.61996 24 +14.3 219 10.91995 21 +23.5 165 15.71994 17 --- 125 13.6
Table 15-7 Measuring Sales Force Output for Bear Computer Company
1 2 3 4 5 6 7 8Market
Sales ‘96 Sales ‘97 Potential Sales Percentage SalesJan-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% 26.0% $ 943 87.0% – $118
Smith 500 570 + 70 14.0 15 543 105 + 27
Brown 1025 1110 + 85 8.3 32 1160 96 – 50
West 960 1000 + 40 4.2 27 977 102 + 23
$3235 $3505 +$270 8.3% 100.0% $3623
Figure 15-3 Ranking Salespeople on 10 Input/Output factors
3.87
3.66
3.44
3.23
3.02
2.80
2.59
2.38
2.16
1.95
1.74
1.53
1.31
1.10
COMPROMISERS
Avg sales $3.17Avg contribution $1.13Avg contribution % 35.8Age 45Calls 1122Number of salespeople 18
STARS
Avg sales $2.91Avg contribution $1.09Avg contribution % 37.4Age 37Calls 888Number of salespeople 11
Avg sales $1.78Avg contribution $ .64Avg contribution % 35.8Age 44Calls 958Number of salespeople 11
LAGGARDS
Avg sales $2.03Avg contribution $ .75Avg contribution % 37.1Age 35Calls 921Number of salespeople 16
SLOWPOKES
Millions$
Contribution Margin (%)
34.8 35.1 36.0 36.6 37.2 37.8 38.7
SALES YR 2