sales & distribution management - module 2

8/3/2019 Sales & Distribution Management - Module 2

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Module-II: Sales Forecasting Sales strategies and policies determining the size of the sales

force, Sales territories, routing and scheduling,

Controlling the selling effort Sales budget and budgeting procedures Quota setting and administration. Management of sales force: Personnel problems of sales management, recruiting and selecting,

training and development, motivating salesman, sales meetings andcontests, compensating sales personnel, evaluation and supervisingsalesmen.


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Sales Forecasting: Sales forecasting is an estimate of sales, indollars or physical units, in a future period undera particular marketing programme.

A sales forecast may be for a single product orfor an entire product line. Although a salesforecast can be made for a short run or long runyet the short run or operating sales forecastisimportant to the sales executive.

The operating sales forecast is the prediction of

how much of a companys particular product (orproduct line) can be sold during a future periodunder a given marketing programme and anassumed set of out side factors.(PESTN)


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Sales Forecasting

Methods: The sales forecasting methods are theprocedures for estimating how much of a givenproduct (or product line) can be sold if a givenmarketing program is implemented.

No sales forecasting method is foolproof. Each issubject to error. Some are unsophisticated such as expert opinion

or the pool of salespersons opinion and others aresophisticated as they use statistics.

The well managed companies do not rely upon asingle sales forecasting method but use several ofthem. The followings are the different salesforecasting methods.


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a. Jury of Executive

Opinion: According to this method, a company invites the opinion of theexecutives and consultants who are well informed about theindustry outlook and the company marketing position, capabilitiesand marketing programme. The companies use this experts opinionmethod for one or more of the four reasons.

This is a quick and easy way to turn out a forecast. This is a way to pool the experience and judgment of well informedpeople.

This is a feasible approach for the young companies who do nothave experience in other forecasting methods.

This method may be used when adequate sales and marketstatistics are missing.

But the weakness of this method is the difficulty of breaking downthe estimates of probable sales by products, by time intervals, bymarkets, by customers and so on.


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b. The Delphi technique: In this method the experts respondsto a sequence of questionnaires which

is vividly discussed. Out of thebrainstorming the estimate iscalculated on the basis of pastperformance.


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c.Poll of Sales Force

Opinion: This is otherwise known as the grass-root approach. Here the individual sales person forecast sales for their

territories. These individual forecasts are combined and modified as the

management thinks necessary to arrive at the company sales

forecast. This approach appeals to the practical sales managers because theforecasting responsibility is assigned to those who produce theresults.

There is a merit in utilizing this method as the salesmen becomeclosest to the market conditions.

The quota can easily be broken down according to the products,territories, customers, middlemen and sales force.

The weakness of this method is the use of inexperienced salesforce who sometimes become optimistic or pessimistic about thesales prospects just looking at the current business conditions.

Some times they are too near the trees to see the forest. Theyare unaware of the sudden changes in the business conditions.


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d. Exponential Smoothing:

Exponential smoothing is a short range salesforecasting technique in the form of movingaverage that represents a weighted sum of allpast numbers in a time series, with the heaviest

weight placed on the most recent data. Theformula is:

Next years sales = a(this years sales)+ (1-a)(thisyears forecast)


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d. Exponential Smoothing: a in the equation is called the smoothing

constant and is set between 0.0 and 1.0. If for example, actual sales for this year came to

320 units of products and the sales forecast forthis year was 350 units and the smoothingconstant was 0.3 ,

the forecast for the next years sales is=(0.30)(320) + (0.7)(350) = 341 units of products.Determining the value of a is the main problem.

If the series of the sales data changes slowly, a

should be small but if the series changes rapidly,a should be large enough so that the forecastrespond to those changes.


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e.Projection of Past

Sales: The projection of past sales method of sales forecasting takes avariety of forms. To calculate the next years sale, the formula is Next years sales = this years sales x this years sale

Last years sale This method is more appropriate for the companies which are more

or less stable or mature industries. Time- series analysis: It is a statistical procedure for studying

historical sales data. This procedure involves isolating andmeasuring four types of sales variations.

Long term trends Cyclical changes

Seasonal variations Irregular fluctuations.

Generally these methods are used for the long run forecasting.Incase of the short run if the sales pattern is clearly defined orrelatively stable from year to year, then the time series analysiscan be appropriately used.


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f. Survey of ConsumerBuying Plans:

This method is basically used for industrialmarketing where the potential marketconsist of small numbers and prospects,substantial sale is made to the individualaccounts, the manufacturer sells directlyto the users and the customers areconcentrated in few geographical areas.

In such cases it is inexpensive to survey asample of customers and prospects toestimate the product or project the salesforecast.


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g. Regression Analysis: Regression analysis is a statistical process used in

sales forecasting determines and measures theassociation between company sales and othervariables. There are three major steps ofregression analysis.

Identify variables causally related to company

sales Determine or estimate the values of these

variables related to sales. Derive the sales forecast from these estimates. There may be two types of regression; simple and

multiple.


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h. Moving Average:

Moving averages are used to allow for marketplace factorschanging at different rates and at different times.

The 3-yearly moving average can be computed with thefollowing formula:

a+b+c b+c+d c+d+e d+e+f --------- , ----------- , ---------- , --------- , .

3 3 3 3


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Importance of Sales Forecast

A sales forecast becomes a basis for setting and

maintaining a production schedule manufacturing. It determines the quantity and timing of needs for

labor, equipment, tools, parts, and raw materials purchasing, personnel.

It influences the amount of borrowed capital needed

to finance the production and the necessary cash flowto operate the business controller. It provides a basis for sales quota assignments to

various segments of the sales force salesmanagement.

It is the overall base that determines the companysbusiness and marketing plans, which are furtherbroken down into specific goals marketing officer.


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THE FORECASTING PROCESS:

Determine Dependent and

Independent Variables

Develop Forecast

Procedure

Select Forecast

Analysis Method

Total Forecast

Procedure

Gather and Analyze

Data

Present Assumptions

about Data

Make and Finalize

Forecast

Evaluate Results

versus Forecast

Forecast

Objective


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Sales strategies and policies determiningthe size of the sales force:

Determining the sales force size is an important decision for everysales department.

Compensating sales people is a very costlier affair, there fore itssize should be appropriate to serve customer and the firm needs.

The customer needs may be easy availability of the product, timelydelivery, providing sufficient product informations etc the firmneeds may be increase of sales volume, increase of profit margin,creating a strong customer base etc.

Each company has individualized requirements as to the kind of

sales personnel best fitted to serve its needs. Therefore in determining the kind of sales people and their size

we must understand what is expected of them: the job objectives,the duties and responsibilities and the performance measures.


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Sales strategies and policies determiningthe size of the sales force:

It is difficult, perhaps impossible todetermine the exact number of salespersons that a particular company should

have. Three basic approaches are used inapproximating this number. The workload method The sales potential method The incremental method


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1. The Work Load Method: All sales personnel should shoulder equal work loads.

The management first estimates the total work loadinvolved in covering the companys entire market and thendivides by the work load that an individual sales personshould be able to handle, thus determining the total numberof sales person required.

Companies applying this method generally assume that the

interactions of three factors such as customer size, salesvolume potential, and the travel load determine the totalworkload involved in covering the entire market.

The work load approach is very attractive to the practicingsales executives. It is easy to understand and easy to apply.

Large firms such as IBM, AT &T, and HLL etc use this

approach. Another shortcoming of this approach is that not onlyshould all sales personnel have the same work load but theyall should utilize their time with equal efficiency.


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2. The Sales Potential Method: The sales potential method is based on the assumption that performance of

the set of activities contained in the job description represents one salespersonnel unit.

A particular sales person may represent either more or less than one salespersonnel unit.

If the individuals performance is excellent, that individual may do the jobmore than one unit; if the individuals performance is below par, he/she maydo less.

If management expects all companys sales personnel to perform as

specified in the job description, then the number of sales person requiredequals the number of units of sales personnel required. The formula used in this method is N = S/P + T(S/P) or N = S/P (1+T) Where N = number of sales personnel units. S = forecasted sales volume P = estimated sales productivity of one sales personnel unit

T = allowance for rate of sales force turnover.


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2. The Sales Potential Method: For example, a firm with forecasted sales of $1 million estimated

sales productivity per sales personnel unit of $ 100,000 and anestimated annual rate of sales force turnover of 10 percent. So

N = $10, 00,000/ $1, 00.000 (1.10) Or N = 11 salespersonnel units.

This is a simplified model for determining the size of sales force. The crucial estimate of the sales productivity of one unit of sales

strength relies heavily on the accuracy and completeness of the

sales job description, it depends also on the managementsappraisal of what reasonably maybe expected of those who fill theposition.

In addition both the estimates for the unit sales productivity andthe sales force turnover rate require management to have somemeans of evaluating the efficiency of individual sales person and ofdetermining the probabilities of their retention rate.


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3. Incremental Method: Conceptually the incremental method is the best

approach to determining the sales force size. It is based on one proposition that the net profits

will increase when additional sales personnel areadded if the incremental sales revenues exceedthe incremental costs incurred.

Thus to apply this method, one needs twoimportant items of information. Incremental costand incremental revenues.

A sales response function is a quantitativeexpression that describes the relationship

between the personal- selling effort and theresulting sales volume

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Sales territories, routing andscheduling:

A sales territory is composed ofa group of customers or ageographic area assigned to a salesperson.

Reason for establishing Sales territories: Sales territories are set up and subsequently revised as

the market conditions dictate to facilitate the planning

and control of sales operations. More specifically thereare five reasons for having sales territories. To provide proper market coverage To control selling expenses To assist in evaluating sales personnel To contribute to the sales force morale

To aid in the co-ordination of personal selling andadvertising efforts.


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Sales territories, routing and

scheduling:To Provide proper market coverage: Some times a company looses business to competitors

because it does not have proper market coverage. To overcome this problem, generally management must

establish sales territories, if the company does not havethem or revise those that it has.

If the sales territories are intelligently set and theassignments of the sales personnel are carefully made it ispossible to obtain proper market coverage.

Good territorial design allows sales personnel to spendsufficient time with customers and prospects and minimizethe travel time.

This permits them to become thoroughly conversant withcustomers problems and requirements.


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To control selling expenses: Effective territorial design combined with careful

deployment of sales person results in low selling expensesand high sales volumes.

Sales person spend fewer nights away from home whichreduces or eliminates many charges for lodging and fooding,at the same time cutting travel miles reducestransportation expenses.

These savings, plus the higher sales volumes from increasedproductive selling time reduce the ratio of selling expensesto sales.

Well designed sales territories and appropriate assignmentsof sales personnel increase the total time available forcontact with customers and prospects and helps improvingsales volume

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To assist in evaluating sales personnel: Through geographically dividing the sales territories,management can easily assess the strength and weakness ofdifferent areas and appropriate adjustments can be made inselling strategies.

This territory analysis will help the management to fixtargets/quota by evaluating the sales and costresponsibility against the performance of individual salesperson.


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Contribution towards sales force morale: Good territorial design helps maintaining sales

force morale.

Well designed territories help the sales force tocover areas with reasonable workloads and theireffort yields results.

Effective territorial design combined withintelligent sales person assignment makes each

sales person productive; develop their selfconfidence and job satisfaction.


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Factors to consider while designing salesterritories:

Sales force objectives may be based on factorssuch as

- contribution to profits,

- return on assets,

- sales/cost ratios,- market share,

or

customer satisfaction

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Scheduling:refers to establishing a fixed time when thesalesperson will be at a customers place of business.

In theory, strict formal route designs enable thesalesperson to:

Improve territorial coverage. Minimize wasted time. Establish communication between management

and the sales force in terms of the location andactivities of individual salespeople.

The customer contact plan involves schedulingsales callsand routing a salespersons movementaround the territory.


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Sales territories, routing and scheduling:

Three Routing Patterns:1.

Base cc

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Straight-Line PatternFirst Call

Work Back

2.

Basec

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cc

c c

c

c

cc

cc

cc

ccc

ccc

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Cloverleaf Pattern

Each Leaf Out and

Back Same Day


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Sales territories, routing and

scheduling:3.Major-City Pattern

1 - Downtown

1

2 3

5 4

C ll h ll ff


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Controlling the selling effort :Sales budget and budgeting procedures:

Budgeting can be defined as the process of

planning and anticipating costs and expenditure ofvarious financial resources on projects. It is the process of making specific financial plans

for a short period of time. It helps in predictingand controlling the money spent within the

organization and also involves day to daymonitoring of current budgets. The first budget prepared. Each of the other budgets depends on the sales

budget.

It is derived from the sales forecast. Itrepresents managements bestestimateof salesrevenue for the budget period.

C lli h lli ff


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Sales Budget:

It is the estimated amount of anticipated sales allocatedby product, territory, or person;prepared weekly,monthly, or annually.

Sales Budget istheOperating plan for a period expressedin terms of sales volume and selling prices for each class

of product or service. Preparation of a sales budget is thestarting point in budgeting since sales volume influencesnearly all other items.

The sales force budget is the amount of money available orassigned for a definite period, usually one year.

Sales Budget: The budget is made to forecast sales interms of units sold and value of goods sold. This budgetacts as a base for making production budget.


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What is Benefit of sales budget? Sales budget is the most important budget while makingthe overall budget for the organization for a fiscal year.

It is important in this sense that how would anybodymake fiscal budget for organization if he don't knowabout how much to sale or what are the organization's

sale would be. If you know the sales volume of units of product you

want to sale in a fiscal year then you will makeproduction budget according to that sales requirement inmind you will have production information in mind you willpurchase raw material, hire labour according to

requirements. So if you don't know about how much you want to salethen how would you budget other things and how wouldyou compare your performance at the end of fiscal year.


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Purposes of Sales Budget: The sales budget is required for

Planning

Coordination

Control-

-of the sales activities.


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Budget Procedure:


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Sales Quotas. Sales Volume and costanalysis

Quota setting and administration: A quota refers to an expected performance

objective. Quotas are tactical in nature and thus derived

from the sales forces strategic objectives.

WHY ARE QUOTAS IMPORTANT? Because: - Quotas provide performance targets. Quotas provide standards. Quotas provide control.

Quotas provide change of direction. Quotas are motivational.


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TYPES OF QUOTAS Sales volume quotas. Breakdown total sales volume. Profit quotas. Expense quotas. Activity quotas.

Quota combinations. Sales volume quotas includes dollar or product unit

objectives for a specific period of time. Product lines. Individual established and new products.

Geographic areas based on how the sales organization isdesigned, which would include: - Sales division. - Sales regions. - Sales districts. - Individual sales territories.

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The two types of profit quotas: Gross marginquota determined by subtracting cost of

goods sold from sales volume. Net profitquota determined by subtracting cost of

goods sold and salespeoples direct selling expensefrom sales volume.

Expense quotas are aimed at controlling costs of salesunits. Often expenses are related to sales volume or to thecompensation plan.

Activity quotas set objectives for job-related duties usefultoward reaching salespeoples performance targets.

Customer satisfaction refers to feelings about anydifferences between what is expected and actualexperiences with the purchase.


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Sales Quotas. Sales Volume andcost analysis

METHODS FOR SETTING SALES QUOTAS Quotas based on forecasts and potentials. Quotas based on forecasts only. Quotas based on past experience. Quotas based on executive judgments.

Quotas salespeople set. Quotas related to compensation. THE PROCEDURES FOR SETTING OBJECTIVES

AND QUOTAS WITH SALESPEOPLE Prepare the way.

Schedule conferences with each salesperson. Prepare a written summary of goals agreed upon. Optional group meeting to share objectives.

S l Q t S l V l d


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Sales Quotas. Sales Volume andcost analysis

A GOOD OBJECTIVE AND QUOTAPLAN IS SMART

Specific Measurable

Attainable

Realistic

Time specific

sales & distribution management - module 2

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