UNIT I:

What is sales

Selling is first and foremost a transaction between the seller and the prospective buyer or buyers
(the target market) where money (or something considered to have monetary value) is exchanged
for goods or services. So the best way to define selling is to focus on the sales skills that are
necessary to make that transaction happen. Defining selling as the art of closing the deal
encapsulates selling's essence.

If you're interested in improving your sales skills, you'll find that there are supposedly many
kinds of selling that you should use or should avoid, such as high-pressure selling, persuasive
selling, no-pressure selling, collaborative selling, etc., but all of them amount to conducting the
same basic exchange in the end.

However...

That being said, there is a huge difference between a basic sales exchange such as buying gas at
a gas station for your car and buying a car.

In the first instance, the exchange is built on simple need. Your car's gas tank is empty; you need
to fill it with gas. There may not be (and probably isn't) even a salesperson involved.

In the second, the exchange is built on manufactured need (created through marketing). You
think you need a new car because you have been persuaded to believe that. Enter the salesperson
to direct and meet your need.

So sales is actually a spectrum and most selling consists of performing the art of persuading the
consumer that buying the product or service will benefit him or her.

Some people excel at directing and persuading; these are the super salespeople that truly are
worth their weight in gold.
How Do You Sell Something?

Whatever product or service you're selling, then, you need to focus your selling efforts on
communicating the benefits of your product or service to the consumer.

The benefits may be tangible or intangible, but unless the individual consumer is convinced that
he or she will personally experience the benefits, your product or service won't sell.

Think about it. Why do women smear color on their eyelids? Did anyone in the entire world ever
actually need a hula hoop? That's the art of selling.

What Makes a Successful Salesperson?

 The ability to build long-term relationships with customers one at a time. Most good
salespeople think long-term and how they can leverage the current sale into more
business in future from the same customer or via referrals.

 The ability to listen and stay in tune with the needs of the customer. Too many
salespeople spend all their time attempting to talk the prospective customer into
purchasing the sale or service in question, without finding out what it is the customer
actually wants. The customer may not be interested in the product you are selling but
he/she may have a need for another product or service that you can fulfill now or in the
future. Learn how to become an active listener.

 Not promising what they can't deliver. Nothing turns off a customer faster than broken
sales promises.

 Tenacity. A good salesperson knows that it may take several attempts to make a sale and
never gives up on a potential customer. Somewhere down the line an email or phone call
reminder might close the deal. A good salesperson also knows where to draw the line
between pursuing a potential sale and pestering the customer.

 Self-motivation and a positive attitude. Successful salespeople have a high level of

initiative and don't need micromanagment. They constantly look for new opportunities
and view setbacks as learning experiences. They hold themselves accountable for their
performance and don't blame others or current economic conditions for lack of success.

 Constantly looking for ways to promote products and services by handing out business
cards and other promotional materials to get the word out. This includes the use of
 emails, website updates, and social media postings so customers can be kept up to date
with the latest product or service offerings via Facebook, LinkedIn, Twitter, and
Pinterest.

 Investing in his/her community. Giving back to the community you live in by donating to
charities, sponsoring community groups, and engaging in volunteer activities is not only
good for the soul, it is good for business. Investing where you live increases the
likelihood that customers will return the favor when they have a need for your products
or services.

Also Known As: Sales skills.

Examples: Selling organic food is becoming more and more profitable as more consumers are
willing to pay a premium for the benefit of food that's supposedly "healthier".

Difference in sales and marketing:

Sales and marketing are closely interlinked and are aimed at increasing revenue. As sales and
marketing are closely intertwined, it becomes hard to realise the difference between the two. In
small firms, one cannot come across much difference between sales and marketing. But bigger
firms have made clear distinction between marketing and sales and they have specialised people
handling them independently.

Well, how is that sales and marketing are different? In very simple words, sales can be termed as
a process which focuses or targets on individuals or small groups. Marketing on the other hand
targets a larger group or the general public.

Marketing includes research (identifying needs of the customer), development of products

(producing innovative products) and promoting the product (through advertisements) and create
awareness about the product among the consumers. As such marketing means generating leads or
prospects. Once the product is out in the market, it is the task of the sales person to persuade the
customer to buy the product. Well, sales means converting the leads or prospects into purchases
and orders.

While marketing is aimed at longer terms, sales pertain to shorter goals. Marketing involves a
longer process of building a name for a brand and pursuing the customer to buy it even if they do
not need it. Where as sales only involve a short term process of finding the target consumer.

In concept also, sales and marketing have much difference. Sales only focuses on converting
consumer demand match the products. But marketing targets on meeting the consumer demands.
Marketing can be called as a footboard for sales. It prepares the ground for a sales person to
approach a consumer. Marketing as such is not direct and it uses various methods like
advertising, brand marketing, public relations, direct mails and viral marketing for creating an
awareness of the product. Sales are really interpersonal interactions. Sales involve one-on-one
meetings, networking and calls.

Another difference that is seen between marketing and sales is that the former involves both
micro and macro analysis focussing on strategic intentions. On the other hand, sales pertain to
the challenges and relations with the customer.

Summary

1.Sales target on individuals or small groups. Marketing on the other hand targets a larger group
of the general public.

2.Marketing means generating leads or prospects. sales means converting the leads or prospects
into purchases and orders.

3.Marketing involves a longer process of building a name for a brand and pursuing the customer
to buy it even if they do not need it. Where as sales only involve a short term of finding the target
consumer.

Nature and scope of sales management

Sales management is a business discipline which is focused on the practical application
of sales techniques and the management of a firm's sales operations. It is an important business
function as net sales through the sale of products and services and resulting profit drive most
commercial business. These are also typically the goals and performance indicators of sales
management.
Sales manager is the typical title of someone whose role is sales management. The role typically
involves talent development .
Sales planning
Sales planning involves strategy, setting profit-based sales targets, quotas,
sales forecasting, demand management and the execution of a sales plan.
A sales plan is a strategic document that outlines the business targets, resources and sales
activities. It typically follows the lead of the marketing plan, strategic planning[1][2] and
the business plan with more specific detail on how the objectives can be achieved through the
actual sale of products and services.

Recruitment of sales staff

The three recruitment tasks used in sales management are Job analysis; Job description and Job
qualifications.
Job analysis is performed to specify the certain tasks that a salesperson would be responsible for
on a daily basis. It should identify what activities are deemed as being vital to the success of the
company. Any person associated with the sales organization or the human resources department
could carry out the analysis as well as an outside specialist (Spiro, pp.134). The person that is
responsible for completing a job analysis should have an in-depth comprehension of the daily
activities of the salespeople.
This job analysis is then written in an explicit manner as a job description. The general
information consists of

1. Title of job
2. Organizational relationship
3. Types of products and services sold
4. Types of customers called on
5. Duties and responsibilities related to the job
6. Job demands.

An effective job description will identify compensation plans, size of workload, and the
salespeople’s duties. It is also primarily responsible for hiring tools such as application forms
and psychological tests.
The most difficult part of this process would be the determination of job qualifications. A reason
for this difficulty is because hiring affects a company’s competitive advantage in the market as
well as the amount of revenue.[6] Additionally, there should be a set of hiring attributes that is
associated with each sales job that is within a company. If an individual does not excel in their
assigned territory, it could be due to external factors relating to that person’s environment.
Let it be noted that a company should be careful not to submit to discrimination in regards to
employment. A number of qualifications (ethnic background, age, etc.) can not be used in the
selection process of hiring.

Scope of Sales Management

Even if you have a knack for closing deals or have effective brochures, advertising and website
pages for generating individual sales, that’s often not enough to maximize your profits. Using a
variety of sales management techniques to reach that extra 5 percent to 10 percent of your
potential can mean the difference between keeping your head above water and generating profits
that fund your continued growth and expansion.

Sales management includes more than tracking the business you book and providing support for
your sales team. It starts with helping develop the right products, setting the right prices and
distributing in the right places, and continues with marketing messaging, customer service and
other selling efforts. All of these efforts must be coordinated so one doesn’t interfere any of the
others. Setting plans, monitoring them and tracking results lets you continue to adapt, eliminate
weaknesses and take advantage of opportunities.

Improves Product Development

A sales management program includes having your sales staff keep in close touch with
customers and watching the competition to determine if your product line is as relevant as it can
be. Adding a new product to your line, changing or eliminating features or dropping items from
your product mix can all help you maximize your sales and profits. Conduct regular reviews of
what you sell to make sure you offer the optimal product or service to generate high sales
volumes and profit margins.

Optimizes Distribution

Sales reports not only provide you with information about what’s selling and how much you’re
selling, but where you are making your sales. A sales management program evaluates your
distribution methods and maximizes their use. For example, if your online sales are strong but
your retail volumes are lagging, you might find this is because customers get more information
when they shop online, helping them buy with confidence. To improve retail sales, you might
provide better retailer training, more in-store promotions and change your product packaging.
Better Financial Decisions

Some of your best-selling products, in terms of volume, might provide your lowest profit
margins, causing a burden on your production and administration departments. Detailed sales
reports provide you with information on your overhead and production costs, cost-of-sales
expenses and profit margins. A low-margin item with high sales volumes might provide a nice
profit margin, making it a no-brainer item to keep in your line. If you can eliminate this item,
causing a corresponding increase in higher-margin item sales, you might want to discontinue
selling it. Sales management looks at the profit contribution, opportunity cost and impact of
carrying each product on your operations.

Improves Staff Quality

A sales plan is only as good as the people who use it, and a key part of any sales management
program is recruiting, training and managing sales staff. This includes developing their product
knowledge, coaching them on calls, improving writing and presentation skills and helping them
work their territories effectively.

EMERGING TRENDS IN SALES MANAGEMENT:

To be successful in a changing market environment, it is important that sales managers

understand the importance of emerging trends in the following areas

Global Perspective

Global competition is intensifying. Domestic companies who never thought about foreign
competitors are suddenly finding them in their backyard. This is a challenge which sales
managers and salesperson must take on, they have to improve their personal selling efforts not
only in their countries but also in foreign countries. Selling goods and services in global markets
presents a challenge due to differences in culture, language, needs and requirements.
Technological Revolution

Digital revolution and management information system have greatly increased the capabilities of

consumers and marketing organizations. Consumer today can get information about products,
compare it with other brand, place an order and place an order instantly over the internet. This
has led to a different kind of sales force who collects information about internet users, markets
and prospects of internet buyers. It is mandatory for all companies to have their website now.

To compete effectively, sales person and managers will have to adopt the latest technology.

Customer Relationship Management [CRM]

Combining information technology with relationship marketing has resulted in customer

relationship management. Interestingly, the concept of relationship marketing came about earlier
by bringing quality, customer service and marketing together.

Relationship marketing aims in building long term satisfying relations with

key customersdistributors and suppliers in order to earn and retain their long term preference and
business. CRM enable companies to provide excellent real-time service by focusing on meeting
the individual needs of each valued customer, through the use of CRM software packages.

Sales Force Diversity

The demographic characteristics of sales force is changing and becoming more varied. For
example, more and more women are taking up careers in sales management and selling. Also the
education level of sales people is going up most of them holding a college degree or a post
graduate degree. Sales managers now have to handle a sales force of these varied demographic,
expectations of each and every individual is different and sales manager needs to use different
motivational tools against each one of them.

Team Selling Approach

 The practice of team selling is more widely followed by most companies in recent years. Team
selling approach is used when company wants to build a long term mutually beneficial
relationship with major customers, who have high sales and profitable potential. It is used for
selling a technically complex product or a service to a potential customer. The composition of
team may vary depending upon the customer from top management, technical specialist,
customer service, etc…

Managing Multi-Channels

Multi-channel marketing system occurs when organization uses two or more marketing channels
to target one or more customer segments. Major benefits of multi-channel marketing system are:

1. Lower channel cost

2. Increased market coverage

3. Customized selling

Multi-channel may also lead to conflicts and control problems, as two or more channels may
compete for same customer. A successful sales manager will have to effectively manage conflict
between the channels.

Ethical and Social Issues

Sales managers have ethical and social responsibilities. Sales people face ethical issues such as
bribery, deception (or misleading) and high pressure sales tactics. Today’s sales managers have
no choice but to ensure ethical standards from sales force otherwise they may be out of business
or even land up in legal problems.

Below diagram gives the changing trends in Sales Management

 
Sales forecasting:

Sales Forecasting is the process of estimating what your business’s sales are going to be in the
future. A sales forecast period can be monthly, quarterly, half-annually, or annually.

Sale forecasting is an integral part of business management. Without a solid idea of what your
future sales are going to be, you can’t manage your inventory or your cash flow or plan
for growth. The purpose of sales forecasting is to provide information that you can use to make
intelligent business decisions.

How to Make a Sales Forecast

A sales forecast is an estimate of the quantity of goods and services you can realistically sell over
the forecast period, the cost of the goods and services, and the estimated profit.

Typically this is done by:

 Making a list of the goods and services to be sold

 An estimate of the number of each to be sold
 The unit price of each, and a total (price * #units) and a grand total

Another list is made for the estimated cost of each good or service and a total cost (cost * #units).

Subtracting total cost from the total sales gives an estimated profit for the forecast period.

If your business has a huge number of items in inventory it may be necessary to condense unit
sales/costs into categories.

Sales Forecast Assumptions

There are many factors that can potentially affect sales that should form the basis for your sales
forecast, including:

 The economy and your particular industry - Is the economy slowing? Is the market for
your goods and services growing or declining? Is there more competitionentering the
marketplace? Are you likely to gain or lose any major customers? Your sales forecast
should include an estimate of percentage growth or shrinkage in the market.

 Your products or services - Are you launching any new products or services that
may increase sales, or are sales of your existing products/services declining due to better
products/services or lower prices from competition? Will you be forced to raise prices
due to increased material, labor, or other costs and how might this affect sales?
  Your marketing efforts - Are you embarking on any new marketing campaigns or
spending more or less on advertising? Perhaps bringing a new company websiteonline,
beefing up your email marketing, or branching into social media to increase sales? Are
you hiring additional sales staff or losing your best salesperson?

Sales Forecasting for Existing Businesses

Sales forecasting for an established business is easier than sales forecasting for a new business;
the established business already has a sales forecast baseline of past sales. A business’s sales
revenues from the same month in a previous year, combined with knowledge of general
economic and industry trends, work well for predicting a business’s sales in a particular future
month.

If your business has repeat customers, you can check with them to see if their purchase levels are
likely to continue in future.  If you don't wish to contact them directly you can infer future
activity based on the health of the customer industry.

Sales Forecasting for New Businesses

Sales forecasting for a new business is more problematical as there is no baseline of past sales.
The process of preparing a sales forecast for a new business involves researching your target
market, your trading area and your competition and analyzing your research to guesstimate your
future sales.

See Three Methods of Sales Forecasting and Sales Forecasting for Your Business Plan for
further explanation.

Sample 6 Month Sales Forecast

  Jan Feb Mar Apr May Jun Total

#Units Sold              

 Widget 1 10 10 15 15 15 15 80

 Widget 2 20 20 25 25 25 25 120

Unit Price $              

 Widget 1 $50 $50 $50 $50 $50 $50 

 Widget 2 $35 $35 $35 $35 $35 $35 

Sales              

 Widget 1 $500 $500 $750 $750 $750 $750 $4000

 Widget 2 $700 $700 $875 $875 $875 $875 $4900

   Jan Feb Mar Apr May Jun Total

Total Sales $1200 $1200 $1625 $1625 $1625 $1625 $8900

               

Unit Cost              

 Widget 1 $25 $25 $25 $25 $25 $25 

 Widget 2 $30 $30 $30 $30 $30 $30 

Total Cost              

 Widget 1 $250 $250 $375 $375 $375 $375 $2000

 Widget 2 $600 $600 $750 $750 $750 $750 $4200

               

Profit              

 Widget 1 $250 $250 $375 $375 $375 $375 $2000

 Widget 2 $100 $100 $125 $125 $125 $125 $700

Total Profit $350 $350 $500 $500 $500 $500 $2700

Create a Range of Forecasts

It is a good idea to create multiple sales forecasts using a range of predictions, particularly for
new businesses.

After creating an initial forecast using your best estimates create another forecast based on
optimistic numbers and another based on pessimistic ones. Update your forecast with the actual
values as time progresses.

Sales forecasting done on a month by month basis will give you a much more realistic prediction
of how your business will perform than one “lump” sales forecast for the year.
MARKET DEMAND:

Definition: Market demand is the total amount of goods and services that all consumers are
willing and able to purchase at a specific price in a marketplace. In other words, it represents
how much consumers can and will buy from suppliers at a given price level in a market.

What Does Market Demand Mean?

What is the definition of market demand? Many people confuse consumer demand with
consumer desire. These two concepts simply don’t equate. Consumers can desire a product all
they want but simply can’t afford the product. Thus, they will never actually be able to purchase
it.

Economic demand aims to measure the amount of individuals who want to purchase a good and
can afford to purchase the good at a certain price. In other words, demand measures the amount
of product that consumers are willing to purchase and able to purchase at a given price.

Keep in mind that as the price of a good changes, so does the demand. Less people are willing
and able to purchase goods at higher prices; therefore, demand decreases as prices increase.

Economists and business owners use this theory to establish prices for their products.

Let’s look at an example.

Example

Imagine an economist was attempting to determine the demand for a service, but they only had a
few individual demand schedules and functions. Since market demand is the summation of all of
the individuals’ demand curves, the economist would add the functions or the results in
the schedule together.

For example, if the total market size for a product was 3 people and at $30 none would purchase
the product. The aggregate demand would be 0 at that price. Next at $25, the Customer X would
buy 5, Customer Y wouldn’t buy any, and Customer Z would buy 1. At $25, the aggregate
demand would be 6 units. Once this method is used all the way to $0, the sums will be added and
total marketplace demand will be found.

The same could be done using functions. Observing a demand curve and discovering the slope
and the constant will determine the function. Once the functions are found for the 3 customers,
they can be added to find the function of the marketplace demand. An example function is
Customer A (50 -7X). To convert functions to demand schedule points, the economist can
replace the variable with the price at a given point. Whether schedules or functions are used the
same market demand should be found which is a valuable component to the decision-making
process.
SALES FORECASTING METHODS:

FORECASTING FUNDAMENTALS

Forecast: A prediction, projection, or estimate of some future activity, event, or occurrence.

Types of Forecasts

- Economic forecasts

o Predict a variety of economic indicators, like money supply, inflation rates, interest rates, etc.

- Technological forecasts

o Predict rates of technological progress and innovation.

- Demand forecasts

o Predict the future demand for a company’s products or services.

Since virtually all the operations management decisions (in both the strategic category and the
tactical category) require as input a good estimate of future demand.

SALES BUDGETING DECISIONS

Like every department, even the Sales department has a budget and adhering to that
budget is very important since the Sales Budget is a basic component of the master budget.
Sales Budget shows the expenses that have to be made to achieve sales in a defined
period of time.

Sales Budget is also associated with determining average estimated earnings after the pre-
determined period. A company, at the start of the year, carefully analyzes economic
conditions, competition, production capacity, and expenses when determining the sales
budget. All of these factors play a crucial role in the company’s future performance. Sales
Budget is what the company expects to sell and generate business from.

Cambridge dictionary defines Sales Budget as: “a plan of the money that a company must
spend in order to produce and sell goods or provide services in a particular period.”

While determining Sales Budget, one must be aware of the term Sales Forecasting, which
means predicting the amount of sales that may happen in a defined period. This is much
more than “gut-feeling” and it is determined on the basis of Previous Sales Achieved,
Market conditions, industry growth rate, customer analysis, and such factors. Giving a
proper forecast for Sales is important since Sales Budget depends on proper forecasting.
Budgets, stem from the sales forecast, and the sales budget is the vehicle through which
sales are generated. Thus the sales budget comes after the sales forecast, and this is a

representation of each salesperson’s sales broken down by product type, by customer type
and by individual territory. The sales department budget then follows, together with other
departmental budgets. Although we use the term ‘sales department budget’, its true
description reflects more than purely selling.
It includes forthcoming investment in promotion, such as different forms of advertising, displays,
exhibitions, consumer and trade promotions, etc. It also includes investment in distribution,

which includes distributive intermediaries and facilities such as warehousing and physical
distribution of finished goods to customers. Additionally, it includes marketing research
expenditure, selling expenditure and all the various costs that go into winning orders. For
definition purposes, cost accountants subdivide the sales department budget into the selling
expense budget, the advertising budget and the sales department administrative budget.

These terms of course reflect production orientation, and better descriptions might ultimately be
found for each of the subdivisions which reflect a more modern marketing orientation. However,
accountants use these terms that are now universally accepted, so for these reasons they are
included here.

Use of preparing Sales Budget

A budget differs from a forecast in that it is a representation of what is planned to happen,

whereas a forecast is concerned with what is expected to happen. The forecast is far more
uncertain, because it is affected by extraneous factors, whereas the budget is to do with internal
matters, and these can be controlled directly by the organization. The relationship is explained
diagrammatically.

It has been explained that the budget is derived from the sales forecast, and business budgeting
cannot commence until the forecast has been agreed. Budgeting requires detailed planning of all
duties to be undertaken during the budget period (normally one year ahead). The total sales
budget is divided among the individual product lines to be sold in terms of apportionment of
expenditure on advertising, packaging, personal selling etc. The way the total sales budget is
apportioned is, of course, a decision for marketing management.

It is important to ensure that the sales budget co-ordinates with other budgets in the organization.
For instance, the sales budget should not plan to achieve more sales than production is budgeted
to manufacture. Budgets must also be flexible to allow for changing conditions or unforeseen
circumstances, and in some companies it might be necessary to prepare more than one budget as

a contingency measure. Thus flexibility is important, because if during the budget period it
seems as though another set of circumstances is likely to prevail, then the budget might need to
be altered to cover such a contingency.

When actual expenditure differs from the budgeted expenditure, the departmental manager
should explain the deviation. Cost accountants refer to each item of cost as a budget or cost
venture, and they describe these differences as ‘variances’. The term used to describe this
process of control is ‘management by exception’, and the philosophy implies that only when
events do not go as planned does an investigation need to be made. Budgeting is not merely a
matter of planning; it is also used as a method of control. Furthermore, realistic evaluation
cannot take place unless detailed plans have been agreed before the budget period.

In short, budgets provide a financial statement of the company’s plans and policies, and reflect
the co-ordinated efforts of all departments (or cost centres) within the organization. The sales
department budget is thus the marketing function’s share of the company budget and this, in turn,
is broken down into constituent parts covering promotion, selling, administration etc., and then
allocated between each product within the range of products.

Importance of Sales Budget :

1) Business Budgeting :

The budgeting of different departments might be dependent on the Sales Budget. This is
especially true in a production company where the production expenses are proportional to the
amount of sales you hope to achieve. Without expected Sales Budget, the company doesn’t know
how much to spend on Marketing, how much to spend on production and in any other
department. While these are variable expenses, the fixed expenses like rent and utilities also have
to be covered from sales budget.

2) Growth Goals :

Another aspect of Sales Budget is that it sets targets for the Sales team and achieving those
targets will help the company to grow economically and expand. The Sales team is motivated by
giving incentives on hitting numbers and crossing them. The company can expect an overall
growth in every department once Sales numbers are achieved.

3) Performance :

Sales Budget is prescribed to the Sales team at the beginning of the year and the targets are
distributed accordingly. At the end of the year, this budget can be used to know the performance
of the sales team and, in turn, the performance of the organization. This depends on the
forecasting done and also on the market conditions and competitor activities. But Sales Budget
helps analyze the performance of every sales team member quantitatively.

Procedure to prepare Sales Budget :

Most organizations use a bottom-up planning method to determine Sales Budget. All the budgets
from every Salesperson are collated and sent to the manager, every manager’s budget is sent to
Regional in charge and so on and so forth till a single collective statement is generated. The top
management then makes necessary changes and adjustments and syncs it with organizations
vision and percolates the budget top-bottom.

The total Sales Forecast with unit price will give gross sales. Sales discounts and allowances, if
any, are deducted and the final figure will the Net Sales realized.

To chalk out a few common steps carried out in Sales Budget would be :

Research and Analysis: Check the status of the market for scenarios

Sales Forecast: The Sales team then prepares a forecast based on past achievement and market
conditions put together. Generally, a growth is expected.

Collecting Forecasts: All the forecasts are collected together and sent to higher management as a
single file.

Modification and review: The top management then decides on the Sales Budget obtained, takes
reviews and suggestions and decides a final figure.

Although these are the common steps in every sales budget, every company may modify
according to their needs.

Example of Sales Budget preparation :

Let us take an example of Sales budgeting in an Automobile company. In the bottom-up

approach, the company would ask individual showrooms a projection of units that may be sold in
the current financial year. The showroom manager, along with individual salesmen will draft a
number based on previous years’ achievement, current demand in market, price and offers on the
product and economic factors and paying capacity of neighboring areas.

This number is finalized and sent to the zonal division. The zonal division, which is in charge of
many such showrooms, will collectively add up the number and send to the regional office. The

regional office will collect the numbers from many such zones and send to national head who in
turn will collect and compile data and send to management.
The management collectively takes such numbers from many national heads and have a follow-
up meeting on the same. If necessary, the numbers are changed and a final figure is taken based
on which the Sales Budget is calculated and accordingly targets are percolated back to the
individual showrooms.

Factors influencing Sales Budget :

1) Internal Factors :

The number of employees, the reach of the sales team, nature of product, availability, and stock
of product, the price of the product, the volume of Sale, Ability of Salesman, promotion
strategies etc. are internal factors

2) External factors :

Political and legal environment, Competitor products, customer base, Economy, Seasonal
factors, the purchasing power of customers etc. are external factors that can affect the Sales
Budget

Advantages of Sales Budgets :

Planning: Sales Budget helps in the proper planning of the organizational budget.

Resource allocation: Sales Budget helps in the allocation of resources for all other departments
based on Sales forecast, sales plan and other factors.

Expense Check: Sales Budget is also helpful to keep a check on the expenses of the company.

Yardstick: Sales Budget serves as a yardstick for evaluation of Forecast vs achievement or

Target vs Achievement and overall economy of the company.

Weak areas: Sales Budget also helps identify weak links and areas in the organization which are
a hindrance in achieving the sales budget. Necessary actions can be taken to correct those weak
links and strengthen the front line.

Guide: Sales Budget acts as a guide and constant reminder throughout the year for the
organization about the agreed budgets and helps everyone to be on track.
Disadvantages of Sales Budgets :

Sales budget cannot always be 100% accurate since no one can predict future events or sudden
market trends for the company.

A sales budget decided by authority or management may not go well for various reasons. The
unrealistic sales budget is a common complaint by the front line executives.

Preparing, editing, modifying, re-working, getting the approval of sales budget can take up too
much of managerial time, in which time actual sales can be realized.

Unforeseen expenses are not considered in Sales Budget which may arise out of any calamity or
unpredicted market conditions.

UNIT 2:

Sales & Distribution Management – Designing Sales Territory

A sales territory consists of a group of consumers or a geographical area assigned to a
particular salesperson. The area allocated to the salesperson contains the present and
the potential consumers of the organization.
After the allocation of sales territory, the sales manager can be in a position to contest
between sales efforts and sales opportunities. It would be very difficult for the sales
manager to monitor the total market as it is too large and unmanageable by one
person. Hence it is divided as per territories to manage effectively and efficiently and
control the sales force.
The salesperson does not only pay attention to the area but also the consumer
prospects. Thus, a sales territory can be known as the grouping of customers and
prospects, which is assigned to an individual salesperson.
Sales territory is for the big companies having huge market share. Small and medium
scale companies do not use geographically defined territories. The market share is not
so high to divide into territories.

Reasons for Establishing Territories

The main motive of establishing sales territories is to simplify the planning and
controlling of the selling function.
Following are some reasons for establishing sales territories −

To obtain thorough coverage of the market

According to the division of sales territory, the activities are assigned to salesperson.
This helps in market coverage, rather than the salesperson selling the product
according to his ambition. It helps the sales manager to monitor and take updates
accordingly from different sales managers.

To establish the salesperson’s job and responsibilities

It’s very important to establish jobs and responsibilities for salespersons. Sales
territories help in doing so because the task is assigned to the salesperson and he is
responsible and answerable for the same.
Once the task is assigned, frequent checks are done to monitor the calls; it helps to
determine the work of each salesperson. If the sales manager finds the workload for a
particular person is more, the work is divided and reassigned equally. This creates
motivation and interest to work.

To evaluate sales performance

In an organization, the sales territory is compared from the previous years to current to
find out the difference, i.e., the increase or decrease in sales volumes. It helps to work
on the difference accordingly. This is done with the help of sales territory as the
activities are assigned in a proper manner and gathering of data and evaluation
becomes easy.
The comparison to evaluate sales performance is done on the following basis −

 Individual to District
 District to Regional

 Regional to Entire Sales Force

By this comparison, we can evaluate and determine where the sales force is
contributing for high volume of sales.

To improve customer relations

As we know, salespersons have to spend most of their time on road to sell the
products but if the sales territory is designed in a proper way, the salesperson can
spend more time with the customers (present and potential). This helps in building
rapport and understanding the needs better.
Sales of a company can increase when a customer receives regular calls and the
salesman has to visit the customers on the basis of calls. The salesman and the
customer get time to understand each other and resolve their issues regarding demand
and supply. This also helps in increasing the brand value of the company.
To reduce sales expenses
Once the geographical areas are decided, the company gets a proper picture as to the
areas that can be assigned to the salespersons. He/she needs to cover that area so
that there is no duplication of work by sending two salespersons in the same area.
The selling cost of the company gets reduced and leads to increase in profits. There is
also an advantage to the salesperson for few travels and overnight trips.

To improve control of the sales force

The performance of a salesperson can be measured on the basis of calls made to
customers, the routes taken and the schedules. In this case, the salesperson cannot
deny if the results are not positive.
The salesperson has to work on the same routes, schedule and everything is
predetermined. This results in better control of the sales force.

To coordinate selling with other marketing functions

If the sales territory is designed properly, it helps the management to perform other
marketing functions as well. It is easy to perform an analysis on the basis territory as
compared to the entire market.
The research done by the management on marketing on territory basis can be used to
set sales quotas, expenses and budgets. The results can be satisfactory if the
salesperson helps in advertising, distribution and promotion when the work is assigned
on territory basis instead of the market as a whole.

Procedure for Designing

At the time of designing the territory, the manager has to keep in mind the size of the
territory that is going to be assigned to the salesperson. It should be neither too small
nor too large. If the territory is geographically too small, the salesperson would keep
calling the same customers repeatedly. In contrast, in a too large geographical area,
the salesperson will not be able reach the scattered customers as most of his time will
be utilized in travelling. Hence the territory should not be too large or too small; it
should be such that all potential customers can be visited as per the requirement.
The procedure of designing sales territories is the same for all companies, whether
setting the territories for the first time or revising the existing territories.

(I) Select Control Point

As the name suggests, the management has to select a geographical control point.
The control points can be classified on the basis of district, pin codes, areas, states
and cities.
At the time of selecting the control unit, the management should aim to select as small
a control unit as possible.
The following are the reasons behind selecting small control units.

Reason 1
If the control unit is too large, the areas with low sales potential will be hidden by the
areas with high sales potential. The areas with high sales will be concealed if the areas
with low sales potential will be included.

Reason 2
In case of any changes required in future, they can be done smoothly. Example − A
company wants to allot some territory to Mr. A. This part of territory had earlier been
assigned to Mr. B. It can be done easily, as the unit is small.
If the sales potential for the company is located in urban areas, the city can be used as
a control point. But there are some disadvantage also, as the adjacent areas to cities
also possess sales but they are covered by paying additional cost to the salesperson.
The control point can also be set up according to the trading areas. It is a sensible
decision to set up the control point according to the trading area. It is based on the flow
of goods and services rather than economic boundaries. Example − The wholesaler or
retailer use trading area as the control point.
Trading area can be considered as the geographical region that consists of a city and
the surrounding areas; this region works as the main retail or wholesale center of the
region. Generally, the customers from one trading area do not go outside the
boundaries to buy goods.
Even an outsider customer will not enter the trading area to purchase a product. The
main advantage of the trading area is that the salesperson is aware of the buying
habits of the customers and the pattern of trade. It also helps the management in
planning and control.
The control point can be decided on the basis of states. A state may be a capable
control unit when the organization has small sales force that is covering the market
selectively. Example− A company sells its products in the country in all states; in this
case, the territory boundaries could be based on states.
It is less expensive and convenient to gather data and make evaluation.

(II) Making an Account Analysis

The next step after selection of geographical control unit is to plan an audit of each
geographical unit. The reason for performing this audit is to analyze the customer
prospects and find out the sales volumes for each account.
Accounts can be recognized by names; in recent times, there are many sources to pull
out the data, for example, the yellow pages. We can also collect the data through the
past sales of the company. After collecting the data, the next step is to estimate the
sales for each geographical unit. The sales manager estimates the sales volume that
the company is expected to get in the following years.
There are many factors to contribute such as competition, advantage of the company
in that geographical area, etc. Now there are many software available for calculation
and the final result. This can be done much quickly as compared to when it is done by
the sales manager manually.
After the sales potential estimates have been taken, the system divides into three
types, which is done through ABC analysis. This is one of the most common analyses
used by companies. Where the sales potential is greater than expected, it is classified
as “A Category”. Average potential is classified as “B Category” and the sales potential
below average is classified as “C Category”.

(III) Developing a Salesperson Workload Analysis

The salesperson workload analysis is done on the basis of the time and effort taken by
a salesperson to cover a geographical unit.
The following are a few points needed to estimate workload −

 Frequency of calls
 Duration of calls

 Travel time

The estimates workload is calculated by considering these factors.

The most important factor is the duration of calls. These depend on the customers and
issues. If the problem is severe, it may take time to resolve and tackle the question
from customers.
Another important factor is the travel time; this differs from one area to another
depending on the factors transportation, condition of roads, weather condition etc. The
sales manager tries and plans accordingly to reduce the travel time taken by the
salesperson and utilizes the time to call more number of accounts/clients.

(IV) Combining Geographical Control Units into Sales

Territories
In the first three steps, the sales manager works on the geographical control units; now
he has to combine the control units into territories.
Initially the sales manager used to manually develop a list of territories by combining
the control units. It was a time consuming procedure and also the result was not
accurate, as it was done manually. Now computers handle this activity and complete it
in a much shorter period of time with accurate results. The operational error is reduced
here.
All the salespersons cannot be considered equal and competitive; it depends on the
basis of experience and skills. The salespersons are assigned territories by the sales
manager depending on the basis of sales. The geographical areas with high sales are
assigned to the salesperson with experience, who can handle the workload. The new
or less effective sales people are assigned the areas with less sales potential.

Territory Shape
The sales manager has to decide the shape of the territory. The territory shapes affects
the selling expenses and also helps for sales coverage. There are four types of
shapes, which are used widely.

 The wedge
 The circle

 Hopscotch

 The cloverleaf

Let us discuss these types one by one.

The Wedge
This shape is suitable for the territories, which contain both the urban and non-urban
areas. The radius starts from the most populated urban center. Wedges can be divided
into many sizes and the travel time can be maintained by balancing between the calls
of urban and non-urban areas.
The Circle
When the clients are distributed evenly throughout an area, the sales manager
chooses the circle shape. The salesperson starts from the office, moves in a circle of
stops until he reaches the office again. This helps the salesperson to come near to the
customer as compared to the wedge.

Hopscotch
In this shape, the salesperson begins from the last point from office and reach out the
customers while coming back to the office. While going, the salesperson does not stop
anywhere and attends calls in one direction while coming back to the office.

The Cloverleaf
When the accounts or client are located randomly in a geographical area, the
cloverleaf shape is used. This type of shape is more often found in industrial markets
than in consumer markets.

(V) Assigning Sales Personnel to Territories

Once the sales territory has been designed, the last step is to assign sales personnel
to the territories. All the salespersons are not equal in terms of ability, initiative, etc.;
the workload of one salesperson may be overload to another and may cause
frustration.
The sales manager must rank the salespersons accordingly before assignment of
territories. The ranking should be done on the basis of ability, knowledge,
communication, etc. The other points, which the sales manager should look at, are the
cultural characteristics of the salespersons and how they match with the territory.
Example − If a salesperson is born and brought up in rural area, he would be able to
do more effective sales in that particular area as compared to urban area.
We can now conclude that the goal of a sales manager is to assign the geographical
area to the salesperson who would maximize the territory sales and where the
customers are comfortable with the salesperson.
Establishing the sales territory helps in planning and controlling the sales operations. A
well designed sales territory helps to increase sales volume and market coverage and
provide better services to customers. Once the sales territory is allocated to the
salesperson, he is responsible for making things happen.
DESIGNING SALES ORGANIZATION STRUCTURE

The structure of a sales force has significant bearing on its

success. For example, a rep used to selling to a given region
might flounder when asked to concentrate on just one industry
nationwide. If each of your company's products require deep
and specific technical knowledge, it might not make sense to
have reps sell all products by territory.

It's simply not true that sales talent translates into all
situations. Take a software representative who sells
exclusively to manufacturing companies, and ask them to start
selling hardware across all verticals. They're probably not
going to be as good at one of these assignments as the other.
Salespeople who excel get very good at excelling in a
particular environment, and organizational structure is the
bedrock of that environment.

Sales organization structure refers to the design of the sales team. Businesses may use an
inside or outside sales model, geographic or industry territory approach, product model
(split by product line or type), SMB/mid-market/Enterprise split, or some combination of
the above.

In his book Aligning Strategy and Sales, Frank V. Cespedes, senior lecturer of business
administration at Harvard Business School, explains in depth how organizational design
impacts selling effectiveness, and emphasizes the importance of choosing a structure
carefully. In the chart below, he lays out the pros and cons of four commonly used
structures. Accounts and opportunities can be divided by:

 Geography/territory

 Product/service line

 Customer/account size
  Industry/vertical segment

Take a look, and then think about whether a reorg is in order.

Geography/Territory Org Structure

Organizing your sales team by geography or territory allows each salesperson to develop
familiarity with a specific geographic location. They can build rapport with local businesses, get
to know regional competitors, and track target accounts.

It can also be easier to evaluate your reps by taking into account the performance and market
potential of a specific geographic location.
Product/Service Line Org Structure

If your company sells several different products or services, it can help to align salespeople to
those products and services. Similar to geographical expertise, it allows your reps to become the
expert on a specific product you sell, thereby better able to communicate its value and use case
for individual clients.
Customer/Account Size Org Structure

Organizing your sales org by account size is another popular structure. The skills a rep needs to
sell to an SMB are different than those of selling to an enterprise account. 

These businesses have different goals, will ask different questions, and have very different
budgets. By allowing reps to become familiar with the intricacies of these accounts, you'll better
meet the needs of the customer and your reps.

Industry/Vertical Org Structure

Different industries will use your product/service in different ways. Make sure your reps are
well-versed in how to position your offering to these various verticals by organizing your sales
team accordingly.
Sales Organization Chart

Here's an example sales organization chart. This can be modified depending on which
organizational structure you choose (i.e., by geography/territory, product/service line,
customer/account size, or industry/vertical segment).

Having a clearly defined visual representation of how your sales team is organized can help
teams work well together, make communication more efficient, and help other departments
identify exactly who to reach out to for better alignment. 

Recruitment and selection of sales Force

Companies always need employees to help them in realising their goals and objectives as far as
operations are concerned. It is the desire of every firm to ensure that they hire the best personnel who
will always put the interest of the organisation first to make sure that productivity and desirable results
are attained. However, it is never an easy task to select the best employees because people have unique
abilities and different ambitions.

When it comes to hiring sales personnel in an organisation, one important aspect that you need to have
in mind is that sales require teamwork rather than individual effort. It thus implies that most of them
must be willing to be team-players to help in driving sales high. But the fact of the matter is that sales
personnel recruitment has to vary from one organisation to the other depending on the needs and
products or service of that particular organisation.
Factors that influence the Recruitment and Selection of Sales personnel

Type of product

Companies that deal with engineering goods or services will indeed require sales staffs that are
proficient in technical skills that pertain to the product. The reason behind this is because they
will be able to demonstrate to the potential clients how these items work in the process of
convincing them to make the purchase. On the other hand, companies offering B2b products
need sales personnel who have perfect presentational skills.

Designation

This is also an essential element that is always looked into when hiring sales personnel. The
placements usually vary from an ordinary sales staff to regional sales manager. It, therefore,
suggests that the approach for recruiting individuals to suit the particular title or rank will also be
different. For instance, you will need a regional sales manager that has vast experience,
knowledge and understanding of the various sales aspects. This is contrary to hiring an entry-
level sales personnel, which probably little knowledge and expertise will be required.

Recruitment:
Recruitment means searching for prospective candidates and inspiring them to apply for the post.
Recruitment ends on the last day/date of receiving applications. Salesmen can be recruited
through a number of sources.

Sources of Recruiting Sales Force:

Main sources, widely practiced in India, includes:

1. Advertisement

2. Other firms

3. Middlemen

4. Personal recommendations

5. Recommendation of existing staff

6. Special recruitment agencies

7. Private training institutes

8. Colleges and academic institutes, etc.

Types of sources to be used for recruiting the salesmen depend on certain criteria, like type of
products to be sold, types of customers to be served, paying capacity of company and type of
remuneration plans, and other relevant factors.

Selection:
Selection means selecting the fixed number of suitable candidates from those who applied for the
posts. Selection process starts as soon as recruitment ends. Recruitment considers all applications
received in a due date while selection considers only the required number of most suitable
candidates.

There is no ideal selection process that most companies can follow. Normally, for selecting
salesmen, the simple and short selection process is followed. However, some companies, when
more salesmen are to be selected at time, also follow lengthy and systematic selection process.
Selection process depends on types of salesmen, cost and financial position of company, time
available, company’s objectives, and so forth.

Steps in Selection Process:

Systematic selection process consists of following steps:

1. Receiving applications

2. Screening applications

3. Preliminary interview

4. Written tests

5. Final interview

6. Medical examination

7. Final selection

8. Appointment and induction

Important Conditions:

At the time of final selection or appointment of salesmen, following conditions must be made
clear:

1. Time to resume the duty

2. Company’ marketing objectives, policies, and strategies

3. Duties and restrictions

4. Place of work

5. Reporting system or procedure

6. Bill collecting system

7. Remuneration and incentives

8. Training and expenses

9. Other relevant conditions, if any.

MOTIVATING THE SALES FORCE

Being a sales rep is one of the most challenging work. Dealing with en number of “no’s” and yet
you make up your mind to work better. These rejections can make your sales reps lose hope at
times. It becomes your atmost responsibility to boost your sales reps to work effectively and
efficiently. You may have different ways or beliefs to motivate your sales reps but the main
agenda of the motivation in sales management is to achieve your organisational goal through
your employee’s work.

You can influence your sales team’s performance in two divisions. It can either be their skills to
complete the work or their passion to do the work. Every individual cannot be motivated with the
same strategies. It can always not be just the motivational quotes hung up on the wall.
Motivating sales people in order to work hard is much more than just talks. Many organisations
may ignore them but if you are really concerned about your sales team, then go ahead with
implementing few strategies in order to motivate them. Some of the sales motivation techniques
are –
1. Know your sales reps

As mentioned above every individual differs from the other. You must always know your sales
reps before you ever judge them. Know their strengths and weakness. Once you are aware of
their skills and behaviour act accordingly.

2. Build trust amongst the members of your sales team

Trust has a strong foundation of motivation. It takes years to create trust but seconds t o break it.
If your team member is not trusting you in the same organisation, your motivation in sales
management cannot be fruitful. The best way to make your salespeople gain trust is be yourself
and transparent at work, they will surely start trusting you.

3. Build a good rapport

Building a good rapport amongst your salespeople is very important. When you make them feel
that you are also a well wisher rather than the boss, it helps to create a good rapport with each
other.

4. Honesty is the best policy

The working environment you work in or the way you treat each other at workplace is also a
reason for you to work with honesty. Honesty is surely the best policy because when you work
with honesty it not only avoids miscommunications but also helps to create trust between each
other. Your sales team will also inculcate honesty when you tend to follow it. If you think only
perfectionism is the only way to achieve success, then your sales people may hide the truth when
required.

5. Set goals

Your sales reps may or may not be happy their work for en number of reasons. It can either be
they attained a degree or master degree which now is not related to the work they are performing,
or it may be reasons like they are fed up of rejections and work loads etc. However, whatever be
the reasons let them understand that accomplishing goals can get the spark of happiness and
satisfaction in themselves.

Set goals for them which must be accomplished depending upon their skills and passion. Think
big and see to that you get along there. When you set goals for them it not only becomes easy for
them to prioritize their works and work accordingly but also makes them feel satisfied with the
work. If you do not set goals for them, they may end up feeling they are missing out on things
though they have been trying their level best. You can also set goals on weekly, monthly and
yearly basis. Set some simple smart goals that will act as a motivation in sales management-
Set smart goals :

Set smart goals which will help you to increase revenue/ profit rate.

Set measurable goals, because if your goals cannot be measurable you cannot improve for the
betterment.

Think big, but that does not mean you should set goals which cannot be accomplished.

Set goals which are relevant to your organisational goals.

Be time sensable. When you set goals see to that you accomplish them within the restricted time
period because once time wasted cannot be got back.

Steps to be followed while setting up goals to your sales reps in order to motivate them-

Step 1- make a list of your goals.

Step 2 – see what plans you are going to set in order to achieve your goals.

Step 3 – create time schedules before you implement your actions.

Step 4 – identify the resources which will be helping you in order to accomplish your goals.

6. Lay destinations but let them choose the path

As mentioned above that setting up goals are very important, you need to set destinations for
them. But when it comes to choosing of path, let them do it. When you let them choose the path
–

They will know how to prioritize their work

what takes them to reach the destination?

7. Provide suggestions to your sales reps

When your sales reps are down on work, provide suggestions which may help them get back on
the right track. When you give suggestions for their betterment it creates trust and good bonding
between you and your sales reps.
8. Let your sales team provide suggestions

Listing is a key to all the effective communication. If there is one communication skill you
should aim to master then it is – “Listening”. During meetings or small conversations, take your
sales team’s suggestions as well. May be they would have ideas which did not strike you. It may
be more effective than what you had planned before. So listen to them when they want to share
their ideas and implement them if its a value addition. By doing this, you not only get a better
plan to implement but you can also gain trust and satisfaction in the eyes of your sales team.

9. Give recognition to your sales reps

The ultimate way to motivate your sales reps and also make them attain trust over you is to
recognize them and “Appreciate” them. When you start recognizing them for their work and also
praise them for their achievement, that itself creates a form of motivation for sales team.

Some quick and easy tips which will help your employees to get motivated are –

Celebrate the smaller achievements too.

Your actions can speak more than words. Express that you trust them and also act accordingly.
When your actions expresses the trust you have for them, they will indeed be motivated.

Express your thankfulness i.e, say “thank you”.

Give rewards.

Give recognition to your sales reps : SalesBabu.com

10. Provide compensations

Money may not buy everything! But be practical, it can buy necessities. Every employee wants
compensations for his effective performance at work place. Provide benefits like

Health care insurance

Vacation times

Vouchers and discounts etc

11. Respond when required

Be responsive to your team members. Attend their phone calls or msgs. And if they come up to
you, have the gratitude to listen to them first. Do not make them feel that they are being ignored.
Be sensible and concerned about your employees. Let your employees know that you understand
their problems and allow them to also balance their personal life like family issues or health
issues etc from the regular work schedule.Once they observe that you are being responsive, it
creates a feeling of connectivity and you can work efficiently with your team members. Thus,
your humanity can be a reason of motivation in sales management.

12. Get them the freedom to use right tools

When you want your sales reps to work in order to accomplish the organisational goals, it also
becomes your responsibility to equip your sales team with facilities which makes their work
easier and smarter.

Technologies are playing a vital as well as trending role in today’s world. In every level of
management you can see advancements and upgradations. Likely, a CRM software can help your
sales team to manage their work smartly. SalesBabu Online CRM which is basically a cloud
based CRM provides the best CRM Software with its added functionalities to enhance your
management activities.

COMPENSATING THE WORKFORCE

Sales force compensation pertains to the manner in which sales representatives are paid. Some
sales reps have 100 percent of their wages or income guaranteed. This type of payment
structure can be used to improve customer service, encouraging sales reps to spend more time
with customers. Other sales reps have part of their income guaranteed, while the other portion
is not guaranteed. Sales reps have to meet certain sales goals to earn income that is not
guaranteed. The compensation of a sales force is often contingent upon the industry or other
competitors.

The following the various types of sales compensation plan:

1. Salary

The guaranteed portion of a salesperson's income is called a base salary. Most sales reps' salaries
are between 15 and 40 percent of their total income, according to Online Business Advisor. The
other portion is based on incentives. Most sales reps have certain quotas to meet. For example, a
pharmaceutical sales rep may get paid $80,000 a year in salary. Additionally, he may be required
to sell $2 million worth of medications in his territory to qualify for commissions. Consequently,
he may earn an extra $20,000 in commissions for meeting his $2 million sales quota. Moreover,
he may earn $40,000 extra by exceeding his quota by 10 percent, and $60,000 by exceeding his
sales quota by 20 percent. Therefore, his total income could be as high as $140,000 if he
produces 20 percent above quota in his territory.

2. Commission Only

Some sales reps' earnings are based on 100 percent commissions. Some may start out with a
training salary for three months, for example, then gradually go to a full commission basis. Other
sales reps start out at 100 percent commission right away. An advantage of getting paid on
commission is that the sales rep's potential earnings are higher. When on commission, sales reps
earn a percent of total sales in their territory. For example, a real estate agent may earn 3 percent
on the sales price of each home he sells. Often, sales reps that are on 100 percent commission
have established territories. In other words, they are contacting customers who have ordered in
the past. Yellow pages sales reps working on commission, for example, may primarily contact
current advertisers.

3. Bonuses

Some sales reps earn bonuses on top of salaries, or bonuses in addition to salaries and
commissions. Bonuses are also based on certain sales quotas. For example, an industrial sales rep
may earn a 2 or 3 percent bonus when reaching a certain sales quota. Bonuses are usually paid in
lower percentages than commissions. They are also paid periodically, such as every quarter or
year, unlike commissions, which are paid regularly.

4. Sales Incentives

Sales force compensation can also include certain non-monetary sales incentives. For example,
sales reps can earn trips to Europe, the Caribbean or other venues for meeting certain sales goals.
They can also receive big-screen televisions, laptops, office equipment and other free gifts for
attaining sales goals. Sales reps will often work just as hard to receive non-monetary sales
incentives as monetary ones.
5. Territory Volume

Territory volume sales compensation plans are most often used in team-based corporate cultures.
They work through the calculation of territory volume at the end a compensation period. The
total sales for the territory are then split equally among all of the sales reps who worked that
territory. This plan works best when your sales territories are clearly outlined, when your sales
team supports each other to reach common goals, and when your territories are rich enough to
support competitive wages.

6. Profit Margin

Last but not least, we have profit margin sales compensation plans. These plans compensate sales
people based on how well the company is performing. Profit margin plans are most often used by
startups that have a lack of liquidity. It’s best to use the profit margin plan if you know that your
sales people are able to support themselves through your lean periods, when you can also
incorporate long-term incentives such as stock shares, and when you have other incentives and
job benefits to attract sales people, such as flex time.
TYPES OF FORECASTING MEHTODS

Qualitative methods: These types of forecasting methods are based on judgments, opinions,
intuition, emotions, or personal experiences and are subjective in nature. They do not rely on any
rigorous mathematical computations.

Quantitative methods: These types of forecasting methods are based on mathematical

(quantitative) models, and are objective in nature. They rely heavily on mathematical
computations.

QUALITATIVE FORECASTING METHODS

Executive Opinion Approach in which a group of managers meet and collectively develop a
forecast

Market Survey Approach that uses interviews and surveys to judge preferences of customer
and to assess demand

Delphi Method Approach in which consensus agreement is reached among a group of experts

Sales Force Composite Approach in which each salesperson estimates sales in his or her region

QUANTITATIVE FORECASTING METHODS

TIME SERIES MODELS MODELS- Look at past pattern of data and attempt to predict the
future based on the underlying patterns contained within those data.

ASSOCIATIVE MODELS- Associative models (often called Causal Models) assume that the
variable being forecasted is related to other variables in the environment. They try to project
based upon those associations.

QUALITATIVE SALES FORECASTING METHODS:

Qualitative methods of sales forecasting rely less on data, and much more on the opinions and
experiences of the people involved in the forecasting process.

If qualitative forecasting is about obtaining opinions about the future, what are the main methods
of getting those opinions?

There are three common approaches:

Delphi method

Perhaps the best-known method for generating a forecast using “experts”.  Rather than getting
experts to meet face-to-face, the chosen experts are sent a survey or questionnaire (by post or
email).  Each expert completes the survey without reference to any other contributor.

The replies to the survey are analysed, summarised and then returned back to the experts so that
they can reconsider their responses and views after learning about the views of the other experts.

This survey process may be repeated several times until a consensus is reached (or perhaps a
narrower range of sales forecasts is arrived at).

The obvious disadvantages of this approach are:

- The time-consuming nature of the survey process (potentially costly as well)

- The way in which the “experts” are chosen (who choses and why?)
- Whether some experts are more expert than others!  I.e. whose opinions should be given most
weight (if anyone)

Panel method

This method of sales forecasting is a specialised form of focus group (remember that from
consumer market research?)

The panel’s members meet face-to-face and discuss openly their views on the forecasts required,
with the aim of reaching a consensus.

The disadvantages?

- Some experts will shout louder than others, or be more forceful in expressing their opinions
- The panel approach encourages a quick resolution, rather than a more reflective approach
(which might lead to a better quality sales forecast)

Scenario planning

This method is popular where the sales forecast is subject to a lot of uncertainty.  This is often
true when a sales forecast is intended to cover a long time period (e.g 3+ years) or where there
are inherent risks in the demand for the product or market being forecasted.
Scenarios are not intended to produce a consensus.  Rather, it is about identifying the likely or
possible scenarios for different sales outcomes, and then coming up with a plan for how the
business would respond for the least desirable scenarios.  Scenario planning is linked, therefore,
to contingency planning.

EXECUTIVE OPINION METHOD:

OVERVIEW: This technique is part of a set of techniques that are useful in situations where
past data do not exist, causal relationships have not been identified, or some major change has
occured in the forecasting context which is not accounted for by other techniques (such as a Gulf
War, trade agreement, etc.). Evidence as to the validity of using these methods by themselves is
mixed, although using them correctly can provide very good forecasts, especially in uncertain
environments. The objective of these techniques is to provide logical, unbiased, and systematic
quantitative estimates.
BASIC IDEA: Combines input from key information sources.
PROCEDURE: Very simple. Have "forecast meetings", perhaps beginning with initial estimates
of the forecast variables. Discussion ends when consensus is reached.
EXAMPLE: Mainframe computer forecasting is done by conducting a series of meetings
between the two mainframe analysts at a company, the Service director, and a Research
Operations analyst. Typically, three or four meetings are required in order to arrive at a forecast
consensus. In between meetings, the forecasts are examined by colleagues, both domestic and
abroad, for feedback and reaction.
COMMENTS: This approach is used widely because it is relatively quick and uses the solid
understanding of participants who are presumed to have relevant knowledge. However, this
approach is subject to severe judgmental biases that can result in poor forecasts. The next
technique specifically addresses these potential pitfalls.

SALESFORCE COMPOSITE METHOD:

It is a forecasting method used to forecast the sales by adding up individual sales agents forecasts
for sales in their respective sales territories. It is a bottom-up approach which companies use to
forecast more accurately. Sales agents have the most direct interaction with the customers and
provide many valuable insights which help the companies boost their sales.
Using the sales force composite forecast the company not only forecasts for the market as a
whole but it also has numbers for individual areas and territories.
Flipside of using this technique is that the company forecast will only rely on sales agents who
may use too optimistic or too pessimistic approach based on their latest experience. Thus the
company can end up forecasting taking only microeconomic factors and neglect the
macroeconomic environment. Hence the companies usually combine the sales force composite
forecast with the top-down forecast and then finalize the actual forecast.
Another drawback of this technique is that some agents may give a lower forecast than the actual
potential of sales to easily achieve their target and get the money bonus from the company on the
extra sales generated.
Nowadays many companies use scripting software which takes into account the response of the
agents and gives a cumulated forecast based on the programming from the historical data and
previous forecasts.

SURVEY OF BUYERS’ INTENTIONS METHOD:

It is also known as consumers’ expectations or opinions survey. It is commonly used method for
sales forecasting. A sale is the result of consumer intention to buy the product. Many companies
conduct periodical survey of consumers’ buying interest to know when and how much they will
buy.
A sample of potential consumers is surveyed to know how much of the stated product they
would buy at a given price during a specified future time period. Some firms maintain a
permanent sample of buyers known as the panel to collect needed data on a regular basis.
Merits:
This method offers following merits over the rest of methods:
i. More reliable and relevant information can be collected.
ii. This method is more suitable for industrial products.
iii. It is highly effective for short-run sales forecasting.
iv. This method is proved effective when consumers state their intention clearly and adhere to it.
Demerits:
Following are the demerits of the method:
i. It is applicable only for short-run forecasting.
ii. It is expensive method and needs a lot of preparations. Also, it needs a large amount of time.
iii. Consumers may not express their intention clearly, or may not behave as per intention
expressed.
iv. In case of highly scattered large number of consumers, it is not applicable.
v. Poor response rate is the major problem in our country. They do not respond to the questions
asked and/or do not return questionnaire fully completed.
vi. Purchase intention is subject to change as per social and economic circumstances. One cannot
expect consistent intention over time.
vii. Selection of the sample of potential buyers is difficult task as who, how many, and from
which places respondents should be selected. Limitations of sampling become the limitation of
the method.
It is especially more effective when:
(1) There are relatively few buyers,
(2) Buyers are willing to express buying intentions reliably,
(3) Company has enough time and money to spend, and
(4) There is high probability that stated intention would result into actual purchase.

TEST MARKETING METHOD:

It is popularly known as test marketing. It is an experimental method. Opinions are not
considered but the real experiment is made. This is most reliable method. It is based on the actual
study of market situation. In this method, neither buyers are asked to reveal their intention nor
experts are contacted to give their opinion on the future sales, but a direct market test is
conducted. Direct market test is desirable in case of a new product and existing products as well
as existing products in new channel or territory.

The method is used to measure consumers’ and dealers’ reactions in handling, using, and
repurchasing the product. Test marketing can be defined as, an attempt to try the entire
marketing programme in a limited number of well-selected markets, test cities, or different areas.

This help in testing viability of full marketing programme for regional and national market. A
product is launched in a limited scale under normal market conditions to test consumers’
reactions. Thus, test marketing essentially determines purchase interest in real situation.

Test market provides valuable information such as:

(1) Reactions of consumers and dealers,

(2) More reliable demand forecasting,

(3) Measuring market share and size of market, and

(4) Information regarding trial, first time purchase, repeat purchase, and frequency of buying.

Merits:

Following are the merits of market test method:

i. Reactions of consumers and dealers can be obtained.

ii. Information regarding trial, first time purchase, repeat purchase, etc., can help in more
accurate estimate of sales for a given time.

iii. Market testing or test marketing is advisable due to the fact that it is based on real situation.

iv. More reliable estimate of sales can be obtained as it is more practical method.
v. During market test, drawbacks related to product, packaging, price, promotion, and other
aspects on can be identified which can be removed later on.

Demerits:
Following are the problems associated with this method:

i. There are big “ifs”. For example, if price is kept low, what happens? If more promotional
efforts are undertaken, what will be the outcomes?

ii. It is expensive.

iii. It is time consuming.

iv. Danger of artificial response of consumers and competitors may mislead.

v. This method needs a great degree of expertise and experience.

vi. Market test result of one area cannot be equally applied in other areas directly.

vii. It is conducted in a limited scale. So, generalization is always doubtful.

viii. If it is conducted in controlled situation (laboratory experiment), the real position cannot be
measured; and if it is conducted in natural setting (field experiment), impact of extraneous
factors cannot be estimated.

QUANTITATIVE SALES FORECASTING METHODS:

MOVING AVERAGE METHOD:

This method uses the Moving Average formula to average the specified number of periods to
project the next period. You should recalculate it often (monthly, or at least quarterly) to reflect
changing demand level.

To forecast demand, this method requires the number of periods best fit plus the number of
periods of sales order history. This method is useful to forecast demand for mature products
without a trend.
3.2.4.1 Example: Method 4: Moving Average

Moving Average (MA) is a popular method for averaging the results of recent sales history to
determine a projection for the short term. The MA forecast method lags behind trends. Forecast
bias and systematic errors occur when the product sales history exhibits strong trend or seasonal
patterns. This method works better for short range forecasts of mature products than for products
that are in the growth or obsolescence stages of the life cycle.

Forecast specifications: n equals the number of periods of sales history to use in the forecast
calculation. For example, specify n = 4 in the processing option to use the most recent four
periods as the basis for the projection into the next time period. A large value for n (such as 12)
requires more sales history. It results in a stable forecast, but is slow to recognize shifts in the
level of sales. Conversely, a small value for n (such as 3) is quicker to respond to shifts in the
level of sales, but the forecast might fluctuate so widely that production cannot respond to the
variations.

Required sales history: n plus the number of time periods that are required for evaluating the
forecast performance (periods of best fit).

This table is history used in the forecast calculation:

Past Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Dec

1 None None None None None None None None 131 114 119 137

Calculation of Moving Average, given n = 4

(131 + 114 + 119 + 137) / 4 = 125.25 rounded to 125.

This table is the Moving Average forecast for next year, given n = 4:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
125 124 126 128 126 126 127 127 126 126 126 126

January forecast equals (131 + 114 + 119 + 137) / 4 = 125.25 rounded to 125.

February forecast equals (114 + 119 + 137 + 125) / 4 = 123.75 rounded to 124.

March forecast equals (119 + 137 + 125 + 124) / 4 = 126.25 rounded to 126.

EXPONENTIAL SMOOTHING METHOD:

This method calculates a smoothed average, which becomes an estimate representing the general
level of sales over the selected historical data periods.

This method requires sales data history for the time period that is represented by the number of
periods best fit plus the number of historical data periods that are specified. The minimum
requirement is two historical data periods. This method is useful to forecast demand when no
linear trend is in the data.

3.2.11.1 Example: Method 11: Exponential Smoothing

This method is similar to Method 10, Linear Smoothing. In Linear Smoothing, the system
assigns weights that decline linearly to the historical data. In Exponential Smoothing, the system
assigns weights that exponentially decay. The equation for Exponential Smoothing forecasting
is:

Forecast = α (Previous Actual Sales) + (1 –α) (Previous Forecast)

The forecast is a weighted average of the actual sales from the previous period and the forecast
from the previous period. Alpha is the weight that is applied to the actual sales for the previous
period. (1 – α) is the weight that is applied to the forecast for the previous period. Values for
alpha range from 0 to 1 and usually fall between 0.1 and 0.4. The sum of the weights is 1.00 (α +
(1 – α) = 1).
You should assign a value for the smoothing constant, alpha. If you do not assign a value for the
smoothing constant, the system calculates an assumed value that is based on the number of
periods of sales history that is specified in the processing option.

Forecast specifications:

α equals the smoothing constant that is used to calculate the smoothed average for the general
level or magnitude of sales.

Values for alpha range from 0 to 1.

n equals the range of sales history data to include in the calculations.

Generally, one year of sales history data is sufficient to estimate the general level of sales. For
this example, a small value for n (n = 4) was chosen to reduce the manual calculations that are
required to verify the results. Exponential Smoothing can generate a forecast that is based on as
little as one historical data point.

Minimum required sales history: n plus the number of time periods that are required for
evaluating the forecast performance (periods of best fit).

This table is history used in the forecast calculation:

Past Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Dec

1 None None None None None None None None 131 114 119 137

This table is the calculation of Exponential Smoothing, given n = 4, α = 0.3:

Month Calculation

October Smoothed Average* = September Actual

= α (September Actual) + (1 –α) September Smoothed Average

= 1 * (131) + (0) (0) = 131

November Smoothed Average = 0.3 (October Actual) + (1 – 0.3) October Smoothed

Average

= 0.3 (114) + 0.7 (131) = 125.9 rounded to 126

December Smoothed Average = 0.3 (November Actual) + 0.7 (November Smoothed

Average)

= 0.3 (119) + 0.7 (126) = 123.9 or 124

January Forecast = 0.3 (December Actual) + 0.7 (December Smoothed Average)

= 0.3 (137) + 0.7 (124) = 127.9 or 128

February Forecast = January Forecast

March Forecast = January Forecast

* Exponential Smoothing is initialized by setting the first smoothed average equal to the first
specified actual sales data point. In effect, α = 1.0 for the first iteration. For subsequent
calculations, alpha is set to the value that is specified in the processing option.

This table is the Exponential Smoothing forecast for next year, given α = 0.3, n = 4:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

128 128 128 128 128 128 128 128 128 128 128 128
DECOMPOSITION METHOD:

Decomposition is a forecasting technique that separates or decomposes historical data into

different components and uses them to create a forecast that is more accurate than a simple trend
line. By forecasting each component separately before combining them, you can assess the
importance of each and emphasize or discount them according to changing market or economic
conditions.

The decomposition approach to forecasting recognizes that a forecast cannot be completed unless
you include all components of historical data. Although the components may vary, depending on
what variable you are forecasting, you might include a long-term underlying trend line, a cyclical
variation such as a business cycle, which would fluctuate around the trend, and a seasonal
variable, which could be based on weather or holiday consumer activity. Depending on the
variable you are attempting to forecast, you could even include a weekly variable.

Decomposing Historical Data

To illustrate how decomposition forecasting works, consider projecting retail sales as an

example. For simplification, assume the only variable applied to the long-term trend is a seasonal
component. You can create the trend line using regression analysis. To determine the seasonal
component, using your historical data, divide the actual value of sales by the trend value at that
point. After you complete this for all of your historical data sets, you can compute an average for
each of the four seasons to derive seasonal factors. To project sales for the fourth quarter,
multiply the projected trend value for that future quarter by the seasonal factor. The projection
you compute with this method is more accurate than using the trend line alone.

Expanding the Model

The formula for forecasting sales is R = ST, in which "R" equals sales revenue, "S" equals the
seasonal component and "T" is the underlying trend line. The model can be expanded to include
other components, such as a cyclical component. Obviously, the more components, the more
difficult the computations, and that is when a program such as Excel comes in handy. As with all
forecasting models, it is up to you to interpret and explain the significance of the data you use.

REGRESSION ANALYSIS METHOD:

It can be highly beneficial for companies to develop a forecast of the future values of some
important metrics, such as demand for its product or variables that describe the economic
climate. There are several different methods of making forecasts, but they all fall into two
categories: causal methods and time-series methods. Linear regression is a time-series method
that uses basic statistics to project future values for a target variable.

The two main categories of forecasting take very different approaches. Causal forecasting
attempts to predict a variable by trying to explain what factors cause it to change. For example, a
causal model to predict market demand for a product might use the product's price, competitors'
prices and the amount of money spent on advertising to explain what product demand might be
six months in the future. Causal forecasting can be insightful, and is useful to illustrate "what if"
scenarios, but the models are more difficult to devise and implement than time-series models.
Linear Regression Approach

Linear regression can be used in both types of forecasting methods. In the case of causal
methods, the causal model may consist of a linear regression with several explanatory variables.
This method is useful when there is no time component. For example, a company might want to
forecast when a material will melt under different conditions of temperature and pressure. For
time-series analysis, it is possible to develop a linear regression model that simply fits a line to
the variable's historical performance and extrapolates that into the future. This is unable to
account for seasonality or other cycles, as well as nonlinearity, but if the variable in question is
plausibly linear, using linear regression to forecast it might yield a useful prediction.
Using Linear Regression

Because much economic data has cycles, multiple trends and non-linearity, simple linear
regression is often inappropriate for time-series work. On the other hand, linear regression and
related statistical approaches are useful for causal models due to their ability to take into account
several different factors and evaluate the impact of each one. The proper use of linear regression
depends on the data and the goals of the forecaster.
NAÏVE/RATIO METHOD:

Naïve or ratio method is a time series method of forecasting, which is based on the assumption
that what happened in the immediate past will continue to happen in the immediate future. The
simple formula used is as follows:

Sales forecast for the next year= Actual sales of this year x Actual sales of this year/Actual sales
of last year.

The advantages of the method are: (a) Simple to calculate, (b) Requires less data, and (c)
Accuracy is good for short-term forecast. However the method also has certain disadvantages
such as: (a) it cannot be used for forecasting sales for long term periods and new products and (b)
accuracy of sales forecast would be less, if past sales fluctuate considerably.