INTRODUCTION TO SALES AND

DISTRIBUTION MANAGEMENT
Agenda

Introduction to Sales and Distribution

Understanding of Salesmanship

Facets of successful salesman

Mastering the skill sets

Tips for an effective salesman

Objectives of Sales management

Steps in Sales Management

Customer Lifetime Value
Management of Accounts Receivable
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Sales management Steps

 Companies use sales strategies and tactics in order to make a consumer buy
their products or services. Before we processed further, we should know the
meaning of sales strategies and tactics. Although they go hand in hand, they are
distinct.

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1. Set Objective

 The very first step in sales management is setting goals and objectives. The
senior management of a firm needs to sit together and reach a mutual decision
regarding what the vision and resolution of the firm is.
 This may sound quite easy but setting objective acts as a framework for
designing a company.
 If efficient decisions are made and objectives are set according to the
company’s potential and the market demand, the company progresses
wonderfully. However, if the objectives are poorly set, then the company might
not prosper.

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2. DevelopSalesStrategy

 After the objectives are set for the company to achieve, a strategy needs to be
designed. Sales strategy can be defined as how a company markets or wants to
sell its products or services. It can be a concept of how the company meets the
desired objectives and marketing goals; it also clarifies what the sales
executives do.
 Strategy includes various components. following are a few of the components:
a)Knowledge of the company’s brand history and consumer market
b)The way marketing is going to influence overall business
c)Competitors’ performance
d)Pros and cons of the plan

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3. Develop Tactics

 A strategy explains the purpose of the company whereas tactics explain the
process to move forward and implement the plan. Sales strategy is important as
compared to the individual tactics. But after the strategy is designed, we need to
develop tactics to follow the strategy.
 Sales tactics can be defined as the action taken by the company to impose its
sales strategy to bring it to life. There are different modes in which the company
delivers the message to the consumers such as websites, brochures,
advertisements in social media, etc.
 An investor or lender will invest in the company if they know about the objective
and the strategy of the company; else, it becomes difficult for the company and
the lenders to make or justify a decision of whether to invest in the company.
 The company has to know that investment by lenders is very much required for
the marketing campaign. If the tactics are excellent but the strategies are not
defined in a proper manner or defined poorly, it does not help the company to
grow.

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Agenda

Introduction to Sales and Distribution

Understanding of Salesmanship

Facets of successful salesman

Mastering the skill sets

Tips for an effective salesman

Objectives of Sales management

Steps in Sales Management

Customer Lifetime Value
Management of Accounts Receivable
7
Customer Lifetime Value

 Customer lifetime value (CLV) is one of the key stats likely to be tracked
as part of a customer experience program. CLV is a measurement of how
valuable a customer is to your company with an unlimited time span as
opposed to just the first purchase. This metric helps you understand a
reasonable cost per acquisition.

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CLV

 CLV is the total worth to a business of a customer over the whole period of their
relationship. It’s an important metric as it costs less to keep existing customers
than it does to acquire new ones, so increasing the value of your existing
customers is a great way to drive growth.
 If the CLV of an average coffee shop customer is $1,000 and it costs more than
$1,000 to acquire a new customer (advertising, marketing, offers, etc.) the
coffee chain could be losing money unless it pares back its acquisition costs.
 Knowing the CLV helps businesses develop strategies to acquire new
customers and retain existing ones while maintaining profit margins.
 CLV is distinct from the Net Promoter Score (NPS)that measures customer
loyalty, and CSAT that measures customer satisfaction because it is tangibly
linked to revenue rather than a somewhat intangible promise of loyalty and
satisfaction.

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How Do You Measure CLV?

 If you’ve bought a Rs.40 Christmas tree from the same grower for the last 10
years, your CLV has been worth Rs.400 to them. But as you can imagine, in
bigger companies CLV gets more complicated to calculate.
 Some companies don’t attempt to measure CLV, citing the challenges of
segregated teams, inadequate systems, and untargeted marketing.
 When data from all areas of an organization is integrated however, it becomes
easier to calculate CLV.
 CLV can be measured in the following way:
 Identify the touchpoints where the customer creates the value
 Integrate records to create the customer journey
 Measure revenue at each touchpoint
 Add together over the lifetime of that customer
 At its simplest, the formula for measuring CLV is:
 Customer revenue minus the costs of acquiring and serving the customer = CLV
 Functions can be added to this simple formula to reflect multiple purchases,
behavior patterns, and engagement to predict CLV.
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Why Is CLV Important for a salesperson?

 Ultimately, you don’t need to get bogged down in complex calculations – you
just need to be mindful of the value that a customer provides over their lifetime
relationship with you. By understanding the customer experience and
measuring feedback at all key touchpoints, you can start to understand the key
drivers of CLV.

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But How Much Are Your Customers
Costing You?

 CLV is a great metric to track and optimize, but one thing to keep a close eye on
too is the cost of that customer to your business.
 This is where Cost to Serve comes in. If the cost of serving an existing customer
becomes too high, you may be making a loss despite their seemingly high CLV.
 So there’s a balancing act to negotiate here. To go back to our paid TV
subscription, your cost to serve might be higher in the first year of a contract but
gradually drop off the longer they stay with you. Thus, if your renewal rates
drop, your average cost to serve is likely to rise and cause a drop in profitability.
 Understanding these numbers over time and being able to track them side by
side is the only way to get a true understanding not only of what’s driving
customer spend and loyalty but also what it’s delivering back to the business’s
bottom line.

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Formulae

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Example: CLV

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CLV: Example

 As an example, let’s create a hypothetical company to calculate the lifetime

value of a customer.
 The average sale for the boutique clothing retailer, Fabindia, is Rs.300, and the
average customer shops with them three times per year for two years. The
lifetime value of this customer is calculated as follows:
 Lifetime Value = Rs.300 × 3 × 2
= Rs.1800

 After calculating the cost of goods sold (COGS), overhead, marketing, and all
other administrative expenses, Fabindia’s profit margin is 20%.
 Customer Lifetime Value = Rs.300 × 3 × 2 × 20%
 = Rs.1800 × 20%
 = Rs.360

 This calculation reveals the customer lifetime value of the average Fabindia
customer is Rs.360 — far less than the lifetime value calculated above. As a
retailer, this number is used to project cash flow and to understand how many
customers you must acquire and retain to reach desired profitability. 15
Customer Lifetime Value
Contributing Factors

 When considering what weighs on the customer lifetime value we must consider
how the customer perceives the brand in question.
 If a customer does not feel any brand loyalty or incur switching costs when
transitioning their business to a competitor’s product, then it’s likely the
customer lifetime value will be impacted negatively. We must also consider how
scalable the sales and marketing efforts are when growing revenues and
increasing customer lifetime value.

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Churn Rate

 How often do customers stop shopping with a business they’ve previously

patronized? The rate of attrition, or churn rate, differs from business to business,
depending on the competitive advantage a business can command. Startups,
for example, experience a much larger attrition rate than a given industry’s
entrenched incumbents.
Churn rate is calculated by:
 Subtracting customers at the end of the period from customers at the beginning
of the period.
 Dividing the difference by the number of customers at the beginning of the
period.
 For example, if a business started the year with 1,000 loyal customers and
ended the year with 750 customers, their churn rate would equal 25%. This
means 25% of their customers took their business somewhere else.

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Scalable Sales and Marketing

 How scalable are your sales and marketing tactics? If a company’s revenue
growth is directly correlated to sales and marketing expenses, it is important to
optimize those efforts. If revenue decreases, but the sales and marketing
expenses continue to expand, profit margins will be squeezed and could result
in a loss.
 This is why a scalable sales and marketing strategy is essential. Tracking key
metrics and measuring performance will allow for quick strategic pivots when
efforts are proving ineffective. Testing new channels, A/B testing strategies, and
optimizing for conversions will allow you to scale your sales and marketing.

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Tips to Increase Customer Lifetime
Value

 Some companies have the luxury of a true ―moat,‖ or an effective defense

against competitor disruption. Companies leveraging economies of scale, for
example, can attain a much lower price point than the competition.
 Most companies, however, do not have this luxury. This means they must
implement tactics to improve operational efficiencies and impress customers
through targeted, personalized, and relevant communication.

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Optimize Onboarding

 With churn rates the highest after a single interaction with the average company,
it’s important to make the first impression positive. Customers often need
education on the features and benefits of your product to truly understand how
the product can positively impact their lives.
 In a service business, effective onboarding can be as simple as demonstrating a
dedication to customer service and availability to solve customer problems.
Being attentive to the needs of a first-time customer and relieving any
hesitations about their decision to purchase should be top priority for this first
interaction.

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Effective Communication

 An open line of communication between the company and customer

strengthens the relationship and makes the company feel more human. In
today’s environment, it’s more important than ever to respond to feedback,
especially negative comments, and poor ratings.
 Customers appreciate when their voices are heard. The simple
acknowledgement that a company is receptive to feedback and their problems
will be addressed can be a catalyst for repeat business.
 Increasing the effectiveness of customer communication also applies to sales
and marketing copy. You can measure the performance of communication with
customers by assessing churn rate and ad conversion rate.

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Loyalty Program

 Implementing a loyalty program can be a great way to personalize the customer

experience while incentivizing repeat purchases. Some common loyalty
programs offer reward points, or the ability to unlock free and discounted
product after the accumulation of purchases. For example, buy nine cups of
coffee and get the tenth free.
 Customers are proud of the rewards they accrue and companies are rewarded
with an increase in customer lifetime value. An airline, for example, rewards
customers who make purchases using their exclusive credit card with free miles
that can contribute to the cost of a flight or accrue to a free flight.

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Retargeting

 One of the most important tactics to improve customer lifetime value is to re-
engage customers who have had a previous experience with the brand.
Retargeting can be a simple reminder of the company and at the very least,
increase brand recognition. Products with a shelf life can greatly benefit from
retargeting efforts as their time-sensitive nature will require another purchase.
 Customer lifetime value is a metric that all businesses should consider when
planning for future growth and projecting profitability pro formas. Businesses
should implement strategies to increase the customer lifetime value, especially
since the cost to retain an existing customer is substantially less than acquiring
a new customer.

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Customer Lifetime Value Statistics

 A 5% increase in retention produces a 25% increase in profit.*

 Acquiring a new customer is between 5x and 25x more expensive than retaining
an existing customer.*
 The probability of converting an existing customer is between 60%-70%.*
 Existing customers spend 67% more on average than new customers.*
 76% of companies see CLV as an important concept for their organization

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Agenda

Introduction to Sales and Distribution

Understanding of Salesmanship

Facets of successful salesman

Mastering the skill sets

Tips for an effective salesman

Objectives of Sales management

Steps in Sales Management

Customer Lifetime Value
Management of Accounts Receivable
25
What is Accounts Receivable
Management?

 The meaning of accounts receivable management originates from the objectives

with which receivables are managed.
 The primary purpose of managing receivables is not to boost sales. Nor it is to
reduce bad debt risk. But, the main objective behind managing receivables is to
maximize the enterprise value. Thus, a business needs to maintain a balance
between liquidity, risk and profitability in order to maximize the enterprise value.
 This means that a business should expand sales through trade credit to the
extent to which risk of bad debts remains within limit. This is because the main
objective of business in managing receivables is to improve the overall return on
investment in accounts receivable. Furthermore, the investment in accounts
receivable needs to be of optimum level. So, the business needs to compare
benefits with costs involved in maintaining receivables. This is done to
determine the optimum level of investment to be made in receivables.

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Objectives of Accounts
Receivables Management

 achieve optimum not maximum volume of sales

 control the cost of credit and retain it to the minimum possible level
 maintain investment in accounts receivables at an optimum level

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Common Risks

 While no company intends to adopt weak accounts receivable policies, lack of

planning, poor enforcement or a failure to focus on the function can result in
unintended consequences. These often arise when companies:
 Fail to follow up with customers in a timely manner when payments are past
due
 Allow sales reps to override credit limits – and end up suffering losses from bad
credit risks
 Neglect to provide staff with appropriate training on how to deal with late paying
customers
 Don’t pay sufficient attention to the accuracy of their bills, invoices or credit
terms
 Allocate cash payments incorrectly, making it harder to figure out which
payments are outstanding

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Accounts Receivables Best Practices

 The objective of management of receivables is not to expand sales but is to

maximize overall returns on investment in them. Therefore, a business should
not concentrate on merely collecting receivables within the shortest time
possible. But, it should aim at comparing benefits with costs of various practices
adopted to manage receivables.
 Therefore, a business should follow sound principles of trade credit
management in order to bring effectiveness to the process. Following are
certain well established principles of credit management that a business needs
to practice:

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1. Credit Extension Policy

A clearly laid out credit policy helps a business to extend credit to its customers.
The main objective of establishing guidelines in a credit policy is to avoid
granting credit to non – paying customers. Thus, a good credit policy helps
business in attracting and retaining quality customers. As a result, such a policy
does not have a negative impact on cash flows of a business. Furthermore, a
well written credit policy enhances the productivity of the organization. So,
following are the reasons why a company must have a written credit policy.
 makes the whole task of managing receivables a serious affair
 brings consistency among various departments within the organization
 provides a consistent approach to be followed towards customers
 gives recognition to the credit department as a separate entity
 Therefore, a business needs to determine an effective credit policy. This policy
is determined after comparing the profit arising out of additional credit sales with
the cost incurred in managing receivables arising out of such sales.
 Now a credit extension takes into consideration various variables.

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a. Credit Standard

 Credit standard refers to the financial strength of a debtor that is acceptable to a

business. It concerns with the minimum level of credit worthiness of a customer
to whom a business would readily want to extend trade credit. Now, a business
can have either a strict or liberal credit standard. In a liberal credit standard, a
business establishes lenient minimum requirements to be met by a credit
customer.Thus, a lenient credit standard has the following attributes:
 increase in sales and customers
 increased clerical costs
 large investment in accounts receivable
 higher probability of default due to trade credit given to non – paying customers
long average collection period
 increased profit due to increased sales

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Credit Standard

 However, a strict credit standard includes an increased number of minimum

requirements to be met by a trade creditor. Following are the implications of a
strict credit standard:
 decrease in sales as trade credit is extended to only quality customers
 reduction in bad debts
 less amount of working capital invested in trade receivables
 high quality of credit standards of the business
 low costs of maintaining accounts receivables
 decrease in profits due to reduction in sales
 In conclusion, the amount of sales of a business is bound to increase if the
business has lenient credit standard. Whereas, the amount of sales for a
business tends to fall if it practices strict credit standards. Therefore, a business
needs to compare the profits resulting from increased sales with costs
associated with it before making a credit standard lenient.

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b. Credit Terms

 Credit terms are conditions set by a business on the basis of which a firm
extends credit to its customers. Therefore, the magnitude of accounts
receivables gets impacted by the terms of credit. Now, the credit terms may
include techniques like:
1. Extending the Credit Period
 Credit period refers to the amount of time a business gives to its credit
customers for the purchases made. Usually, customers favor long credit
periods. Therefore, increasing the credit period leads to increase in sales for the
business. However, longer credit periods lead to longer cash conversion
cycle for the business. This means a business will have to block more funds into
trade receivables that turns out to be costly for the business. Furthermore, there
is a higher chance of the customer defaulting in case the receivables remain
outstanding for a longer period. Therefore, a business needs to compare the
costs and benefits attached with extending the credit period. This can be done
by formulating a sound credit policy.

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b. Credit Terms

2. Offering Discounts
 A business can also offer discounts in order to attract customers. The discounts
are the incentives given to the customers in order to make payments early. Now,
the credit term pertaining to discounts mentions the percentage reduction in
price as well as the earliest time within which payments must be made. Thus, a
customer needs to abide by such conditions in order to become eligible for
availing such discounts. Therefore, a business has two advantages in giving
discounts to its customers:
 discounts add to sales as they lead to reduction in prices
 price reductions or discounts offered to customers encourages them to make
early payments. This leads to a short cash conversion cycle for the business.
However, discounts also lead to a decrease in prices that further reduces
revenue for the business. Therefore a business needs to compare benefits and
costs of offering discounts when creating a credit policy.

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b. Credit Terms

 3. Credit Risk Analysis and Evaluation

 The main objective of managing accounts receivable is to ensure that an optimum level of investment is
made in accounts receivable. Furthermore, it aims to reduce the amount of bad debt losses
considerably. Hence, a business should formulate guidelines that help in determining the
creditworthiness of the customers before extending credit to them.
 Following are the things management should consider while undertaking the credit risk analysis of the
credit customer:
 Review the financials of customers
 Verify the payment history of customers
 Analyse the working of a company as a whole
 Consider the efforts made by customers with a weak credit worthiness in order to turn around their
position
 Compare the opportunity cost of losing a customer under strict credit policy as against incurring bad
debts under lenient policy
 Asking for guarantee or a letter of credit in case of customers with relatively weak credit worthiness
 Review the credit worthiness of the important existing customers regularly
 Focus on the five Cs that define the credit risk of the customer – character, capacity, capital, collateral,
conditions
 Gain access to internal and external sources in order to gather information about the credit applicant
 Specify the rights and duties of a business with regards to its debtors. Furthermore, clearly state the
legal consequences customers might face in case of late payments.
 Mention the various means through which payments are accepted by business
 Clearly indicate the way in which discounts are given to customers, Also specify the authority
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responsible for giving such discounts.
2. Credit Collection Policy

 Credit collection policy refers to methodology adopted by a business to collect

payments that are overdue. A business can have either a strict or lenient credit
collection policy. Thus a business can improve its cash flows by reducing its
average debt collection period. This is achieved by keeping a regular check on
customers. However, a firm should not excessively pressurize customers to
make payments as that would mean loss of business. Thus a business needs to
compare costs and benefits of strict and lenient credit policy. Following are the
best practices that a business can adopt to enhance its collection policy:
 Send constant reminders to customers
 Stop making sales on credit to non – paying customers until they clear their
previous balances
 Print and mail invoices to customers quickly
 Ensure accuracy of invoices
 Offer incentives like discounts to pay early
 Penalize late paying customers to ensure timely payments
 Thus, the above strategies showcase how important it is to manage accounts
receivable.

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Thank you
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Bibliography

 https://www.qualtrics.com/experience-management/customer/customer-lifetime-
value/
 https://clevertap.com/blog/customer-lifetime-value/
 https://quickbooks.intuit.com/in/resources/finance-and-accounting/accounts-
receivable-management/
 file:///C:/Users/Subhanan/Desktop/lecture_ibs/SEM3/book2_Sales_Managemen
t
 file:///C:/Users/Subhanan/Desktop/lecture_ibs/SEM3/Book_Sales_&_Distributio
n_Management
 file:///C:/Users/Subhanan/Desktop/lecture_ibs/SEM3/Book_Sales_&_Distributio
n_Management

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