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Chapter

Controlling the Salesforce

SDM-Ch.7

Learning Objectives
To learn about sales and marketing intelligence system.
To know criteria and types of salesforce expense plans
To understand salesforce audit and its evaluation
process
To learn evaluation of effectiveness of a sales
organisation through sales, cost, profitability, and
productivity analysis
To know purposes and procedure for evaluating and
controlling the performance of salespeople
To understand ethical, social, and legal responsibilities
of sales managers and salespeople
SDM-Ch.7

Sales and Marketing Intelligence System


It is a part of marketing information system
(MIS).
It supplies happening data to MIS
Its sources are :

Sales people
Secondary data
Customers and intermediaries
Trade-shows
The internet
Syndicated reports from research firms
Customer advisory panels

SDM-Ch.7

Salesforce Expense Plans


Salesforce expenses include travel, meals, lodging,
telephone, and customer entertainment
Firms have salesforce expense plans to ensure proper
spending
Objectives / Criteria of effective expense plans are:
It should be
Fair to the salesperson and company
Simple and economical to administer
Clear to prevent misunderstanding
Reimbursed without much delay
Allowing differences in expenses among different
territories
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Salesforce Expense Plans (Continued)


Four types of salesforce expense plans
Salespeople pay all expenses
Merits: Simple, less cost for company, salespeople get
income tax advantage
Demerits: Less control on salespeoples activities; nonselling activities not done properly
Company pays all expenses / Unlimited payment plan
Merits: Good control on salespersons activities; no
anxiety for sales people on spending money
Demerits: Salespeople spend more and may make
money unethically
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Salesforce Expense Plans (Continured)


Company partially pays expenses / Limited payment plan
Merits: Useful in budget planning; less disputes; better
control on salespersons activities
Demerits: Needs more time to set expense limits and
administer; Inflexible plan, not liked by good salespeople
Combination plan / Expense-quota plan
Combines limited and unlimited plans
Advantages of both plans
Company has control on selling expenses; salespeople
have flexibility within total expense budget
SDM-Ch.7

Salesforce Audit
Salesforce or sales management audit is a part of marketing audit
A marketing or salesforce audit is a comprehensive, systematic,
diagnostic, and prescriptive tool, to be used periodically
Purpose. To assess adequacy of process, improve performance,
recommend changes
Evaluation process of salesforce audit. It has 3 stages. Company
management should find out:
What happened by comparing actual performance with goals
Why it happened by identifying factors contributing to negative
variance. Difficult and time consuming task
What to do about it by taking corrective actions
SDM-Ch.7

Evaluation of Effectiveness of Sales Organisation


To know what happened, companies analyse their
sales, costs, profits, and productivity
Effectiveness model of a sales organisation
Sales Analysis
Effectiveness
of a
Sales
Organisation

Cost Analysis
Profitability Analysis
Productivity Analysis

We shall examine each of the above factors


SDM-Ch.7

Sales Analysis
Sales analysis of a company can be done in different ways:
Different alternatives are shown in a framework below:
National and/or international levels sales organisation

All levels
In Sales
Organisation

Regional level
Branch /district level
Territory level

Sales Analysis

Individual level

Different
Type of
Sales

By type of distribution channels


By type of customer classifications
By size of orders

Different
Type of
Analysis
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Total sales of the company


By type of products

Comparisons with sales quotas / targets


Comparisons with previous periods
Comparisons with industry / competitors
Comparisons within sales organisations
Comparisons with sales forecasts

Sales Analysis (Continued)


Sales analysis is done at all levels of the sales organisation
Reasons
(1) For evaluation and control: sales analysis needed at different
organisation levels like regional, district, territory
(2) For identifying problems:
Use hierarchical sales analysis. E.G.
Sales performance at national level below sales volume budget
Find which regions have problems in achieving sales quotas
Focus sales analysis of branches reporting to problematic regions
Do sales analysis of territories under problematic branches
Further analysis of problematic territories to be done by talking to
salespeople, customers, branch managers
Corrective actions can then be taken to improve sales
Extend hierarchical sales analysis to different type of sales
Out of different type of analysis, comparisons with sales quotas are
widely used
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Marketing Cost and Profitability Analysis


Purpose: To measure profitability of companys
marketing units such as territories, market segments,
products, channels, & customers
This information helps to decide which marketing units to
be expanded, reduced, or eliminated in future.
Procedure
State purpose of the analysis
Identity major functional (or activity) expenses
Convert natural accounting expenses into functional
expenses
Allocate functional expenses to marketing units
Prepare profitability of marketing units, by using fullcost approach, or contribution approach
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Purpose of the Analysis


Before starting cost and profitability analysis, it is necessary
to know for which marketing units the analysis would be
done
This helps to classify costs into direct and indirect. E.G.
Salespersons salary is direct cost for territory analysis, but
indirect cost for analysis of products or segments

Identify Major Functional Expenses


The company should prepare a list of major functions or
activities with respect to marketing expenses
E.G. Personal selling expenses, order processing expenses,
packing and delivery expenses, warehousing and inventory
expenses, administration expenses
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Convert Natural Accounting Expenses into


Functional Expenses

Natural or traditional expenses are to be converted to functional


expenses, for doing marketing cost analysis
An example will make this point clear

Natural /
Traditional
Expenses

Total

Functional Expenses
Personal
Selling

Adv. and
Sales
Promotion

Warehousing &
Inventory

Administration

Salaries

20,000,000

10,000,000

4,000,000

2,000,000

4,000,000

Rent

10,000,000

2,500,000

1,000,000

5,000,000

1,500,000

5,000,000

5,000,000

__

__

__

Adv. and
Sales
Promotion

15,000,000

__

15,000,000

__

__

Total

50,000,000

17,500,000

20,000,000

7,000,000

5,500,000

Travel

Note: All figures are in Rupees

A better method for allocating costs is activity-based costing (ABC),


which allocates costs based on cause of expenses

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Allocate Functional Expenses to Marketing


Units

Functional expenses are allocated to the marketing unit under study,


depending on several bases shown below, as examples
Function

Bases of allocation of expenses

Personal selling

Directly to sales territories


Selling time given to each product and market
segment
Sales calls x average time per call to customers &
channels

Advertising and
sales promotion

Circulation of media to sales territories


Media space for each product & market segment
Equal charges to customers & channels

Administration

Equal charges for all marketing units

Above allocations are done to find marketing costs and profitability of


marketing units
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Prepare Profitability of Marketing Units


This is done by preparing profit & loss statements for the
marketing units under study
Two approaches are available in allocating marketing costs
for profitability analysis: (1) Full-cost, (2) Contribution
Full-cost approach: All marketing costs, both direct &
indirect, are allocated to the marketing unit
Useful for long-term profitability studies of products and
market segments
Contribution approach: Only direct marketing costs are
allocated to the marketing unit
Useful for short-term decisions like profitability of
branches / regions
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An Example of Profitability Analysis


SNo

Particulars

Full-cost
Approach

Contribution Approach

Western Region

Branch A

Branch B

Branch C

Sales

400

150

130

120

Cost of good sold

300

112.5

97.5

90

Gross margin (1-2)

100

37.5

32.5

30

Branch selling
expenses

12.7

4.5

4.2

W. Region direct
selling expenses

12.0

Contribution (3-4-5)

75.3

33.0

28.3

26.0

Allocated indirect
expenses

36.3

Net profit (6-7)

39.0

Note: All figures are in Rupees million


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Productivity Analysis
Productivity is generally measured by ratio between output & input
Some of the productivity ratios in sales management are:
Sales per salesperson (used by many companies)
Selling expenses per salesperson
Sales calls per salesperson
Improvement in productivity leads to increase in profitability
Some of the methods used by firms to improve productivity
Reducing salesforce size
Hiring manufacturers reps. or agents on commission basis
Using the internet, telemarketing, direct mail to reach
customers
Increasing sales volume substantially

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Evaluating & Controlling Performance of


Salespeople
Purposes / objectives / importance of performance
evaluation of salespeople are:
Mainly to find how salespeople have performed
This information is used for other purposes, such as:
Improving salespersons performance, by identifying
causes of unsatisfactory performance
Deciding salary increments and incentive payments
Identifying salespeople for promotion
Determining training needs
Motivating salespeople through recognition and
reward
Understanding strengths and weaknesses of
salespeople
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Procedure for Evaluating and Controlling


Salesforce Performance
The steps involved in the procedure are:
Set policies on performance evaluation and control
Decide bases of salespersons performance evaluation
Establish performance standards
Compare actual performance with the standards
Review performance evaluation with salespeople
Decide sales management actions and control
We shall describe above steps briefly

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Set Policies on Performance Evaluation & Control


Most companies establish basic policies. Examples are:
Frequency of evaluation. Mostly once a year.
Who conducts evaluation? Mainly immediate
supervisor
Assessment techniques to be used. E.G.
Management by objectives (MBO), 360-degree
feedback
Sources of information. Sales analysis, new business
reports, lost business reports, call plans, etc
Bases of salesforce evaluation. (next slide)
Conducting performance review sessions with
salespeople
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Decide Bases for Salespersons Performance Evaluation

A firm should decide which of the following bases / criteria it would use: (1)
result / outcome based, (2) efforts / behavioural based, or (3) both results &
efforts based
A company selects performance bases or criteria from a list of alternatives,
some of them shown below:

Quantitative results /
outcome bases / criteria
Sales volume
In value / units
Percentage of quota
by products &
segments
Accounts / customers
New accounts nos.
Lost accounts nos.
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Quantitative efforts /
Qualitative efforts /
behavioural bases / criteria behavioural bases / criteria
Customer calls
No. of calls per day
No. of calls per
customer
Non-selling activities
overdue payments
collected
No. of reports sent

Personal skills
Selling skills
Planning ability
Team player
Personality & Attitudes
Cooperation
Enthusiasm

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Establish Performance
Standards
Performance standards are also called sales goals,
targets, sales quotas, sales objectives
Performance standards for quantitative results are
related to the companys sales volume or market share
goals
Performance standards for efforts / behavioural criteria
are difficult to set
For this, companies do time and duty analysis or
use executive judgement
Performance standards should not be too high or too low
After establishing standards, salespeople must be
informed
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Compare Actual Performance with Standards


Salespersons actual performance is measured and
compared with the performance standards
For this, sales managers use different methods or forms:
Graphic rating scales
Ranking
Behaviourally anchored rating scale (BARS)
Management by Objectives (MBO)
Descriptive statements
Companies combine some of the above methods for an
effective evaluation system
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Review Performance Evaluation with


Salespeople
Performance review / appraisal session is conducted, after
evaluation of the salespersons performance
Sales manager should first review high / good ratings, and
then review other ratings
Both should decide objectives / goals and action plan for future
period
After the review, sales manager should write about
performance evaluation & objectives for the future
Guidelines for reviewing performance of salespersons
First discuss performance standards / criteria / bases
Ask the salesperson to review his performance
Sales manager presents his views
Establish mutual agreement on the performance
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Decide Sales Management Actions and Control


Many companies combine this step with the previous step
i.e. performance review
During performance review meeting with salesperson,
sales manager does the following:
Identifies the problem areas. E.G. Sales quotas not
achieved
Finds causes. E.G. less sales calls, poor market
coverage, or superior performance of competitors
Decides sales management actions E.G. train
salesperson, redesign territories, or review companys
sales / marketing strategies
If a salespersons performance is good, he / she should
be rewarded and recognised
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Business Ethics and Sales Management


Sales managers
responsibilities

and

salespeople

have

ethical

Some of the ethical situations are:


Relations with the company. EGs. Expense
statements, credit for damaged merchandise
Relations with customers. EGs. Gifts, false
information to get business, customer entertainment
Ethical guidelines
A code of ethics developed by the company would be
effective if it is enforced by top management
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Social
Responsibilities
Corporate social responsibility means distinguishing right from
wrong and doing the right
Social responsibility is the managements responsibility to take
decisions and actions for welfare and interests of society and the
company
A company has following four responsibilities to its eight
stakeholders: Customers, Community, Creditors, Government,
Owners, Managers, Employees, and Suppliers, acronym:
CCCGOMES
Ethical responsibilities. Deal with fairness, equity, impartiality
Legal responsibilities. Follow laws and regulations
Economic responsibilities. Produce and market goods /
services that society wants, and make reasonable profits
Voluntary responsibilities. Make social (EG philanthropic)
contributions
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Legal Responsibilities and Sales Management


Laws and regulations by local, state, or
governments have impact on sales management

central

Price discrimination. As per MRTP act, 1969, seller should


not discriminate prices among similar buyers (e.g. retailers)
Price fixing. Under MRTP act, it is unlawful for suppliers to
fix prices
Consumer protection. As per Consumer Protection Act,
1986, it is illegal to make false or misleading claims about
products / services
Bribes. Payment of money or giving gifts to gain a
customer is illegal under Indian Contracts Act 1872 and
Sale of Goods act, 1930. Sales managers must take
responsibility that laws are not violated
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Key Learnings
Sales and marketing intelligence system supplies happening
data to marketing information system (MIS), and it is a part of
MIS.
Salesforce expenses include travel, meals, lodging,
telephone, and customer entertainment
Salesforce expense plans consists of (1) salespeople paying
all expenses, (2) company paying expenses partially, (3)
company paying all expenses, (4) combination plan
Salesforce audit is done to access process adequacy,
improve performance, and recommend changes
For evaluating effectiveness of a sales organisation, the
company analyse sales, costs, profits, and productivity
Sales analysis is done at all levels in a sales organisation, for
(a) evaluation and control, and (b) identifying problems
Purpose of marketing cost and profitability analysis is to
measure profitability of companys marketing units
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Key Learnings
(Continued)
Two approaches for profitability analysis are: fullcost and contribution
Most commonly used productivity ratio in sales
management is sales per salesperson
Main purpose of performance evaluation of
salespeople is to find how salespeople have
performed
Sales managers have ethical, social, and legal
responsibilities
Corporate social responsibility is distinguishing
right from wrong and doing the right
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