Sales Management: Shaping Future Sales Leaders

Chapter 7

Designing and Organizing the

Sales Force

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Learning Objectives
 Explain how a firm’s goals affect the organization of its
sales force
 Understand that a sales force can be organized in
multiple ways
 Explain the advantages and disadvantages of different
sales force organizational structures
 Describe the various reporting relationships sales forces
 Understand the advantages and disadvantages of
outsourcing a firm’s sales force

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Sales Goals affect Sales Force
organization
 Organizational sales structures serve a number of
purposes:
 Serving buyers effectively in ways they want to be served
 Operating efficiently as measured by cost and customer
satisfaction
 Best way to design a sales structure is to
 Determine sales activities that must be performed to reach
goals
 Create sales structure that affords highest levels of service to
buyers at lowest overall cost
 Select, train and manage reps and managers to become
experts in their assigned duties

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Areas Impacted by a Sales Force Structure

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Sales Force Size: Analytical Tools

The Breakdown Approach is used to determine the

number of salespeople needed to generate a forecasted
level of sales. This approach is easy to develop.
However, it is weak conceptually. The concept underlying
the calculations is that sales determine the number of
salespeople needed—putting “the cart before the horse.”

Salesforce size = Forecasted sales / Average sales per person

Sales Force Size: Analytical Tools

The Workload Approach determines how much selling

effort is needed to adequately cover the firm’s market.
Then the number of salespeople required to provide
this amount of selling effort is calculated. This
approach relatively simple to develop and is sound
conceptually.

Total selling effort needed

Number of salespeople =
Average selling effort per
salesperson
Workload Method

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Sales Force Size: Analytical Tools

The Incremental Approach is the most rigorous for calculating

salesforce size. Its compares the marginal profits and marginal
costs associated with each incremental salesperson. The major
advantage is that it quantifies the important relationships between
salesforce size, sales, and costs. However, this method is
difficult to develop, and it cannot be used for new sales forces
where historical data and accurate judgments are not possible.
Sales Force Specialization Continuum

Generalists Specialists
Some specialization Certain selling
All selling activities
of selling activities, activities for certain
and all products to
products, and/or products for certain
all customers
customers customers

 Specialized sales structure offers expertise advantages

over generalist sales force
 Coordinated to address buyers’ needs
 Integrated with other organizational functions
Should You Specialize Your Sales
Force?
 Sales specialization improves performance
 However:
 Specialization is expensive
 Must produce results that are greater than investment
 Sales specialization is more difficult to manage
 Requires greater oversight to align with firm’s strategy
 Changing sales assignments are challenging:
 Must modify job content and account assignments
 This requires substantial planning and investment

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Sales Force Structures

 Depends on physical boundaries to organize

Geographical sales force with customer accounts
Sales Structure  Interacts with buyers as generalists

 Sales activities organized around related product

Product lines or manufacturing divisions
Sales Structure  Interacts with buyers as specialists

 Reps assigned to customers based on markets or

Market how product is sold
Sales Structure  Reps learn more about customer’s specific
business needs and offers customized solutions
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Sales Force Structures

 Selling process divided into two or

Functional
more steps performed by specialists
Sales Structure

Combinational  Sales force organized based on mix

Sales Structure of product, market, and geographical
factors

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Geographic-Based Structure

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Geographical Sales Structure

PROs CONs
 Relatively easy to design  Work best when product line is
simple
 Minimizes duplication of effort
 Can be inefficient
 Ensures a specific salesperson
is assigned to each customer
 Sales calls more efficiently
scheduled
 Territory can be divided or
combined to respond to market
conditions

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Product-Based Structure

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Product Sales Structure
 Limitation: can be confusing for buyer
 Example: Xerox has 3 separate sales forces
1. Called on same accounts
2. Had little knowledge of each other’s products
3. Confused buyers who had genuine need for Xerox
products
4. Did not cooperate by providing leads and info to each
another
 Sales rose with combined force, but rep turnover
increased
 Some reps not interested in or able to learn and sell three
separate product lines

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Market-Based Structure

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Market-Based Structure

PROs CONs
 Effective strategy when a seller  Selling expenses are higher than
wants to penetrate a new market for geographic-based structure
 Allows selling firm to vary  Multiple reps calling on same client
allocation of sales efforts to
specific industries by adding to or  Buyer confusion
reducing the number of  Duplication of effort
salespersons slotted in one area to
another  Higher expenses
 Permits firm to offer specialized
training and develop individualized
sales approaches and applications
by industry

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Functional Sales Structure
Functional Sales Structures
PROs
 Selling process divided into
steps performed by specialists
 Multible sales channel
 Example: grocery
 Establish account
 Manage inventory & orders
 Merchandising
CONs
 Coordinating multiple
specialists
 Ensuring smooth transition
from account establishment to
management

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Combination Sales Structures
PROs CONs
 Sales force organized based
on mix of product, market, and  Expensive
geographical factors  Can result in duplicate sales
 Work best when market is efforts
large, product mix complex,
and customers require different
applications

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 Comparison of
Sales Organization Structures

Organizational
Structure Advantages Disadvantages
• Low Cost
• Limited specialization
• No geographic duplication
• Lack of management
Geographic • No customer duplication
control over product or
• Fewer management levels
customer emphasis

• Salespeople become experts

• High cost
in product attr. & applications
Product • Geographic duplication
• Management control over
• Customer duplication
selling effort
 Comparison of
Sales Organization Structures

Organizational
Structure Advantages Disadvantages
• Salespeople develop
better understanding of
unique customer needs • High cost
Market • Management control over • Geographic duplication
selling allocated to different
markets

• Geographic duplication
• Efficiency in performing
Functional selling activities
• Customer duplication
• Need for coordination
Customer and Product Determinants
of Sales Force Specialization

Customer Needs Different

Market- Product/Market-
Driven Driven
Simple Specialization Specialization Complex
Product Range of
Offering Geography- Product- Products
Driven Driven
Specialization Specialization

Customer Needs Similar

Key Accounts
 Key Accounts: customers that are large in terms
of sales revenue and profitability and
strategically important for the future of the firm
 80/20 Rule: 80% of a firm’s total business and
profits are derived from 20% of its customers
 Large, strategic accounts require higher levels of
service and deeper buyer-seller relationships

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Key Account Structures
Use Existing Force
 Sales force structure is simplified
 All accounts are managed under a
single organizational structure

CONs
 Reps may take short-term view
 Reps may not understand broader,
overall needs of key acc’t

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Key Account Structures
Assign Execs
 Assigning sales and marketing
executives to manage key accounts
makes sense for smaller firms that
cannot afford separate sales effort

CONs
 Can take a lot of time, leaving less
time for other duties, like managing
sales force

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Key Account Structures
Create Separate
 Create separate sales structures to
serve most important customers
 Integrates marketing and sales for key
accounts under one organizational
structure
CONs
 Establishing distinct sales channels for
major acc’ts is more costly
 Duplication of effort
 Financial viability if key acc’ts lost
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Span of Control
 Span of control: number of individuals that report
directly to a sales manager

Span of Control Ratios (Rep:Manager)

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Span of Control vs. Management Levels

Flat Sales Organization

National

Management Levels
Sales
Manager

District District District District District

Sales Sales Sales Sales Sales
Manager Manager Manager Manager Manager

Span of Control
Span of Control vs. Management Levels

Tall Sales Organization

National Sales
Manager

Management Levels
Regional Sales Regional Sales
Manager Manager

District District District District District District

Sales Sales Sales Sales Sales Sales
Manager Manager Manager Manager Manager Manager

Span of Control
Company Salesperson or Sales Agent?
 Salesperson
 When it’s important to
control sales effort, product
or related technology is
new, buyers need high
level of service
 Company exerts greater
control over sales force
efforts
 Greater control over who is
hired
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 Sales agent
 When potential sales
revenue is low in a territory
 When revenue will take
years to become substantial
 When qualified sales agents
already operate in the area
 When it’s not feasible for
company sales force to
cover entire market (e.g.,
National Semiconductor,
Advanced Micro Systems)
Use of Sales Agents
 Common for manufacturers to use
sales agents when entering new
territories with low or unknown sales
volumes
 Selling costs (commissions) incurred only
when product or service is sold
 Advantages
 An “in-place” or existing sales force
 Established buyer relationships
 Little (or no) fixed costs
 Experienced sales personnel
 Lower costs per sales call
 Long-term stability in the territory
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Relationship Between Company Sales
Managers and Agents
 Selling firm can contract with mfg’s agent or
wholesaler’s sales force to manage accounts in
geographical regions
 Example: company sales force manages larger, more
profitable territories and also contract with agents to service
less developed, less profitable geographical territories
(insurance companies)
 Company sales mgr has little direct control over agents other
than dissolving the agency relationship
 Sales mgr must motivate agents by appealing to self-interests

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Company Salesperson or Sales Agent?
 Break-even analysis: compares fixed and variable costs
associated with the two types of reps

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Conflict Between Firm and Sales
Person/Selling Agent
Caselet 7.1 ( Page 156)
Questions
 What are the benefits of partnering with independent
reps, as opposed to a company sales force? Can a
case be made for finding a way to retain JP’s current
salespeople instead of hiring sales agents to replace
them?
 Why would the turnover rate be significantly lower for
JP if it hired sales agents?
 What type of resistance might JP encounter from its
current sales reps if it hired sales agents?
 How might JP integrate an independent rep strategy
with its existing company sales force?
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Caselet 7.2 (page 157)
Questions
 Even though IMC’s cost per call would decrease, what
other costs should Jones consider when making her
decision?
 Do you think some of the countries Jones was thinking
about offshoring to would result in potentially less caller
dissatisfaction than others?
 What criteria would you recommend that Jones
consider when selecting a potential offshore location?
 What other factors should Jones weigh as she ponders
this major shift in customer service responsibilities?

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