SALES AND DISTRIBUTION

MANAGEMENT

BY: MUKESH MISHRA

 Sales Forecasting
 The success of business enterprise largely
depends on how the market forecast has been
done because supply chain management
depends on the demand patterns for the
category as well as for the brand in the market
 If the demands for a particular firm can be
predicted with a certain level of accuracy, the
procurement can be channelized as per the
demand
 Sales Forecasting
 Corresponding inbound logistics of the raw
material to the factory and inventory level
during the production process, and the final
output inventory can be regulated and
modified depending on the sales pattern in
the market.
 Sales Forecasting
 Sales forecasting is a process of estimating the
future sales pattern of a firm by taking the
past information and opinion into account for
desired period of time.
 Forecasting helps in estimation of future sales
but the level of accuracy of the estimation
depends on how and what type of information
has been collected to forecast the sale
 Forecasting process
The forecasting process is defined as the series
of decisions and actions taken by a business
organization in:
 identifying the forecasting objectives
 determining the independent and
dependent variables
 developing a forecasting procedure
 using the available data in the
selected method to estimate the sales in
future
 Forecasting process

Determine
Develop forecasting independent and Forecast objectives
procedure dependent variables

Select forecasting Evaluate performance

results against the
analysis method
forecasts

Comprehend total
forecasting procedure
Present all the
assumptions about Make and finalize
Collect, collate, data the forecast
gather and analyze
data
 Basic Terms Used in Sales Forecasting
 Market demand for a product or service is the
estimated total sales volume in a market (or industry)
for a specific time period in a defined marketing
environment, under a defined marketing program or
expenditure. Market demand is a function associated
with varying levels of industry marketing
expenditure.
 Market (or industry) forecast (or market size) is the
expected market (or industry) demand at one level of
industry marketing expenditure
 Basic Terms (Continued)
 Market potential is the maximum market (or industry)
demand, resulting from a very high level of industry
marketing expenditure, where further increases in
expenditure would have little effect on increase in demand
 Company demand is the company’s estimated share of
market demand for a product or service at alternative
levels of the company marketing efforts (or expenditures)
in a specific time period

Fig. Market Demand Functions

Market demand

Market Potential

Market Forecast
Market Minimum

Industry marketing expenditure

 Basic Terms (Continued)
 Company sales potential is the maximum estimated company
sales of a product or service, based on maximum share (or
percentage) of market potential expected by the company
 Company sales forecast is the estimated company sales of a
product or service, based on a chosen (or proposed) marketing
expenditure plan, for a specific time period, in a assumed
marketing environment
 Sales budget is the estimate of expected sales volume in units
or revenues from the company’s products and services, and the
selling expenses. It is set slightly lower than the company
sales forecast, to avoid excessive risks
 Forecasting Approaches

 Two basic approaches:

• Top-down or Break-down approach

• Bottom-up or Build-up approach

 Some companies use both approaches to increase

their confidence in the forecast
 Steps followed in Top-down / Break-
down Approach
 Forecast relevant external environmental factors
 Estimate industry sales or market potential
 Calculate company sales potential = market potential
x company share
 Decide company sales forecast (lower than company
sales potential because sales potential is maximum
estimated sales, without any constraints)
 Steps followed in Bottom-up / Build-up
Approach

 Salespersons estimate sales expected from their

customers
 Area / Branch managers combine sales forecasts
received from salespersons
 Regional / Zonal managers combine sales forecasts
received from area / branch managers
 Sales / marketing head combines sales forecasts
received from regional / zonal managers into
company sales forecast, which is presented to CEO
for discussion and approval
 Popular methods in forecasting
Qualitative methods

Sales force
Expert opinion Survey of buyer’s Delphi technique
composite
expectation

History analogy

Quantitative methods

Test marketing Naïve method Trend method

Exponential
Moving average Regression method smoothening
Executive opinion method
 Most widely used
 Procedure includes discussions and / or average of all
executives’ individual opinion
 Advantages: quick forecast, less expensive
 Disadvantages: subjective, no breakdown into subunits
 Accuracy: fair; time required: short to medium (1 – 4 weeks)
Delphi method
 Process includes a coordinator getting forecasts separately
from experts, summarizing the forecasts, giving the summary
report to experts, who are asked to make another prediction;
the process is repeated till some consensus is reached
 Experts are company managers, consultants, intermediaries,
and trade associations
 Delphi Method (Continued)
 Advantages: objective, good accuracy
 Disadvantages: getting experts, no breakdown into subunits,
time required: medium (3/4 weeks) to long (2/3 months)
Sales force composite method
 An example of bottom-up or grass-roots approach
 Procedure consists of each salesperson estimating sales.
Company sales forecast is made up of all salespersons’ sales
estimates
 Advantages: Salespeople are involved, breakdown into
subunits possible
 Disadvantages: Optimistic or pessimistic forecasts, medium to
long time required
 Accuracy: fair to good (if trained)
Survey of Buyers’ Intentions Method
 Process includes asking customers about their
intentions to buy the company’s products and
services
 Questionnaire may contain other relevant
questions
 Advantages: gives more market information,
can forecast new and existing products, good
accuracy
 Disadvantages: some buyers’ unwilling to
respond, time required is long (3-6 months),
medium to high cost
Historical Analogy Method
This is used for forecasting the demand for product
or service for which there is no past demand data.

Sometimes, product may be new, but organization

might have marketed other product earlier with
features similar to those of the new product
So, marketing personnel may use the historical
analogy between the two products and derive the
demand for the new product using historical data of
earlier product
 Quantitative methods of
Forecasting
1 .Test Marketing
 This method is useful for forecasting sales of
new product which has no historical figure
 It can also be used for estimating sales for an
established product in a new territory
 Major methods used for consumer- product
market testing include
 Quantitative methods of
Forecasting
a)Full-blown test markets
 It consists of the company choosing a few
representative cities, in which full promotion
campaign is introduced, similar to what
would be done in National Marketing
 The duration of test market varies from a few
month to one year, depending on the
repurchase period of the new product
 Quantitative methods of
Forecasting
 Buyer surveys are carried out to get information
about consumer attitude, usage and satisfaction
towards new product.
 If the test markets show high trial and repurchase
rates, the product should be launched nationally
 If they show a high trial rate and low purchase rate,
the new product should be redesigned or dropped
 If they show a low trial rate and high repurchase
rate the product is acceptable but more consumer
should try it
 If the both are low, the new product should be left
permanently
 Quantitative methods of
Forecasting
b. Controlled test marketing
 The company with new product hires a research
firm and gets a panel of stores at specific
geographic locations.
 The research firm delivers the new product to the
panel of stores, arranges promotions at the stores,
and measures the sales of the new product
 The research firm also interviews sample
consumers to get their perceptions on the new
products
 Both full blown test markets and controlled test
marketing expose the new product to the
competitors
 Quantitative methods of
Forecasting
c) Simulated Test Marketing
 In this method, about 30-40 consumers are
selected, based on their brand familiarity
and preferences in a particular product
category.
 These shoppers are shown commercials or
print advertisement of well known product,
and also the new product, without any
specific mention.
 Quantitative methods of
Forecasting
 These consumers are given small amount
of money and asked to buy any items in a
store.
 The researcher of the company notes how
many consumers buy the new product and
competing products.
 These consumer are interviewed to find
reasons of buying or not buying, and later,
after usage of the new product,
satisfaction level and repurchase intentions
 Quantitative methods of
Forecasting
2. Time Series Analysis
 It is a series of techniques that make
forecasts based on the past pattern of data.
 These data are collected, observed, and
recoded at regular intervals of time.
 These methods are useful when the market
forces are somehow stable and the market
show least erratic behavior.
 Actions taken by the firm and competitors
move are not taken into account
 Quantitative methods of
Forecasting
 It uses chronological ordered raw data.
historical data are used to project future sales,
however future events are often different from
past event which make the accuracy of such
methods far less than 100%.
 By studying the historical correlation of the
sales level over the time, a sales manager can
identify a trend and find a general indication
of the possible continuation of the time
series.
 Quantitative methods of
Forecasting
 The major advantage of time series analysis
is its objectivity as it is based on the
established record of historical data.
 The sales manager can undertake time series
analysis in 4 ways
 The change that has occurred as a result of
general tendency of data to increase or
decrease are known as secular movement.
 Changes that have taken place during the
period of 12 months as a result of change in
climate, weather condition and festivals are
termed as seasonal variation
 Quantitative methods of
Forecasting
 Changes that have taken place as a result
of boom and depression are called cyclic
variation.
 Changes that have taken place as a result
of such unpredictable forces as floods,
earthquakes, famines, etc. are classified as
irregular or erratic variations
 Quantitative methods of
Forecasting
 If there is a change in the company`s
effort in the form of wearing out of
advertising, excess of sales promotions,
alteration in prices, opening of new
distribution outlets, or discovery of new
use of product, any such change may affect
the time series and the trend may shift
dramatically, thereby reducing the
accuracy level of method used for
forecasting.
 Trend forecast of Sales
Observed sales Forecasted sales

Sales il n
e
end
Tr

Time

.
 Naïve Method
 The simplest trend projection is known as naive
projection
 In this approach, the sales of future period are
forecasted as the value of the sales of the previous period

Next Year’s Sales = This Year’s Sales X This Year’s Sales

Last Year’s Sales
 Method of semi-averages
In this method available data are divided into two parts, usually with
equal number of years on both the parts
Year Sales
1993 102
1994 105
1995 114
1996 110
1997 108
1998 116
1999 112
The average of the first three years will be:
102+105+114 321
----------- = -------- = 107
3                    3
 Similarly, for the last three years,
108 + 116 + 112 336
---------------------- = --------- = 112
3                            3
 Method of semi-averages

 These two points, 107 and 117, will be

plotted to their corresponding middle
years.i.e 1994 and 1998. by joining these
two points, we get the trend line, which can
be extended to get future value
 Moving Average Method
 In this method, average value for a no. of
years is taken and this average is taken as
the normal or trend value for the unit of
time falling at the middle of period covered
in the calculation of the average.
 In this method, the forecaster estimates
sales based on an average of previous time
period
 Moving Average Method
The 3-yearly moving average can be computed with the
following formula:
a+b+c b+c+d c+d+e d+e+f
--------- , ----------- , ---------- , --------- , ………….
3 3 3 3
 Exponential smoothing method
• It is similar to the moving- average forecasting method
• The forecaster is allowed to vary the weights assigned to
past data points
• It allows consideration of all past data, but less weight is
placed on data as it ages
• Exponential smoothing is basically a weighted moving
average of all past data
• The method is used to forecast only one period in the
future
• Exponential smoothing techniques vary in terms of how
they address trend, seasonality, cyclical and irregular
influences
Exponential smoothing method

 While using this method, a probability-

weighting factor, or smoothing constant, is
selected arbitrarily.
 This factor is usually between 0.1 and 0.5
but can range from something greater than
zero to something less than 1.0.
 This value determines how sensitive the
forecast will be to past data.
Exponential smoothing method

Next years sales= a(this years sales)+(1-a)(This

years forecast)
 Let sale of this year is 50,000 and this year
forecast was Rs 40,000. let a was given a value of
0.2
 The forecast of next year would be
0.2X(50,000)+(0.8)x(40,000) = Rs 42,000
 Correlation analysis
•a correlation is basically the degree of linear
association between two variables where one variable
is treated as independent variable and sales as the
dependent variable
• sales managers look for variables that correlate with or
relate to sales
• correlation analysis involves the determination of whether a
relation exists, and if it does, then measuring it, testing
whether it is significant, and establishing the cause and
effect relation
• the degree of relationships between the variables is called
co-efficient of correlation
 Correlation analysis
 When the two variable are moving in the
same direction they are positively correlated
and when in opposite direction they are
negatively correlated.
 When only two variable are studied, it is
simple correlation, but when the no. of
variables increases to more than two. Sales
manager can conduct multiple correlation.
 If the ratio of change is constant it is linear
correlation and if not constant it is nonlinear
correlation
 Correlation analysis
 Sales manager also look for variable that
relate to competitive market place.
 Factor like new store openings, the no. of
new product launches, and the frequency of
sales promotion campaigns undertaken by
the competitors can also be taken as
independent variables influencing the
dependent variable i.e. sales
 Regression Analysis
 It is another form of correlation technique.
It reveals the average relationship between two
variables and this make estimation or
prediction possible.
 It is used to incorporate independent factors
that are thought to influence sales in
forecasting procedures
 The independent variable are developed
through correlation analysis or based on
previously observed relationship.
 Regression Analysis
 Simple regression models have only one
independent variable. Multiple regression
uses two or more than two independent
variable such as population and sales force
size, or population income and sales force
size..
 The relationship between the dependent and
independent variables can be of two types
 Regression analysis

Sales
Sales

Population Population

(Liner Relationship) (Curvilinear Relationship)

Market factor indices methods
•the most commonly used market factor index
method is Buying Power Index Method (BPI)
•BPI is used to predict sales for specific
geographic regions for retailer and FMCG
sector such as clothing, food, auto, and other
consumer items
•BPI is also used to determine sales quota by
many multinational organizations
•applications are limited in Indian
organizations as we do not have data bases to
support this method at different levels of the
market
 Factors affecting selection of a forecasting technique
.

• data availability
• cost
• variability
• consistency of the data
• the degree of detail necessary
• time horizon
• technical sophistication
• ability of the method to capture the level of risk and
variability
• the level of accuracy of the forecast
• fundamental change indicators
 Sales Budgeting
A sales budget consist of estimates of
expected volume of sales and selling
expenses.
 Sales volume part of sales budget is based
on forecast. Sales budgets are generally set
slightly lower than the sales forecast to
avoid excessive risk.
 Sales Budgeting
The sales volume budget, which from the sales
forecast, is broken down into
a) product-wise quantities, the average selling
price per unit.
b) Territory- wise quantities to be sold and sales
revenue,
c) Sales person wise sales volume
Sales budget include a detailed estimate of sales
revenue and selling expenditure
 Sales Budgeting
The selling expenditure budget consists of
1.Selling expense budget
 It includes expenditure on personal selling
activities, such as the salaries, commissions
or incentive and other expenses for the
sales force. Any plans of increase in
numbers of salespeople must be included in
this budget
 Sales Budgeting
 The admistrative budget of the sales
department should include the salaries of
territory sale manager, sales supervisor and
office staff..
 Budget should also include operating
expenses like rent, power ,supply, office
equipment etc.
 Sales Budgeting
Thus , the sales manager is responsible for
preparing three detailed budgets
1. The sales volume budget
2. The selling expenses budget
3. The administrative budget of the sales
department
Purposes of the Sales Budget
1 Planning
 The budgeting process in a company consists of
profit planning based on expected sales, minus the
cost of achieving the sales
2.co-ordination
 At the corporate level, the budget process is used
for coordinating the activities of various functional
areas. E.g. sales budget is finalized in a co-
ordination meeting involving the functional head
like production, finance, marketing, and HR
Purposes of the Sales Budget
3.Control
 Sales budget stated in terms of sales volume and selling
expenses, become a standard of performance, against
which the actual performance is measured.
 Once the yearly sales budget at the company and
marketing unit levels are finalized and broken down to
quarterly and monthly goals, the same is measured
against actual performance
 If the actual performance of salesperson or a branch
manager is found to be favorable during the quarterly
budget review meeting. He is appreciated and suitably
rewarded
 Method used for deciding
sales expenditure method
1. Percentage of sales method
 Sales and marketing managers use this method by
multiplying the sales volume budget by various
percentages of each category of expenses. E.g
travel expenses 3% ad 8% of sales revenue
2.Executive Judgment method
 Here the sales manager uses his judgement to
decide the budgeted selling expenses for each
category. The judgement may be based on
marketing and sales plans as well as, sensible
opinions of senior executive
 Method used for deciding
sales expenditure method
3. Objective and task method
 The first objective is to look at the sales volime objective to
be achieved during the budget period of say one year
 Then based on the marketing and sales strategies, the tasks
or actions are decided that are required to be carried out in
order to achieve the earlier stated objective.
 The 3rd step is to estimate the costs of carrying out the tasks.
The costs are than added up to find out whether the profit
objective can be achieved
 Review of sales revenue, cost, and profit figures continues
until the managers are satisfied with the sales and profit
objective, the tasks, and the budgeted expenditure of various
items of selling expenses
 Sales Budget Process

1.Review situation
 The sales manager should review the past performance,
current and future marketing environment.
 The review of past budget performance can help the
sales manager to understand the deviations of actual
performance against the budget and the items or
elements where the company showed favorable or
unfavorable variance
 Review of current and future factor of marketing
environment such as customers, competitors, economy,
technology, govt policy would help the sales manager
to understand the changes taking place in the external
environment
 Sales Budget Process

2. Communication
 the head of sales function should
communicate in writing to all the field
sales manager about the budget
preparation, including format , guidelines.
 Each first line field sales manager
estimates the sales value in units and value
for each products sold along with
estimated selling expenses, sales force
expenses and administrative expenses
 Sales Budget Process

3.Subordinate budgets
 The first line sales manager prepare the sales
budgets for their respective sales territories
and submit the same to the immediate
reporting managers, who add or modify the
sales budget received from the first line
managers.
 The regional/divisional sales manager submit
their sales budgets to NSM, who prepares
company`s proposed sales budget by
combining the budget received from regional
or divisional managers
 Sales Budget Process

4. Approval of the sales budget

 In consultation with the marketing head,
the NSM prepare two or three alternative
proposals of the sales budget, and makes a
presentation to top management of
company.
 After a detailed discussions on the
alternative proposals, the sales budget
finally gets approved.
 Management of Sales
Territories
A sales territory consists of existing and
potential customer assigned to a sales
person.
 The territory may or may not have territory
boundaries
 Generally, a salesperson is assigned to a
geographic area consisting of present and
potential customers
 Reasons for setting up or
reviewing up Sales Territories
1.Increase Market or Customer coverage
 a well designed sales territory allows
salespeople to spend sufficient time ith
present and potential customers, which
improves market coverage.
 This way the company doesn't lose any
business to its competitors. In fact better
coverage of market result in gaining
competitors customers
 Reasons for setting up or
reviewing up Sales Territories
 Sales territories should be large enough to
ensure reasonable workloads to sales force
but small enough to see that all existing
customers and prospects are visited
adequately as needed by customers.
 The field sales managers can control the
activities of the salespeople, if the sales
territory are set up properly.
 Reasons for setting up or
reviewing up Sales Territories
2. Control selling expenses
 By setting up well designed sales terittory
sales people spend less time on the road,
fewer night away from home, resulting in less
cost of travelling and less expenses on
lodging and food.
 Sales volume go up as salespeople as
salespeople spend more time with customers
 Reasons for setting up or
reviewing up Sales Territories
3. Better evaluation of sales force performance
 The sales manager can evaluate the
performance of each salesperson in better
way, when the salesperson is assigned to a
specific sales territory.
 Each sales territory business potential can be
estimated. Sales quota for each sales person
can be decided based on the company`s share
of market potential of the territories
 The sales performance can be measured and
can be compared with the respective sales
goal of the salesperson
 Reasons for setting up or
reviewing up Sales Territories
4. Improve customer relations
 When the salesperson spends adequate time with present and
potential customers, to understand their problem and to find
solutions, their relationship improves.
5.Increase salesforce effectiveness
 When a sales territory is properly designed, the salesperson
workload is reasonable and the conflict are minimum as
specific customer are assigned to them. A salesperson is
clearly responsible to maintain good relationship with specific
customers.
 All these positive factors contribute to improve the
salespersons performance and effectiveness in terms of
consistently achieving and exceeding the goals and quotas
 Procedure for designing sales
territories
Use build up
method

Select a Find location Decide

Control and potential Basic territories
unit Of customer

Use breakdown
method

g
Procedure for designing sales
territories
 The first step in territory design is to select a
geographical territorial base, called control unit
that will be used in the territory analysis.
 Commonly used control units are states,
metros, city district town. So that control unit
market potential and company sales potential
should be possible to calculate and adjustment
can be possible when tentative boundary is
defined.
Procedure for designing sales
territories
2. Find location and potential of customer
 Information of present customers should be
available from the company`s sales analysis
 The information of prospective customer can be
obtained not only form the company salespeople,
but also form telephone directories, and market
research studies.
 After the present and potential customer are
identified, the company should estimate the total
sales potential for all the customer in each
geographical control unit
Procedure for designing sales
territories
3. Decide Basic Territories
 The third step in designing sales territories is to decide
basic or fundamental territories. This can be done by
either using build-up method, or breakdown method.
 Buildup method equalizes the workload of salespeople
and is commonly used manufactures of industrial
products and services or by the companies that want
selective distribution strategy
 Breakdown method equalized the sales potential of
territory, and is popularly used by manufacturers of
consumers products and services or the firms that want
to adopt intensive distribution strategy
Procedure for designing sales
territories
Build-up Method
 The basic territories are set up by building up from
the control units. The objective to be achieved is to
equalize the workload of salespeople
1. Decide call frequencies
 It means how many times a customer should be
visited by company`s salesperson per year.
 The factor that influence call requency are the
customers sales/ profit potential, cost of visiting the
customers, buying behavior of the customer, and
the nature of the product or service offered.
Procedure for designing sales
territories
District-X District-Y
No. No.
Call of of
Custo freque No. of call call
mer ncy per custom per per
No. Of customers
type month ers year year
A 4 3 144 4 192
B 2 7 168 8 192
c 1 20 240 28 336
Total 30 552 40 720
 Procedure for designing sales
territories
2.Calculate the total no. of calls in each control unit.
 Total no. of sales call needed in districts x and y are 552 and
720 respectively
3. Estimating workload capacity of a salesperson
 A salesperson`s normal workload capacity is estimated by
multiplying average no. of calls a salesperson can make in a
working day by the no. of working day in a year
 E.g. the average no. of calls a salesperson make in a day work
out to be 5 based of average travel time of 30 minute per call,
the average length of one hour of each call, and 8 hours per
day working. If the no. of working day in a year is 250 then
estimated workload capacity for the salesperson per year work
out to be 1250 calls( 250X 5)
 Procedure for designing sales
territories
4.Make tentative territories
 In this step, the company should group adjing
control units until yearly no. of call needed in
those control units equal th total no. of calls a
salesperson can make e.g. district x and y
together need 552 + 720= 1272 visits per years
which is almost equal to 1250 calls of normal
workload of a salesperson
 Procedure for designing sales
territories
Break down method

Estimate Forecast Estimate

Make Develop
Sales volume
Company Sales
Expected Tentative Final
Sales Potential From territories
Potential for For each Each
Sales
The market Control unit Sales person territories
Managing Territorial Coverage
1. Routing
2. Scheduling
3. Time management
 Sales Quotas
 Sales quotas are sales goals or quantitative objectives set by a
company for its sales units for a certain period of time.
 A sales unit includes a region, a territory, a branch, a
salesperson, a distributor
 Sales quota can be set on sales volume, expenses, profit margin,
activity, customer satisfaction etc.
 Annual sales quota of each sales unit are broken down to
quarterly and monthly quota
 Sales quota are developed from annual marketing plan of the
company after preparing the sales forecast, the company decides
its its sales budget, which include the companies sales volume
and expenses
 Objective of Quotas

1. Making available performance standards

2. Controlling Performance

3. Motivating people

4. Identifying strength and weakness

 Objective of Quotas

1. Making available performance standard

 Quota is a performance standard, aginst which the
actual performance is s compared to understand
whether the salesperson is performing well or not.
2.Controlling performance
 Bu setting quotas for salespersons activity, sales
volume, and selling expenses, the sales manager is
controlling the performance of a salespeople
 E.g.when the Quota of 30 calls per day on retailer,
sales people knows that they have to make those many
no. of calls
 The sales manager is indirectly monitoring or
controlling the activities of sales people by setting their
quota
 Objective of Quotas
3.Motivating people
 Most of the salespeople are motivated by money. Sales force
compensation is often tied to the extent or degree of
achievement of sales quotas.
 The financial compensation includes salaries and incentives.
The incentive in most companies , are linked to the quotas.
 If salespeople believe that the quotas are achievable, they wll
put extra efforts to achieve the quotas and earn the rewards
fo incentive payment
 Motivation of the salespeople is linked to the setting of
quotas
 Sales manager should not set sales quotas that are too high
and non – attainable, at the same time, they should not set
easily attainable sales quota. In both these situation,
motivation of salespeople declines
 Objective of Quotas
4.Identifying strengths and weaknesses
 When actual sales performance is compared with
respective quotas of different territories and
salespersons, the sales manager can identify successful
performer and unsuccessful performer.
 Furture analysis of cause of poor performance may
reveal that the training programmes need improvement,
better product quality required to meet customer needs,
and positioning startegy needs to be reviewed
 This analysis helps identify weakness as well as
strengths of the company in comparison to its
competitors
 Salespeople are closest to the customers and customers
perceptions are important to know the company`s
strengths a nd weaknesses
 Types of Sales Quota
1. Sales Volume Quota
 Sales volume quota communicate the
organization`s expectations in terms of what
amount of sales for/in what period
 The annual quota is set for a year and then they are
broken into specific time periods like quarters,
monthes and weeks. Ie. Break down approach
 Once the salesperson knows his annuals target, he
can plan out his targets for different periods
 Types of Sales Quota
 The salesperson can fix the sales quota on the
basis of total product line, the existing product
lines and new product lines, or territories
depending on the design of organization, which
may include the sales divisions, regions,
branches, districts, and individual sales
territories.
 Some company fix quota value wise some
volume wise
 Types of Sales Quota
 Volume wise quota used when the prices of
products are expected to fluctuate considerably
during the quota period, and when companies with
a narrow product line sell at a price that fluctuate
during quota period.
 Some company are setting sales volume quota in
terms of point
 A multi-product firm ay fix a point volume quota
where sales of one unit will bring a certain point,
whereas the other will bring a higher point for the
salesperson.
 Types of Sales Quota
2.Sales Budget Quota
 The intention of setting a budget quota is to
make it clear to the salespeople that they are
more of a responsibility centre where the job
includes not only obtaining the desired sales
volume and con but also making a good
profits
 Expense quota ensure that the salespeople
limit their expenses in alignment with the
sales volume and control the cost of customer
 Types of Sales Quota
3.Activity quotas
 Many companies set activity quotas so as
to direct salespeople to carry out important
job related activities
 These activities are useful for achieving
performance targets of salesperson. The
process of deciding activity quota includes
 Types of Sales Quota
a) Defining the important activities
b) Finding out time requirement for carrying
out these activities
c) Deciding the priorities to be given among
the various activities
d) Deciding the quotas or frequency for
important activities
 Types of Sales Quota
 Activities quotas are set when salespeople
not only have to carry out selling activities,
but also important non selling activities.
 Some of the important non selling
activities are getting market information,
sales and distribution activities like
increasing no. of outlets
 Combination Quotas
 Used when companies want to control salesforce performance on key
selling and non-selling activities
 Focus on a few types of quotas, to avoid confusing salespeople. An
example:

Type of Quota Quota Actual Percent Weight Percent

Quota (Importance) Quota x
Weight
Sales Volume (Rs) 5,00,000 4,50,000 90 3 270
Receivables (days) 45 50 89 2 178
New Customers 04 05 125 1 125
(Nos)
Total 6 573

• Total point score=573/6=95.5 for a salesperson

• Typically use ‘points’ as a common measure to resolve the problem of
different measures used by various types of quotas
 Methods for setting Sales
Quotas
1.Territory potential
 The procedure used in this method includes
first estimating the market potential i.e sales
forecast for a product line for a geogrophic
area using top-down approach
 The second step is to estimate the multiple
factor index for a sales territory
 Now the expected industry sales in each
territory is obtained by multiplying the
industry sales forecast by multiple sales index
 Methods for setting Sales
Quotas
2. Past sales experience
 Some company consider past sales only for setting a
sales volume quota. they tae the past year sales for
each geographical territory, add an arbitrary
percentage and decide the figures as sales volume
quota.
 Another method is to take an average of previous 3
or 5 years sales of each territory, add a percentage
by which the market is expected to grow, and thus
set quota for each sales territory
 Methods for setting Sales
Quotas
 In this method company assume that future
sales are related to past sales. This
assumption may not always be correct
 If past sales were achieved by poor market
coverage, the past mistake will be carried
out without any correction
 Methods for setting Sales
Quotas
3.Total market estimates
 In this method company firs estimate total
sales and market share. Next step is to find out
each territory` percentage share of total
company sale in previous year.
 If the territory past sales was 10% of total sales
of the company, then the territory`s sales quota
would be 10% of the total forecast for te next
year
 Methods for setting Sales
Quotas
4. Executive Judgment
 This method is used when the company is
new, the product and territories are new, or
very little market information are available.
 In this situation, senior executive or
managers use their judgment based on their
past experience to predict not the company
sales, but also sales quotas for territories
 Methods for setting Sales
Quotas
5. Salespeople`s estimate
 Some company ask their salespeople to set sales
quota.
 Asking salespeople to set their own quota happens
rarely, because salespeople either overestimate their
abilities to set very high sales quotas, or set too low
sales quotas to earn high commissions or incentives.
 Salespersons morale is down when they find that
they could not achieve their sales quotas, which
were set too high.
 When sales quota are set too low, salespeople are
not motivated to put forth maximum selling effort.
6. Compensation Plan
 Insights into setting and
administration of sales uota
1. Set a realistic quota
 Some company believe in setting high quotas that
most salespeople find difficult to achieve, but are
attainable by very few salesperson with extra
effort
 Some other company set modest quotas that
majority of sales force can achieve, so that
salespeople would accept quotas as fair and
attainable.
 However salespeople quota should be at least equal
to last years sales plus percentage of difference
between territory market potential and last year
sales.
 Insights into setting and
administration of sales quota
2.Understand problem in quota setting
 Underestimation and overestimation of territory potential, based
on which the sales quota are set, create problems.
 If the company underestimates its sales potential the salespeople
will easily achieve their quotas, and company will pay incentive
amount more than required
 If the company overestimate it sales potential, the salesperson will
find it very difficult to achieve their quotas, which may lead to
demotivation and dissatisfaction
 Another problem is faced by the company if it launches many new
products into the market. existing salespeople have to spend more
time and effort for introducing new products and thus don’t get
adequate time to achieve quotas for established product
 Insights into setting and
administration of sales quota
3.Ensure salespeople understand quota
 The management must ensure that the
salespeople understand quotas and quota setting
procedure.
 If the salesperson understand the process of
setting quotas, they feel the quotas are fair,
accurate, and achievable. If sales people do not
understand how the quotas are set, they feel
bitter and suspicious
 Insights into setting and
administration of sales quota
So, company should help salespeople understand
quota by following ways

a) Participation in quota setting

b) Flexibility in administering quotas

c) Purpose of quotas