CHAPTER 7

EVALUATING AND CONTROLLING

THE SALESPEOPLE

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 Chapter - 7

Learning Objectives
Lo1. Know the characteristics and control of salespeople’s
expenses.
LO2. Discuss marketing and sales audits for evaluating a sales
organization’s effectiveness.
LO3. Analyze sales, marketing cost, profitability, and productivity
for evaluating the effectiveness of a sales organization.

LO4. Examine purposes and procedure for evaluating and

controlling performance of the salespeople.
LO5. Know the use of sales force automation tools for
performance evaluation and social media as a selling vehicle.
LO6. Find ethical, social and legal responsibilities of sales
managers and salespeople.
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 Chapter - 7
Sales Force Expenses
• Companies have expense plans that reimburse salespeople for
their food, lodging, travel, customer entertainment, telephone
and any other legitimate expenses incurred while on the job.
• Characteristics for(or objectives of) deciding an expense plan
are:
(i) It should be fair to the salespeople and the company.
(ii) It should be simple to understand and easy to administer.
(iii) It should allow ‘ tour advance ‘, and quick reimbursement.
For Controlling the selling expenses firms use four types of
expenses plans

(1) The salesperson pays all expenses.

(2) The company pays all expenses (Unlimited payment plan).
(3) The company partially pays expenses (Limited-payment plan).
(4) Combination plan (Expense-Quota plan).
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 Chapter - 7

Sale Force Expenses (Continued)

(1)The Salesperson Pays all Expenses
Characteristics of the plan:
• Usually, sales people who are compensated by straight
commission, pay all the selling expenses.
• Companies pay a higher commission rate to unable salespeople pay
all the selling expenses.
Advantages of the plan :
• No administration cost to the company.
• Sales person gets income tax benefit .
• Salesperson has a freedom of operation .

Disadvantages of the plan:

• The company has less control on salesperson’s activities.
• Salesperson may focus on selling activities and may not give adequate attention
to non-selling activities.
• Salesperson may not visit customers who are at long distances.

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 Chapter - 7

Sale Force Expenses (Continued)

(2) The Company Pays all Expenses (Unlimited Payment Plan )
Characteristics of the plan:
• The company reimburses salespeople for all business related expenses.
• Salespeople have to submit expense details for approval to the sales
manager.
Merits of the plan:
• The management has good control over salespersons’ activities.
• Salespersons have freedom from anxiety about the money to be spent.
Demerits of the plan:
• Salespeople may spend more than reasonable amount .
(3) The Company Partially Pays Expenses (Limited Payment Plan)
Characteristics of the plan:
• It has two methods:(i)to give salesperson a lump sum for a day or week.
(ii) to set a limit on reimbursed amount for each expense item.
• This is suitable when salespeople have routine and repetitive travel routes.
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 Chapter - 7
Limited –Payment Plan (Continued)

Advantages of the plan:

• Helps in budget planning as accurate estimate of selling expenses can be
done.
• Disputes between sales managers and salespeople are less.
• Management can control salespeople’s activities.
Disadvantages of the plan:
• High performing salespeople may not like limits on expenses.
• It can be inflexible plan.
(4) Combination Plan (Expense-Quota Plan)
Characteristics of the plan :
• There are two methods : (i) Combine limited and unlimited plans.
Advantage is flexibility. (ii) Expense–quota plan in which the
management studies individual territories and sets an expense quota.
Advantages are that management has some control on selling expenses
and salespeople
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 Chapter - 7

Marketing And Sales Audits

• The Evaluation Process is same for both, as follows :
Management to What Why it What to do
find out: Happened Happened About it

Marketing Audit
• It covers a company’s marketing system.
• It is a comprehensive, periodic and systematic examination of all
aspects of a company’s marketing function – e.g. marketing plan,
environment, organization, strategies - and recommending an action
plan to improve the company’s marketing performance.
Sales Audit
• The purpose is to evaluate the effectiveness of a sales organization.
• It is a comprehensive, systematic, diagnostic, and prescriptive tool.
* A company should conduct both marketing and sales audits regularly to
identify and correct current and potential problems.

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 Evaluation of Effectiveness of a Chapter - 7

Sales Organization
• To evaluate effectiveness of a sales organization, companies
analyze their sales, marketing costs, profitability and productivity.
• Effectiveness model of a sales organization is as follows :

Sales Analysis

Effectiveness Marketing Cost Analysis

of a
Sales
Organisation Profitability Analysis

Productivity Analysis

• We shall examine each of the above factors

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 1. Sales Analysis Chapter - 7
• Sales analysis is a detailed inspection of a company’s sales data. It
includes collecting, classifying, comparing sales data and drawing
conclusions. Sales data is collected from accounting records of sales
invoices or cash register receipts.
• 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 Regional level
In a Sales Branch /district level
Organization Territory level
Individual customer level
Total sales of the company
Different By type of products
Type of By type of distribution channels
Sales Analysis

Sales By type of customer classifications

By size of orders

Comparisons with sales quotas / targets

Different Comparisons with previous periods
Comparisons with industry / competitors
Type of Comparisons within the sales organzsation
Analysis Comparisons with sales forecasts
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 1. Sales Analysis (Continued) Chapter - 7

• Reasons/Purposes of sales analysis:

(i) For evaluating sales performance at various levels;
(ii)For identifying problems;
(iii) For taking corrective actions; (iv) For future planning.
• Many companies use “Hierarchical sales analysis” for identifying problems.
Explained with a company example below :
• Sales performance at national level is below sales volume budget.
• Find which regions have problems in achieving sales quotas.
• Focus sales analysis on the 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.
• Appropriate 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 of actual with sales quotas or
targets are widely used by companies.
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 2 &3 Marketing Cost and Profitability Chapter - 7

Analysis
• Purpose: To measure profitability of a company’s sales or
marketing units such as market segments, products, and sales
territories.
• This information helps to decide which marketing units need to be
expanded, reduced, or eliminated in future.
• Procedure for Marketing cost and profitability Analysis :
• State the purpose of the analysis.
• Identify major functional (or activity) expenses.
• Convert (or change) natural accounting expenses into functional
expenses.
• Allocate functional expenses to marketing or sales units.
• Prepare profitability of sales or marketing units, by using “full-
cost approach” or “contribution approach”.
We shall discuss the above steps briefly :

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 Chapter - 7

2& 3 Marketing Cost and Profitability Analysis(Continued)

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. salesperson’s
salary is direct cost for territory analysis, but indirect cost for analysis of
products or segments.
Identify Major Functional(or Activity) 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 are the major activities.

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2&3 Marketing Cost and Profitability Analysis
Convert Natural Accounting Expenses into (Continued)
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 / Total Functional Expenses
Traditional
Personal Adv. and Warehousing & Administration
Expenses
Selling Sales Inventory
Promotion
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
Travel 5,000,000 5,000,000 __ __ __
Adv. and 15,000,000 __ 15,000,000 __ __
Sales
Promotion
Total 50,000,000 17,500,000 20,000,000 7,000,000 5,500,000

Note: All figures are in Rupees

• A better method for allocating costs is activity-based costing (ABC), which allocates
costs based on cause of the expenses.
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 Chapter - 7

2&3 Marketing Cost and Profitability Analysis (Continued)

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 • Direct to sales territories for a territory cost analysis.
• Selling time given to each product and market segment.

• Advertising • Circulation of media to sales territories.

• Media space for each product & market segment.

•Sales Promotion • Equal charges to marketing units

• Administration • Equal charges for all marketing units.

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Prepare Profitability of Marketing Units

• This is done by preparing profit & loss statements for the marketing unit
under study.
• Two approaches are available in allocating marketing costs for
profitability analysis: (1) full-cost (or net profit),(2) contribution(or profit
contribution).
• Full-Cost Approach: All marketing costs, both direct & indirect, are
allocated to the marketing unit under study.
• Useful for long-term profitability studies of products or market
segments
• Contribution Approach: Only direct marketing costs are allocated to
the marketing unit under study.
• Useful for short-term decisions like profitability of branches / regions,
which are responsible for direct expenses.

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 Chapter - 7

An Example of Profitability Analysis

S.N Particulars Full-cost Contribution Approach
o Approach
Western Region Branch A Branch B Branch C

1 Sales 400 150 130 120

2 Cost of goods sold 300 112.5 97.5 90
3 Gross margin (1-2) 100 37.5 32.5 30
4 Branch direct selling 12.7 4.5 4.2 4
expenses
5 W. Region direct 12.0 - - -
selling expenses
6 Profit Contribution (3- 75.3 33.0 28.3 26.0
4-5)
7 Allocated indirect 36.3 - - -
expenses
8 Net profit (6-7) 39.0 - - -
Note: All figures are in Rupees million
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 Chapter - 7
4. Productivity Analysis
• It is useful for complete evaluation of sales organizations’ effectiveness.
• Productivity is generally measured by ratios between outputs & inputs.
• 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 are:
• Reducing the sales force size.
• Hiring manufacturer’s reps. or agents on straight commission basis.
• Using the internet, telemarketing, direct mail to reach customers.
• Increasing sales volume substantially.
• Using communications and computer technology.

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 Chapter - 7
Evaluating & Controlling Performance
of Salespeople
• Purposes/Objectives of performance evaluation of
salespeople are:
• Mainly to find how salespeople have performed.
• This information is used for other purposes, such as:
• Improving the salesperson’s performance.
• Deciding salary increments and incentive payments.
• Identifying the salespeople for promotion.
• Determining training needs of the salespersons.
• Motivating salespeople through recognition and
reward.
• Understanding strengths and weaknesses of the
salespersons.
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 Chapter - 7
Procedure for Evaluating and Controlling
Sales force Performance

The steps involved in the procedure are:

(i) Set policies on performance evaluation and control.
(ii) Decide the basis of salespersons’ performance
evaluation.
(iii) Establish performance standards.
(iv) Compare actual performance with the standards.
(v) Review performance evaluation with salespeople.
(vi) Decide sales management’s actions and control.
We shall describe the above steps briefly :

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 Chapter - 7

Procedure for Evaluating and Controlling

Sales Force Performance(Continued)
(i) Set Policies on Performance Evaluation & Control
Most companies establish basic policies. Examples are:
• Frequency of evaluation. Once a year, six- monthly or
quarterly.
• Who conducts evaluation? Mainly first level sales manager – e
. g. branch/district sales manager.
• Assessment Techniques to be used. e.g. Management by
objectives (MBO), 360-degree feedback methods.
• Sources of Information. Sales analysis, new business reports,
lost business reports, sales report, call plans, etc.
• Policies on “ bases of sales force evaluation ” and “ conducting
performance review sessions with salespeople” will be
discussed in steps (ii) and (v) later in subsequent slides.

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 Procedure for Evaluating and Controlling Sales Force Performance
Chapter - 7
(Continued)
(ii) Decide Bases of Salespersons’ Performance Evaluation
• A firm should decide which of the following bases / criteria it would use: (1) result
/ outcome based, (2) efforts / behavioral based or (3) both results & behavior
based measures for evaluating salespeople’s performance.
• A company selects specific performance bases or criteria from the above three
alternatives, some of them are shown below:

Quantitative results / outcome Quantitative efforts / Qualitative efforts / behavioral

bases / criteria behavioral bases / criteria bases / criteria
• Sales volume • Customer calls • Personal skills / efforts
• In value / units  No. of calls per day  Selling skills
•Percentage of quota  No. of calls per  Planning ability
• By products & customer customer  Team player
segments • Non-selling activities • Personality & Attitudes
• Accounts ( Customers)  Overdue payments  Cooperation
 New accounts nos. collected  Enthusiasm
 Lost accounts nos.  No. of reports sent

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 Chapter - 7

Procedure for Evaluating and Controlling Sales

Force Performance(Continued)
(iii) Establish Performance Standards
• Performance standards are also called sales goals, targets, sales
quotas or sales objectives.
• Performance standards for quantitative results are related to the
company’s sales volume budget or sales quotas for regions,
branches and salespeople.
• Performance standards for efforts / behavioral criteria are difficult
to set.
• For this, companies do “time and duty analysis” of sales jobs or
use executive judgment .
• Performance standards should not be too high or too low.
• After establishing standards, salespeople must be informed .

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Procedure for Evaluating and Controlling Sales Force

Performance (Continued)
(iv) Compare Actual Performance with Standards.
• Salesperson’s actual performance is measured and compared with the
performance standards
• For this, sales managers use different evaluation methods or rating
forms:
• Graphic rating.
• Ranking.
• Behaviorally anchored rating scale (BARS)
• Management by Objectives (MBO)
• Descriptive statements
• Companies combine some of the above methods for an effective
evaluation system.
• Sales managers are supplied with the evaluation forms for evaluating
salespersons.
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 Procedure for Evaluating and Controlling Sales Force Chapter - 7

Performance(Continued)
(v) Review Performance Evaluation with Salespeople.
• Performance review / appraisal session is conducted, after evaluation of the
salesperson’s performance. This is a challenging and sensitive part of a sales
manager’s job.
• Both the sales manager and salesperson should have a positive attitude
towards the review.
• After the review, sales manager should write to the salesperson about the
performance evaluation results and the objectives for the future. A copy should be
sent to the sales manager’s boss.
Guidelines for reviewing the performance of salespersons :
• First, discuss performance standards / criteria / bases.
• Ask the salesperson to review his own performance.
• Sales manager presents his views by first highlighting good qualities of the
salesperson . Weak areas and corrective actions should then be discussed.
• Establish mutual agreement on the performance.
• If disagreements occur, the sales manager should carefully explain the reasons.
• Thereafter, both should discuss and develop future objectives and action plan.

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Procedure for Evaluating and Controlling Sales Force

Performance (Continued)
(vi) Decide Sales Management’s Actions and Control.
• Many companies combine this step with the previous step – i.e.
performance review
• After the performance review meetings with salespersons, sales
manager summarizes the following for all salespeople.
• Identifies the Problem Areas. e. g. sales quotas not achieved
by most salespersons.
• Finds Causes . e.g. less sales calls made, poor market
coverage or superior performance of competitors.
• Decides Sales Management Actions. e.g. train salespersons,
redesign territories or review the company’s sales / marketing
strategies.
• If some salespersons’ performances are good, they should be
rewarded and recognized suitably.
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Sales Force Automation (SFA)

• SFA gives technological help to sales managers and salespeople to
manage sales administration effectively and efficiently.

• Technological components of SFA are computer hardware and

software.
• SFA Ecosystem includes:
(i) SFA solutions providers: Some are SFA specialists. Other
venders offer CRM suites that include SFA modules.
(ii) Hardware and infrastructure vendors: Desktop or laptop
computers are used from hardware suppliers. For field
salespeople mobile or wireless solutions are needed.
(iii) Service Providers : These are needed for modifying a selling
process, changing an organization structure or training
salespeople.
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 Chapter - 7

Sales Force Automation (SFA) (Continued)

• Functions/Applications offered by SFA software are :
(i)Customer (or Account) management : It gives detailed information about
customers, which is very useful to salespeople and sales managers.
(ii)Lead management: It permits companies to create, allocate and monitor
sales leads.
(iii)Territory management: It helps sales managers to establish, modify and
balance sales territories.
• There are many more applications, including industry specific.
• Benefits from SFA
(i)For salespeople: higher conversion rates from enquiries to orders and
superior sales performance.
(ii)For sales managers: reduced selling costs, improved salespeople
productivity and customer relations.
(iii)For senior management: Increased market share, sales revenue and
profitability.
• Value of SFA depends on salespeople’s ability and willingness to adopt SFA technology.
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 Chapter - 7

Ethical, Social , and Legal Responsibilities of

Sales Managers & Salespeople
Business Ethics and Sales Management
• Sales managers and salespeople have ethical responsibilities.
• Some of the ethical situations are:
• Dealing with the company. Examples: Salespeople’s
expense bills, credit for damaged merchandise.
• Dealing with customers. Examples: 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 Chapter - 7

Responsibilities
• Corporate Social Responsibility (CSR) means distinguishing right from
wrong and doing the right.
• Social responsibility is defined as the management’s responsibility to take
decisions and actions for welfare and interests of the society and the
company.
• A company has the following four responsibilities to its eight stakeholders:
Customers, Community, Creditors, Government, Owners, Managers,
Employees, and Suppliers. Acronym: CCCGOMES
(i) Ethical responsibilities: Dealing with stakeholders with reasonableness
and impartiality.
(ii) Legal responsibilities: Following local, state, and central laws and
regulations.
(iii) Economic responsibilities: Producing and marketing goods / services
that the society wants, and making reasonable profits.
(iv) Voluntary responsibilities: Making social (e.g. philanthropic)
contributions. This is the highest criterion of social responsibility .

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Legal Responsibilities and Sales Management

• Laws and regulations by local, state or central governments have impact
on sales management. Examples are:
• Price Discrimination. As per Competition Act, 2003, in India, a seller
should not discriminate prices among similar buyers (e.g. trade
discounts to dealers ).
• Price Fixing. Under Competition Act, it is unlawful for suppliers or
competitors to fix prices or form “ price cartels”.
• 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 or retain a customer’s
business 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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 Chapter - 7

End of Notes – Chapter 7

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