Ch7: Controlling the Salesforce
- 1. Chapter 7 Controlling the Salesforce
- 2. Learning Objectives 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
- 3. 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
- 4. 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 salespeople’s activities; non-selling 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
- 5. Salesforce Expense Plans (Continured) Company partially pays expenses / Limited payment plan Merits: Useful in budget planning; less disputes; better control on salesperson’s 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
- 6. 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
- 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 Effectiveness of a Sales Organisation We shall examine each of the above factors Sales Analysis Cost Analysis Profitability Analysis Productivity Analysis
- 8. Sales Analysis Sales analysis of a company can be done in different ways: Different alternatives are shown in a framework below: Sales Analysis All levels In Sales Organisation Different Type of Sales Different Type of Analysis National and/or international levels sales organisation Regional level Branch /district level Territory level Individual level Total sales of the company By type of products By type of distribution channels By type of customer classifications By size of orders Comparisons with sales quotas / targets Comparisons with previous periods Comparisons with industry / competitors Comparisons within sales organisations Comparisons with sales forecasts
- 9. 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
- 10. Marketing Cost and Profitability Analysis Purpose: To measure profitability of company’s 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 “full-cost approach”, or “contribution approach”
- 11. 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 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
- 12. 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 A better method for allocating costs is activity-based costing (ABC) , which allocates costs based on cause of expenses Note: All figures are in Rupees 5,500,000 7,000,000 20,000,000 17,500,000 50,000,000 Total __ __ 15,000,000 __ 15,000,000 Adv. and Sales Promotion __ __ __ 5,000,000 5,000,000 Travel 1,500,000 5,000,000 1,000,000 2,500,000 10,000,000 Rent 4,000,000 2,000,000 4,000,000 10,000,000 20,000,000 Salaries Administration Warehousing & Inventory Adv. and Sales Promotion Personal Selling Functional Expenses Total Natural / Traditional Expenses
- 13. Allocate Functional Expenses to Marketing Units Functional expenses are allocated to the marketing unit under study, depending on several bases shown below, as examples Above allocations are done to find marketing costs and profitability of marketing units Equal charges for all marketing units Administration Circulation of media to sales territories Media space for each product & market segment Equal charges to customers & channels Advertising and sales promotion Directly to sales territories Selling time given to each product and market segment Sales calls x average time per call to customers & channels Personal selling Bases of allocation of expenses Function
- 14. 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
- 15. An Example of Profitability Analysis Note: All figures are in Rupees million - - - 39.0 Net profit (6-7) 8 - - - 36.3 Allocated indirect expenses 7 26.0 28.3 33.0 75.3 Contribution (3-4-5) 6 - - - 12.0 W. Region direct selling expenses 5 4 4.2 4.5 12.7 Branch selling expenses 4 30 32.5 37.5 100 Gross margin (1-2) 3 90 97.5 112.5 300 Cost of good sold 2 120 130 150 400 Sales 1 Branch C Branch B Branch A Western Region Contribution Approach Full-cost Approach Particulars SNo
- 16. 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 manufacturer’s reps. or agents on commission basis Using the internet, telemarketing, direct mail to reach customers Increasing sales volume substantially
- 17. 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
- 18. 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
- 19. 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
- 20. 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: Personal skills Selling skills Planning ability Team player Personality & Attitudes Cooperation Enthusiasm Customer calls No. of calls per day No. of calls per customer Non-selling activities overdue payments collected No. of reports sent Sales volume In value / units Percentage of quota by products & segments Accounts / customers New accounts nos. Lost accounts nos. Qualitative efforts / behavioural bases / criteria Quantitative efforts / behavioural bases / criteria Quantitative results / outcome bases / criteria
- 21. Establish Performance Standards Performance standards are also called sales goals, targets, sales quotas, sales objectives Performance standards for quantitative results are related to the company’s 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
- 22. Compare Actual Performance with Standards Salesperson’s 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
- 23. Review Performance Evaluation with Salespeople Performance review / appraisal session is conducted, after evaluation of the salesperson’s 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
- 24. 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 company’s sales / marketing strategies If a salesperson’s performance is good, he / she should be rewarded and recognised
- 25. Business Ethics and Sales Management Sales managers and salespeople have ethical responsibilities 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
- 26. Social Responsibilities Corporate social responsibility means distinguishing right from wrong and doing the right Social responsibility is the management’s 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: C ustomers, C ommunity, C reditors, G overnment, O wners, M anagers, E mployees, and S uppliers, 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
- 27. Legal Responsibilities and Sales Management Laws and regulations by local, state, or central governments have impact on sales management 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
- 28. Key Learnings 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 company’s marketing units
- 29. Key Learnings (Continued) Two approaches for profitability analysis are: full-cost 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