Unit 3 sales and distribution management
- 2. and what are Objectives of Sales motivation? Sales is one of the toughest jobs out there simply because of the number of rejections involved to reach a sales target. You have to go against your better nature to make a sale.You need guts to pick up the phone, not knowing what your potential customer might answer.You need guts to approach someone whom you do not know, just to pitch your product.And you need persistence to keep doing it time and time again, so that you become an excellent sales person. What is Sales Motivation? On an average, only a few prospects out of hundred actually become clients. But because there are sales targets for your sales staff, they have to keep approaching new customers so that they can achieve sales targets. Because of this unsure and hectic life of sales, where performance is completely measurable against results, your sales staff requires sales motivation from time to time. There are various ways to provide sales motivation to your staff. One core method used for motivation of any kind is “Recognition, Rewards and remuneration”. This can loosely stand for Recognition – Growing people in your organization Rewards – Rewarding them for their work and Remuneration – Offering incentives or salary hikes to appreciate them.
- 3. Objectives of Sales Motivation To keep the spirits up-Due to the reasons mentioned above (cold calls, target pressure) a sales person might become demotivated and disinterested much easier than any other employee in the organization. As a result, sales motivation is required maximum in the sales department so that the sales staff has a positive spirit towards sales. For the growth of the company and to achieve targets-This is a no brainer. If your sales force is positive towards the target they are asked to achieve, your organization will get better revenues from sales. More the revenues from sales, more is the bottomline of the company and more can be the future investments in better products or services. There are many firms which have produced good products but have lost market share due to poor sales. Thus, motivating your sales force is important for the growth of the company and there is actual profit when you are investing in incentives for the sales force.
- 4. To show importance of sales in the organization-A reason for sales guys to be demotivated is that they don’t know whether they are in the right position in their life. However, if you communicate to your sales employees, of their importance in the organization and how they are helping this whole big machinery to move forward, the result will be a higher motivation of sales staff. This ultimately helps the company move forward. To make them brave- It is not easy to keep meeting new customers and to keep pitching in front of people you have never met before. In fact, over a period of time, the fear of rejection can paralyse sales people and they might start resisting the sales process altogether. A little sales motivation in the form of the three R’s, can go a long way in making the salesperson face their fears again and to be brave in front of stiff sales targets.
- 5. To improve co ordination within the team-A sales person might be frustrated or ignored when he is demotivated or when he is not achieving his sales targets. In a high performance situation like sales, poor performance can affect an individual for the worse and make him inferior to his high performing team.Providing sales motivation and backing to the sales person (that such things do happen) can increase his confidence. When the whole team is motivated, the bonding and co ordination between the team rises and they help each other out, thereby helping your organization in the long run. To develop their skills-Sales motivation can help sales person to improve their skills so that they perform better for the organization. These skills may be various such as their soft skills, their computer skills, their product knowledge, their grooming or whatnot. In essence, if the sales person wants to perform better, and he is motivated to do that, he will automatically improve his own skills.
- 6. To introduce a new product in the market-Sales motivation in the form of incentives is most needed when the going is tough. Whenever a company enters a new territory or brings a new product in the market, then the sales staff has to work very hard in convincing their customers or their channel into buying the product.At such times, sales motivation is important and should be in the form of remuneration as well as recognition. This motivates the sales staff to perform better and capture more market share for the new product or market. To maintain a sales pipeline-A motivated sales person is more likely to perform for a long period of time. This happens because the sales person is reaching his targets and he can plan for the future. This is exactly what you want from a sales person. Because of the fundamental of sales pipeline, we know that a sales person will always have a list of client which are hot, normal or cold prospects.
- 7. Significance and Compensation Level Sales-force compensation is very important because, it directly affects not only the sales costs and the profits but, more significantly, the attitude, interest and the behaviour of salesmen and the nature of their task. Perhaps, the most difficult task is how to reconcile the conflicting objectives of low sales costs and higher profits on one hand and adequate, attractive earnings with security, on the other. In that sense, no compensation plan is perfect that meets the needs of management in all respect satisfactorily and sales-force wholeheartedly. At the best, it is the compromise between the two extremes. However; we cannot underestimate a compensation plan that pays well its sales-force.
- 8. Whether the level of compensation is going to be high or low is dependent on certain factors. In practice, the actual level of compensation is the compromise of the interacting forces which are outlined below: Sales competence:The compensation level is bound to be higher in case of salesmen with calibre, competence or the sales acumen. It is the sales personality experience and other attributes that decide the compensation payable. Extent of advertising:Sales efforts of sales-force are geared by promotional efforts too. Naturally, higher the level of advertising in the sales organisation, lesser will be the input by the sales-force and hence, lower will be the level of compensation. Degree of training:A highly trained salesman is quite capable of handling the sales job with ease, confidence and grip. However, the company has invested in him to make him worthy of the sales profession. Hence, more the training intensity, lower will be the compensation level. Financial viability:It is the financial strength and viability of a sales organisation that puts limits on the levels of compensation. Normally, a company which is well to do will not hesitate to pay higher compensation than the one with moderate means. Bargaining power:Leaving aside the quality, calibre of salesmen, it is the bargaining capacity that plays a decisive role in putting higher limits. Thus, stronger bargaining capacity of the salesmen fetches them higher compensation level. Method of compensation:Much depends on the method of compensation plan or the method. We have pure salary and pure commission plan and the combination of the two. The commission plan and salary and commission plan normally work higher compensation level than mere salary scheme.
- 9. Components of Salesman’s Compensation Plan: Basis Pay (plus Dearness Allowance):It consists of a time-based fixed payment made to all the salesmen on an equal basis. Mostly, dearness allowance (D.A.), as certain per cent of the basis pay, is also paid to meet the increasing living expenses. Commission:Commission is the payment made for the actual work. It is a form of the piece-based payment. Commission is paid on the basis of sales volume. And, the rate of commission may be fixed or variable depending upon policy of a company. Expenses:Over and above basic pay and commission, the expenses are paid extra. In most cases, companies pay the actual expenses or a lump-sum amount to meet expenses. Expenses include traveling, lodging and boarding, sales expenses like telephone, telegram, and expenses made for customers, entertainment allowances, etc. Bonus:Some companies pay bonus. Note that bonus is not a part of regular payment and is not compulsory to pay. It is the extra payment made for extra work done by the salesmen and/or for their outstanding achievements. Bonus may be paid equally or in relation to sales. Fringe Benefits:Companies pay some amount to salesmen as the fringe benefits for better living. Fringe benefits cover paid vacation, free holiday-home, insurance premiums, provident fund, car or scooter allowance, gratuity, medical allowance, club membership, educational expenses for children, and so forth. Profit Sharing:Certain portion of net profit (profit remained after meeting all the statutory provisions) is distributed among salesmen. Company, by combining one or more of these components, formulates a suitable remuneration plan. The remuneration plan must be adequate, attractive, and motivating.
- 10. Sales Forecasting: Meaning, Importance and Methods Any forecast can be termed as an indicator of what is likely to happen in a specified future time frame in a particular field. Therefore, the sales forecast indicates as to how much of a particular product is likely to be sold in a specified future period in a specified market at specified price. Accurate sales forecasting is essential for a business house to enable it to produce the required quantity at the right time. Further, it makes the arrangement in advance for raw materials, equipment’s, labour etc. Some firms manufacture on the order basis, but in general, firm produces the material in advance to meet the future demand. Forecasting means estimation of quantity, type and quality of future work e.g. sales. For any manufacturing concern it is very necessary to assess the market trends sufficiently in advance. This is a commitment on the part of sales department and future planning of the entire concern depends on this forecast.
- 11. Importance of Sales Forecasting: (i) It helps to determine production volumes considering availability of facilities, like equipment, capital, manpower, space etc. (ii) It forms a basis of sales budget, production budget natural budget etc. (iii) It helps in taking decision about the plant expansion and changes in production mix or should it divert its resource for manufacturing other products. (iv) It helps in deciding policies. (v) It facilitates in deciding the extent of advertising etc. (vi) The sales forecast is a commitment on the part of the sales department and it must be achieved during the given period.
- 12. Factors Considered for Sales Forecasting Competition:To assess demand, it is the main factor to know about the existing and new competitors and their future programme, quality of their product, sales of their product. Opinion of the customers about the products of other competitors with reference to the product manufactured by the firm must also be considered. Changes in Technology:With the advancement of technology, new products are coming in the market and the taste and the likings of the consumer’s changes with the advancement and change of technology. Government Action:When the government produces or purchases then depending upon the government policy and rules, the sales of the products are also affected.
- 13. There are two types of forecasting: 1. Short-term forecasting and Long-term forecasting. Short-Term Forecasting:This type of forecasting can be defined when it covers a period of three months, six months or one year. Generally, the last one is most preferred. The period is dependent upon the nature of business. If the demand fluctuates from one month to another, forecasting may be done only for a short period. Purpose of Short-Term Forecasting: 1. To adopt suitable production policy so that the problem of overproduction and short supply of raw material, machines etc. can be avoided. 2. To reduce the cost of raw materials, machinery etc. 3. To have proper control of inventory. 4. To set the sales targets. 5. To have proper controls. 6. To arrange the financial requirements in advance to meet the demand.
- 14. Long-Term Forecasting:The forecasting that covers a period of 5, 10 and even 20 years. The period here also de- pends upon the nature of business, but beyond 12 years, the future is assumed as uncertain. But in many industries like ship-building, petroleum refinery, paper making industries, a long term forecasting is needed as the total investment cost of equipment is quite high. Purpose of Long-Term Forecasting: To plan for the new unit of production or expansion of existing unit to meet the demand. To plan the long-term financial requirements. To train the personnel so that man-power requirement can be met in future.
- 15. Sales Budget A sales budget estimates the sales in units as well as the estimated earnings from these sales. Budgeting is important for any business. Without a budget companies can’t track process or improve performance. The first step in creating a master company while budget is to create a sales budget.
- 16. Why is Sales Budget imp? Design-Designing an effective sales budget requires a careful analysis of target markets, competitors’ capabilities, prevailing economic trends and past sales figures, to name just a few variables that could affect potential profits. After that, your organization can develop an accurate budget in line with the overall sales strategy, which might change as you develop your budget. For example, if during the budget’s development you find that revenues will fall short of what your organization needs, you could decide to increase revenue by budgeting for a promotional campaign to jump-start sales. Departmental Importance-Your sales budget governs your sales department, helping employees perform their roles in line with the larger organizational strategy. For instance, suppose a business owner designs a sales budget for the upcoming fiscal year. Later, her staff can refer to the sales budget when designing subordinate budgets, for example, for travel costs, equipment and supplies for the salespeople. Organizational Importance-Depending on the type of business, the sales budget might be the first and most important of all the organization’s budgets, especially if the functioning of the other departments depends on the value and volume of predicted sales. For example, a production department might need to align the production rate to the amount of stock the sales department can sell in a given period, and a human resources department might hire or fire based on the projected sales revenue, which determines both the staff requirements and wage-paying capabilities of the business. Performance-Your sales budget also can help you gauge the performance of your sales department. For example, if revenue is less than expected but selling costs are more, your sales strategy is faulty or your salespeople are underperforming. Either way, the sales budget provides a benchmark for performance that helps you identify and repair problems early. The sales budget also sets clear goals for your sales department, helping individual salespeople tailor their performances to your business’ overall sales strategy.
- 17. Sales force appraisal Every sales manager and sales supervisor appraises the performance of the salesmen under his charge. It is unfortunate that the importance of organized appraisal is not recognised by many sales executives; some believe in accurate appraisal as it is not possible because of the nature of sales job and good many variables influence his performance; still, there are others who dismiss the idea on the count that such an appraisal is purely subjective and superficial and unsupported by facts and coloured by personal whims and fancies of the appraiser. However, in spite of these problems of judging the salesman’s performance, reliable methods of evaluation can be developed to provide sound appraisal of salesman’s work. The principal methods of evaluating such performance can be of two types namely, qualitative and quantitative.
- 18. The qualitative methods are: Personal observation by sales executives. Merit rating. Customer opinion of salesmen. On the other hand, the quantitative methods are: Analysis of sales records and reports. Comparison of salesman’s performance with quota. Ratio analysis. Profit and loss statement.
- 19. 1. Personal observation by the sales executives: Personal observation of sales performance of sales-force by sales supervisors, branch and district sales managers, sales manager and other, sales executive staff is used in appraising the salesmen’s effectiveness. This method involves casual, informal impressions by the sales executives in their day-to-day contacts with the salesmen in the office and the field. As it appears superficial, many sales managers feel that there should be extensive and continuous appraisal. Appraisal begins with sales supervisors who work closely in the field with small group of salesmen. Here, the sales supervisor appraises sales performance of each one with a view to detect the possible selling weaknesses to bring about refinement in the due course. Branch sales managers do undertake appraisal work with a view to recognize the good performance on the basis of which they can decide on employee up-gradation and transfer.
- 20. 2.Merit rating: Another reliable method of measuring the sales aptitudes and performance is merit rating. Rating are made of each salesman by his superior who completes a rating form containing series of traits and accomplishments on the basis of which a salesman is rated. A numerical scale ranging from ‘high’ to ‘low’ is used by the rates in rating each characteristic of a salesman. These characteristics are determined by the nature of selling task. However, the most common traits are industry, dependability, loyalty, cooperativeness, initiative, judgment, knowledge of product company sales task. Therefore, separate forms are used for salesmen engaged in different types of sales jobs. Merit-ratings are fruitfully employed by sales managers to record the progress of salesmen as a guide in determining promotions, demotions, transfers, counsels, compensation, and recruitment, selection, training and to boost the morale of sales-force by considering their performance.
- 21. 3. Customer opinion of salesmen: Sales managers and supervisors get regular comments on salesmen under their charge through their personal contacts with consumers and dealers. The relationship of a salesman with consumers, dealers, architects, contractors, purchasing agents and the like has deeper bearing on his sales performance. Usually, those salesmen who work well with others, command respect and friendship of customers and is credited with superior performance. Customer opinion of salesman is usually a reflection of the personality and personal service of the individual. The salesman, who instructs the buyers in the operation of the product, makes prompt adjustments, helps customers in getting good delivery and service is well treated by the customers. Similarly, a salesman who gives dealer sales assistance, merchandising and management advice has the favourable opinion. A good customer and dealer opinion is a mark of his success and a bad opinion is a sure sign of poor performance
- 22. Quantitative methods: Analysis of sales records and reports:Controlling the individual salesman’s performance by sales managers and sales supervisors begins with the sales call report. Information from the call report is summarized on a salesman’s weekly and monthly sales record files in the sales office. These summary records give condensed account of his sales, commission, travel expenses, number of calls, loss of working day, new accounts opened, performance in relation to quota, of products sold and other facts about his activities. With these salient facts of a salesman’s performance in the summary records a sales manager or the supervisor can make a weekly and monthly analysis of a salesman’s progress and take prompt corrective action. Any deviation from a normal performance can be quickly noted and called to attention of the salesman concerned. The deviation can be analyzed and plans be made for personal supervision to bring the salesman’s performance back to normalcy. It also shows outstanding performance of some salesmen so that recognition can be given to those who deserve it. Such analysis is not only needed for control but for future planning of operations and designing the programmes. A caution is to be exercised here in that salesman’s effectiveness should not be based entirely on the analysis of the sales reports and records because, there are many other factors which influence sales- performance which are not revealed by sales reports and records alone.
- 23. Comparison of salesmen’s performance with quotas:One of the most common methods of appraising the salesmen is comparing present and past salesmen’s performance with quotas or standards of accomplishment established for sales volume, profit, expenses and the activities. Sales quotas are set by management after due consultation with the salesman, for each salesman’s territory for a specific period. Each salesman is judged on the basis of his performance in relation to his quota. Though separate quotas may be established for sales volume, sales expenses, gross-profit and activities, the most popular is sales volume quota expressed in terms of so many units or rupees for a specific period. Such a figure spelled out is arrived on the basis of a detailed analysis of market potential, past sales performance estimates by salesmen and dealers, new products or product of product improvements, advertising, competition, the ability of salesman, judgment of sales executive and the prevailing economic conditions. Such a sales quota can be for all the products in a line or for individual product or group of products, for an area say, branch or district or a region, for a specific period ranging from a month to a year or for individual customer or a group of customers and for a call or sale. On the basis of comparison, the sales executives appraise the effectiveness of each salesman and take necessary action.
- 24. Ratio analysis:Certain ratios are much helpful in measuring sales performance in analysing sales reports and records that the sales office has. Take the example of sales expenses ratio. This ratio establishes the relationship between the sales expenses and the sales volume. If annual sales are say Rs. 2,00,000 and sales expenses are Rs. 5,000, then the expenses ratio will be 40 per cent (Rs. 5, 00 /Rs. 2.00,000) x 100 . Taking the specific conditions prevailing in each sales territory such norms can be fixed and the actual can be compared with these norms and deviations can be analyzed for taking necessary corrective action. This being an expenses ratio, it is dangerous for a salesman to exceed this ratio or percentage. Similarly, sales performance can be appraised on the basis of sales profit ratio.
- 25. Profit and loss statement analysis:It is a recognised fact that ability to sell at a profit is a clear indication of excellence of sales performance. A salesman’s profit performance is measured by profit and loss statements for his sales territory. Progressive and cost conscious companies prepare income statement for each salesman’s territory giving the details of net sales, cost of goods sold, gross profit, operating expenses and the net profit. Depending on the individual company procedures, either gross profit or net profit and other related expenses are analyzed and salesman’s effectiveness is determined in the back-ground of standards so set. This profit and loss statement method of evaluating salesman’s performance has its own limitations. Neither gross profit nor net profit gives a totally accurate picture of salesman’s performance. It is quite possible that the two salesmen selling the same articles may give different profits; this may be due to the differences in territory size, demand pattern, nature of products sold, nature of accounts dealt with, market potential, calibre of outlets, economic conditions and so on. Therefore, one is to be careful while using this as a yardstick to measure the efficiency of the sales-force at the command of the company.