Part V SALES FORCE LEADERSHIP

1
Part VSALES FORCE LEADERSHIP

• Chapter 13
• Evaluating Performance

2
A Sales Force Evaluation Model
Set goals and objectives for sales force,
including Revenues Contribution
profits Market share Expense ratios
Design sales plan
Set product performance standards
for Organization Salespeople Regions Accounts
Districts
Measure results against standard
3
Output Measures Used in Sales Force Evaluation
Percent
Percent
Performance Measure
Using
Performance Measure
Using
Sales
Profit
Sales volume dollars
79
Net profit
69
Sales volume previous years sales
76
Gross margin percentage
34
Sales to quota
65
Return on investment
33
Sales growth
55
Net profit as
a percentage of sales
32
Sales volume by product
48
Margin by product category
28
Sales volume by customer
44
Gross margin dollars
25
New account sales
42
Sales volume in units
35
Sales volume to potential
27
Orders
Accounts
Number of orders
47
Number of new accounts
69
Average size of order
22
Number of accounts lost
33
Number of accounts buying full line
27
4
Input or Behavior Bases Used in Sales Force
Evaluation
5
Qualitative Bases Used in Sales Force Evaluation
6
Sales Data for Bear Computer Company
1 2 3 4 Company
Percentage Industry
Company Volume Change
from Volume Market
Share Year ( millions)
Previous Year ( millions)
(percent) 2006 26 8.3 300
8.6 2005 24 14.3 219 10.9 2004 21 23.5 16
5 15.7 2003 17 --- 125 13.6
7
Comparing Dollar and Unit Sales at the Bear
Computer Company
2005 Sales
2006 Sales
8
Expense Analysis by Product Line, Bear Computer
Company, 2006
9
Evaluating Sales Force Performance Cost Analysis

• What costs are relevant?
• Net Sales
• Less Variable Costs Cost of Goods Sold
• Sales Commissions
• Equals Contribution Margin
• Less Direct Fixed Selling Costs
• Equals Profit Contribution

10
Evaluating Sales Force Performance Product Costs

• CGS Commissions higher for computers
• paying too much for parts
• competition has driven down selling prices
• salespeople cutting computer prices to make deals
  -- possible actions
• limit price negotiation capabilities
• shift to a gross margin commission
• change commission structure to emphasize
  accessories and software

11
A Model of Salesperson Evaluation
Input-based System
Output-based System
Behavior Calls Reports Complaints Demonstratio
ns Dealer meetings Display set
up Travel/entertainment expenses
Results Sales revenues Sales growth Sales/quota
Sales/potential New accounts Contribution
margins Contribution percentage
Salesperson Evaluation
12
Measuring Sales Force Output for Bear Computer
Company
1 2 3 4 5 6 7 8 Market Sales 05 Sales
06 Potential Sales Percentage Sales Jan-Sept J
an-Sept Dollar Sales index Quota of
Quota Variance Territory (000) (000) Change Growth
(percent) (000) Achieved (000)
Jones 750 825 75 10.0 26.0
943 87.0 118 Smith 500 570
70 14.0 15 543 105 27 Brown 1025 1110
85 8.3 32 1160 96 50 West 960 1000
40 4.2 27 977 102
23 3235 3505 270 8.3 100.0 3623
13
Measuring Territory Profit Output for Bear
Computer Company
14
Evaluating Performance Using Behavior and Outcome
Data
Performance factors Pete Jones Ann Smith Sales
(annual) 1,400,000 1,100,000 Days
worked 210 225 Calls 1,200 1,500 Orders 480 750 Ex
penses 19,000 14,900 Calls per
day 5.7 6.7 Batting average (orders per
calls) 40 50 Sales per order 2,916 1,466 Expen
ses per call 15.83 9.93 Expenses per
order 39.58 19.86 Expenses as of
sales 1.35 1.35
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Ranking Salespeople on 10 Input/Output Factors
Ranking Factors Ford Bell Shaw Mann Gold
Dollar Sales ? 2 3 4 5 Sales to
Potential 5 3 4 2 ? Sales to Quota 5 4 2 ? 3 Sale
s per Order 5 ? 4 3 2 Number of
Calls 2 5 ? 3 4 Orders per call 4 2 5 3 ? Gross
Margin Percent 5 ? 3 4 2 Direct Selling
Costs 4 3 5 ? 2 New Accounts ? 4 2 5 3 Number of
Reports Turned In 4 3 ? 5 2 Total of
Ranks 36 28 30 31 25
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Ranking Salespeople on 10 Input/Output Factors
Millions
3.87 3.66 3.44 3.23 3.02 2.80 2.59 2.38 2.16 1.95
1.74 1.53 1.31 1.10
SALES YR 2
Avg sales 2.03 Avg contribution .75 Avg
contribution 37.1 Age 35 Calls 921 Number of
salespeople 16 SLOWPOKES
Avg sales 1.78 Avg contribution .64 Avg
contribution 35.8 Age 44 Calls 958 Number of
salespeople 11 LAGGARDS
34.8 35.1 36.0 36.6 37.2 37.8 38.7
Contribution Margin ()
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Relative Performance Efficiency for Sales Rep 22
Value if Value 100 Variable Type Variable
Name Measured Efficient Slack
Output Percent Quota Attained () 100 120 20 Outpu
t Supervisor Evaluation 5 5 0 Output Sales Volume
() 45,000 50,500 5,500 Input Sales
Training 5 5 0 Input Salary () 20,000 18,000 2,00
0 Input Management Ratio 3 2 1 Input Territory
Potential () 60,500 50,000 10,500
Reference Set Efficiency 0.85 Iterations
10
Influence Salesperson 7 0.49 Salesperson
20 0.43 Salesperson 45 0.08
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The additional slides below are not covered in IM
19
Call Productivity Ratios

• Sales to Account Dollar Sales
• Accounts
• Average Order Size Dollar Sales
• Orders
• Growth Ratio New Accounts
• Total Accounts
• Account Success Accounts Sold
• Total Accounts

20
Expense Ratios

• Expense to Sales Expenses
• Sales
• Cost per Call Total Costs
• of Calls

21
Account Related Ratios

• Sales to Account Dollar Sales
• Accounts
• Average Order Size Dollar Sales
• Orders
• Growth Ratio New Accounts
• Total Accounts
• Account Success Accounts Sold
• Total Accounts

22
Models Combining Input Output Controls Ranking
Procedures

• Widely used, simple to use, easy to understand
• Add ranks for overall performance measure
• Alternatives to sales/salesperson
• Sales to potential -- good coverage of (limited)
  market
• Sales to quota -- ability to increase revenue
• Sales per order -- profitability relative to size
  of customer
• Batting average -- efficiency of calls
• Gross margin percentage -- ability to control
  price
• selling best mix of products
• Variation -- weight importance of each criterion

23
Cost Analysis

• Object affects direct vs. indirect cost
  classification

24
Evaluating Sales Force Performance Account Cost
to Serve
Total Cost to Serve Account Cost to Serve

Revenue from Account

• Usually decline with revenue
• Help identify best accounts
• Downsizing Profits
• Consider using DEA (Programming)

25
Evaluating Sales Force Performance Fleet Car
Management -- A Motivator

• Salesperson owned car (per mile travel allowance)
• Salesperson gets car preference
• Allowances rarely cover full salesperson car
  costs
• Company owned managed cars
• Ties up a lot of cash
• Costs less than salesperson owned car
• Leased sales fleet of cars
• Frees up cash
• Company performs routine maintenance

26
Models Combining Input and Output Controls

• Four Factor Model
• How can sales be increased?
• Optimum number of sales calls to maximize
  profits?
• Who is doing better? Ann or Pete?
• What management strategies for Pete? for Ann?

Calls Orders Sales Sales Days worked x
Days Worked Calls Orders Sales Days
worked x Call Rate
Batting Average
Average Order Size