Ch13

Part V

SALES FORCE LEADERSHIP Chapter 13:

Evaluating Performance

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

Take Corrective Action

Output Measures Used in Sales Force Evaluation Performance Measure Sales Sales volume dollars Sales volume previous year’s sales Sales to quota Sales growth Sales volume by product Sales volume by customer New account sales Sales volume in units Sales volume to potential Accounts Number of new accounts Number of accounts lost Number of accounts buying full line

Percent Using Performance Measure 79% 76 65 55 48 44 42 35 27 69 33 27

Percent Using

Profit Net profit Gross margin percentage Return on investment Net profit asa percentage of sales Margin by product category Gross margin dollars

69% 34 33 32 28 25

Orders Number of orders Average size of order

47 22

Input or Behavior Bases Used in Sales Force Evaluation Base Selling expenses to budget Total expenses Selling expenses as a % of sales Number of calls

Percent Using 55% 53 49 48

Base Number of calls per day Number of reports turned in Number of days worked Selling time vs. nonselling time

Percent Using 42% 38 33 27

Qualitative Bases Used in Sales Force Evaluation Base Communication skills Product knowledge Attitude Selling skills Initiative and aggressiveness Appearance and manner Knowledge of competition Team player Enthusiasm

Percent Using 88% 85 82 79 76 75 71 67 66

Performance Measure Time management Cooperation Judgment Motivation Ethical/Moral behavior Planning ability Pricing knowledge Report preparation and submission Creativity

Percent Using 63% 62 62 61 59 58 55 54 54

Sales Data for Bear Computer Company

1 Company Volume ($ millions) 26 24 21 17

2 3 Percentage Change from Previous Year + 8.3 +14.3 +23.5 ---

300 219 165 125

4 Industry Company Volume Market Share ($ millions) 8.6 10.9 15.7 13.6

(

Comparing Dollar and Unit Sales at the Bear Computer Company 2005 Sales Units

Avg Price Per Unit

Thousands Of Dollars

Units

Avg Price Per Unit

$16,800 4,800

560 4,000

$30,000 1,200

$18,200 5,200

520 4,727

$35,000 1,100

Software

2,400

1,200

2,000

2,600

1,280

2,031

Total

$24,000

5,760

$26,000

6,527

Products Computers Accessories

Thousands of Dollars

2006 Sales

Expense Analysis by Product Line, Bear Computer Company, 2006 CGS and Commission $

CGS as a Percentage Of Sales

$18,200

$12,740

70

$5,460

30

Accessories

5,200

3,120

60

2,080

40

Software

2,600

520

20

2,080

80

Total

$26,000

$16,380

Products Computers

2006 Sales (000)

63%

Contribution Margin

$9,620

Contribution Margin Percentage

37%

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

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

A Model of Salesperson Evaluation

Input-based System

Output-based System

Behavior Calls Reports Complaints Demonstrations Dealer meetings Display set up Travel/entertainment expenses

Results

Salesperson Evaluation

Sales revenues Sales growth Sales/quota Sales/potential New accounts Contribution margins Contribution percentage

Measuring Sales Force Output for Bear Computer Company 1

2

Sales ‘05 Sales ‘06 Jan-Sept Jan-Sept Territory (000) (000) Jones

$ 750

$ 825

Smith

500

Brown West

3

Dollar Change

4

Sales Growth

5 Market Potential index (percent)

6

7

8

Sales Percentage Sales Quota of Quota Variance (000) Achieved (000)

+ $75

10.0%

26.0%

570

+

70

14.0

15

543

105

+

27

1025

1110

+

85

8.3

32

1160

96

–

50

960

1000

+

40

4.2

27

977

102

+

23

$3235

$3505

+$270

8.3%

100.0%

$ 943

$3623

87.0% – $118

Measuring Territory Profit Output for Bear Computer Company Territory Performance (thousands) Jones

Smith

Brown

West

$825

$570

$1100

$1000

Less CGS and Commissions

495

428

744

660

Contribution margin CM as a percentage of sales

330 40%

142 25%

356 32%

340 34%

55.0 15.5 12.5 11.4 4.5

35.0 4.1 4.0 0.3 2.3

55.0 3.5 3.2 0.5 2.0

65.0 5.0 4.5 1.0 4.5

$231.1 28%

$ 96.3 17%

$291.8 26%

$260.0 26%

Net Sales

Less direct selling costs Sales force salaries Travel Food and lodging Entertainment Home sales office expense Profit contribution PC as a percentage of sales

Evaluating Performance Using Behavior and Outcome Data Performance factors

Pete Jones

Ann Smith

Sales (annual) Days worked Calls Orders Expenses Calls per day Batting average (orders per calls) Sales per order Expenses per call Expenses per order Expenses as % of sales

$1,400,000 210 1,200 480 $19,000 5.7 40% $2,916 $15.83 $39.58 1.35%

$1,100,000 225 1,500 750 $14,900 6.7 50% $1,466 $9.93 $19.86 1.35%

Ranking Salespeople on 10 Input/Output Factors Ranking Factors Dollar Sales Sales to Potential Sales to Quota Sales per Order Number of Calls Orders per call Gross Margin Percent Direct Selling Costs New Accounts Number of Reports Turned In Total of Ranks

Ford

Bell

Shaw

Mann

Gold

➊ 5 5 5 2 4 5 4 ➊ 4 36

2 3 4 ➊ 5 2 ➊ 3 4 3 28

3 4 2 4 ➊ 5 3 5 2 ➊ 30

4 2 ➊ 3 3 3 4 ➊ 5 5 31

5 ➊ 3 2 4 ➊ 2 2 3 2 25

Ranking Salespeople on 10 Input/Output Factors Millions $ 3.87 3.66 3.44

S A L E S

3.23

Y R 2

2.16

3.02 2.80 2.59 2.38 1.95 1.74 1.53 1.31 1.10

COMPROMISERS

STARS

Avg sales $3.17 Avg contribution $1.13 Avg contribution % 35.8 Age 45 Calls 1122 Number of salespeople 18

Avg sales $2.91 Avg contribution $1.09 Avg contribution % 37.4 Age 37 Calls 888 Number of salespeople 11

Avg sales $1.78 Avg contribution $ .64 Avg contribution % 35.8 Age 44 Calls 958 Number of salespeople 11

Avg sales $2.03 Avg contribution $ .75 Avg contribution % 37.1 Age 35 Calls 921 Number of salespeople 16 SLOWPOKES

LAGGARDS 34.8

35.1

36.0

36.6

37.2

Contribution Margin (%)

37.8

38.7

Relative Performance Efficiency for Sales Rep 22 Variable Type Output Output Output Input Input Input Input

Variable Name Percent Quota Attained (%) Supervisor Evaluation Sales Volume ($) Sales Training Salary ($) Management Ratio Territory Potential ($)

Value Measured

Value if 100% Efficient

100 5 45,000 5 20,000 3 60,500

120 5 50,500 5 18,000 2 50,000

Reference Set Salesperson 7 Salesperson 20 Salesperson 45

Efficiency = 0.85 Influence 0.49 0.43 0.08

Iterations = 10

Slack 20 0 5,500 0 2,000 1 10,500

The additional slides below are not covered in IM

Call Productivity Ratios Sales to Account

=

Average Order Size

Growth Ratio

=

Account Success =

Dollar Sales # Accounts =

Dollar Sales # Orders

# New Accounts Total # Accounts Accounts Sold Total # Accounts

Expense Ratios

Expense to Sales =

Cost per Call

Expenses Sales

= Total Costs # of Calls

Account Related Ratios Sales to Account

=

Average Order Size

Growth Ratio

=

Account Success =

Dollar Sales # Accounts =

Dollar Sales # Orders

# New Accounts Total # Accounts Accounts Sold Total # Accounts

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

Cost Analysis 

Object affects direct vs. indirect cost classification: Cost By Territory By Product P-O-P Display

Direct

Direct

Salesperson Salary

Direct

Indirect

Product Manager Salary

Indirect

Direct

VP Operations Salary

Indirect

Indirect

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)

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

Models Combining Input and Output Controls 

Four Factor Model Calls

$ Sales = Days worked x Days Worked

$ Sales = Days worked x

– –

– –

Call Rate

Orders

Sales $

Calls

Orders

Batting Average

Average Order Size

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?