Chapter 7

Controlling the Salesforce

SDM-Ch.7

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
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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
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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 salespeoples activities; nonselling 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
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Salesforce Expense Plans (Continured)

Company partially pays expenses / Limited payment plan

Merits: Useful in budget planning; less disputes; better control on salespersons 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
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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
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Evaluation of Effectiveness of Sales Organisation

To know what happened, companies analyse their sales, costs, profits, and productivity Effectiveness model of a sales organisation
Sales Analysis Effectiveness of a Sales Organisation Cost Analysis Profitability Analysis Productivity Analysis

We shall examine each of the above factors

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Sales Analysis
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 In Sales Organisation Sales Analysis

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

Different Type of Sales

Different Type of Analysis SDM-Ch.7

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
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Marketing Cost and Profitability Analysis

Purpose: To measure profitability of companys 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 fullcost approach, or contribution approach
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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. Salespersons 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
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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
Natural / Traditional Expenses
Salaries

Total
Personal Selling 20,000,000 10,000,000

Functional Expenses
Adv. and Sales Promotion 4,000,000 Warehousing & Inventory 2,000,000 Administration

4,000,000

Rent
Travel Adv. and Sales Promotion Total

10,000,000
5,000,000 15,000,000

2,500,000
5,000,000 __

1,000,000
__ 15,000,000

5,000,000
__ __

1,500,000
__ __

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 expenses
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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

Directly to sales territories Selling time given to each product and market segment Sales calls x average time per call to customers & channels
Circulation of media to sales territories Media space for each product & market segment Equal charges to customers & channels Equal charges for all marketing units

Advertising and sales promotion Administration

Above allocations are done to find marketing costs and profitability of marketing units
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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
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An Example of Profitability Analysis

SNo Particulars Full-cost Approach Western Region 1 2 3 4 5 6 Sales Cost of good sold Gross margin (1-2) Branch selling expenses W. Region direct selling expenses Contribution (3-4-5) 400 300 100 12.7 12.0 75.3 Contribution Approach Branch A 150 112.5 37.5 4.5 33.0 Branch B 130 97.5 32.5 4.2 28.3 Branch C 120 90 30 4 26.0

7
8

Allocated indirect expenses

Net profit (6-7)

36.3
39.0

Note: All figures are in Rupees million SDM-Ch.7 15

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 manufacturers reps. or agents on commission basis Using the internet, telemarketing, direct mail to reach customers Increasing sales volume substantially
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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
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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

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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
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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: Quantitative efforts / Qualitative efforts / behavioural bases / criteria behavioural bases / criteria Customer calls No. of calls per day No. of calls per customer Non-selling activities overdue payments collected No. of reports sent Personal skills Selling skills Planning ability Team player Personality & Attitudes Cooperation Enthusiasm

Quantitative results / outcome bases / criteria Sales volume In value / units Percentage of quota by products & segments Accounts / customers New accounts nos. Lost accounts nos. SDM-Ch.7

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Establish Performance Standards

Performance standards are also called sales goals, targets, sales quotas, sales objectives
Performance standards for quantitative results are related to the companys 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

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Compare Actual Performance with Standards

Salespersons 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

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Review Performance Evaluation with Salespeople

Performance review / appraisal session is conducted, after evaluation of the salespersons 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
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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 companys sales / marketing strategies If a salespersons performance is good, he / she should be rewarded and recognised
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Business Ethics and Sales Management

Sales managers responsibilities and salespeople have ethical

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
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Social Responsibilities
Corporate social responsibility means distinguishing right from wrong and doing the right Social responsibility is the managements 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: Customers, Community, Creditors, Government, Owners, Managers, Employees, and Suppliers, 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
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Legal Responsibilities and Sales Management

Laws and regulations by local, state, or governments have impact on sales management central

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
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Key Learnings
Salesforce expenses include travel, telephone, and customer entertainment meals, lodging,

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 companys marketing units
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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
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