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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


Take Corrective Action
standard
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 year’s sales 76 Gross margin percentage 34
Sales to quota 65 Return on investment 33
Sales growth 55 Net profit asa 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
Input or Behavior Bases Used in
Sales Force Evaluation
Percent Percent
Base Using Base Using

Selling expenses to budget 55% Number of calls per day 42%


Total expenses 53 Number of reports turned in 38
Selling expenses as a % of sales 49 Number of days worked 33
Number of calls 48 Selling time vs. nonselling time 27
Qualitative Bases Used in Sales
Force Evaluation
Percent Percent
Base Using Performance Measure Using

Communication skills 88% Time management 63%


Product knowledge 85 Cooperation 62
Attitude 82 Judgment 62
Selling skills 79 Motivation 61
Initiative and aggressiveness 76 Ethical/Moral behavior 59
Appearance and manner 75 Planning ability 58
Knowledge of competition 71 Pricing knowledge 55
Team player 67 Report preparation and submission 54
Enthusiasm 66 Creativity 54
Sales Data for
Bear Computer Company

1 2 3 4
Company Percentage Industry Company
Volume Change from Volume Market Share
($ millions) Previous Year ($ millions) (

26 + 8.3 300 8.6


24 +14.3 219 10.9
21 +23.5 165 15.7
17 --- 125 13.6
Comparing Dollar and Unit
Sales at the Bear Computer
Company

2005 Sales 2006 Sales


Thousands Avg Price Thousands Avg Price
Products of Dollars Units Per Unit Of Dollars Units Per Unit
Computers $16,800 560 $30,000 $18,200 520 $35,000
Accessories 4,800 4,000 1,200 5,200 4,727 1,100
Software 2,400 1,200 2,000 2,600 1,280 2,031
Total $24,000 5,760 $26,000 6,527
Expense Analysis by Product
Line,
Bear Computer Company, 2006
CGS and CGS as a Contribution
2006 Sales Commission Percentage Contribution Margin
Products (000) $ Of Sales Margin Percentage

Computers $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 63% $9,620 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 Results
Calls Sales revenues
Reports Sales growth
Complaints Sales/quota
Demonstrations Salesperson Sales/potential
Dealer meetings Evaluation New accounts
Display set up Contribution margins
Travel/entertainment Contribution
expenses percentage
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 Jan-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
Measuring Territory Profit
Output for Bear Computer
Company

Territory Performance (thousands)


Jones Smith Brown West
Net Sales $825 $570 $1100 $1000
Less CGS and Commissions 495 428 744 660
Contribution margin 330 142 356 340
CM as a percentage of sales 40% 25% 32% 34%
Less direct selling costs
Sales force salaries 55.0 35.0 55.0 65.0
Travel 15.5 4.1 3.5 5.0
Food and lodging 12.5 4.0 3.2 4.5
Entertainment 11.4 0.3 0.5 1.0
Home sales office expense 4.5 2.3 2.0 4.5
Profit contribution $231.1 $ 96.3 $291.8 $260.0
PC as a percentage of sales 28% 17% 26% 26%
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
Expenses $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
Expenses per call $15.83 $9.93
Expenses per order $39.58 $19.86
Expenses as % of sales 1.35% 1.35%
Ranking Salespeople on 10
Input/Output Factors

Ranking Factors Ford Bell Shaw Mann Gold


Dollar Sales ➊ 2 3 4 5
Sales to Potential 5 3 4 2 ➊
Sales to Quota 5 4 2 ➊ 3
Sales per Order 5 ➊ 4 3 2
Number of Calls 2 5 ➊ 3 4
Orders per call 4 2 5 3 ➊
Gross Margin Percent 5 ➊ 3 4 2
Direct Selling Costs 4 3 5 ➊ 2
New Accounts ➊ 4 2 5 3
Number of Reports Turned In 4 3 ➊ 5 2
Total of Ranks 36 28 30 31 25
Ranking Salespeople on
10 Input/Output Factors
Millions
$
3.87 COMPROMISERS STARS
3.66
Avg sales $3.17 Avg sales $2.91
3.44 Avg contribution $1.13 Avg contribution $1.09
S 3.23 Avg contribution % 35.8 Avg contribution % 37.4
A 3.02 Age 45 Age 37
L Calls 1122 Calls 888
2.80
E Number of salespeople 18 Number of salespeople 11
2.59
S
2.38
Avg sales $1.78 Avg sales $2.03
Y 2.16 Avg contribution $ .64 Avg contribution $ .75
R 1.95 Avg contribution % 35.8 Avg contribution % 37.1
2 1.74 Age 44 Age 35
Calls 958 Calls 921
1.53 Number of salespeople 16
Number of salespeople 11
1.31
1.10 LAGGARDS SLOWPOKES

34.8 35.1 36.0 36.6 37.2 37.8 38.7

Contribution Margin (%)


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
Output 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 2,000
Input Management Ratio 3 2 1
Input Territory Potential ($) 60,500 50,000 10,500

Reference Set Efficiency = 0.85

Influence Iterations = 10
Salesperson 7 0.49
Salesperson 20 0.43
Salesperson 45 0.08
The additional slides below are
not covered in IM
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
Expense Ratios

Expense to Sales = Expenses


Sales

Cost per Call = Total Costs


# of Calls
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
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 Orders Sales $
$ Sales = Days worked x
Days Worked Calls Orders

$ Sales = Days worked x Call Rate 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?