Chapter 7, controlling the salesforce. After studying this chapter you will be able: 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;…
Chapter 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 SDM-Ch.7 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 SDM-Ch.7 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 salespeople’s 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 SDM-Ch.7 Salesforce Expense Plans (Continured) • Company partially pays expenses / Limited payment plan Merits: Useful in budget planning; less disputes; better control on salesperson’s 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 SDM-Ch.7 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 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 about it by taking corrective actions SDM-Ch.7 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 SDM-Ch.7 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 Regional level Branch /district level Territory level Individual level si syl a n A sel a S Different Type of Sales SDM-Ch.7 Total sales of the company By type of products By type of distribution channels By type of customer classifications By size of orders Different Type of Analysis Comparisons with sales quotas / targets Comparisons with previous periods Comparisons with industry / competitors Comparisons within sales organisations Comparisons with sales forecasts 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 SDM-Ch.7 Marketing Cost and Profitability Analysis • Purpose: To measure profitability of company’s 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” SDM-Ch.7 10 An Example of Profitability Analysis SNo Particulars Full-cost Approach Contribution Approach Western Region Branch A Branch B Branch C Sales 400 150 130 120 Cost of good sold 300 112.5 97.5 90 Gross margin (1-2) 100 37.5 32.5 30 Branch selling expenses 12.7 4.5 4.2 W Region direct selling expenses 12.0 - - - Contribution (3-4-5) 75.3 33.0 28.3 26.0 Allocated indirect expenses 36.3 - - - Net profit (6-7) 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 manufacturer’s reps or agents on commission basis • Using the internet, telemarketing, direct mail to reach customers • Increasing sales volume substantially SDM-Ch.7 16 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 SDM-Ch.7 17 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 SDM-Ch.7 18 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 SDM-Ch.7 19 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 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 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 20 Establish Performance Standards • Performance standards are also called sales goals, targets, sales quotas, sales objectives • Performance standards for quantitative results are related to the company’s sales volume or market share goals • Performance standards for efforts / behavioural criteria are difficult to set • For this, companies “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 SDM-Ch.7 21 Compare Actual Performance with Standards • Salesperson’s 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 SDM-Ch.7 22 Review Performance Evaluation with Salespeople • Performance review / appraisal session is conducted, after evaluation of the salesperson’s 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 SDM-Ch.7 23 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 company’s sales / marketing strategies • If a salesperson’s performance is good, he / she should be rewarded and recognised SDM-Ch.7 24 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 SDM-Ch.7 25 Social Responsibilities • Corporate social responsibility means distinguishing right from wrong and doing the right • Social responsibility is the management’s 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 SDM-Ch.7 26 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 SDM-Ch.7 27 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 company’s marketing units SDM-Ch.7 28 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 SDM-Ch.7 29 ... for sales people on spending money Demerits: Salespeople spend more and may make money unethically SDM-Ch .7 Salesforce Expense Plans (Continured) • Company partially pays expenses / Limited payment... expense budget SDM-Ch .7 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... review company’s sales / marketing strategies • If a salesperson’s performance is good, he / she should be rewarded and recognised SDM-Ch .7 24 Business Ethics and Sales Management • Sales managers