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This chapter presents the following content: Goals of a sales force reward system, the customer-product matrix, compensating salespeople, aligning pay with strategy, use of compensation plans, advantages of frequent vs. infrequent incentive payments,...
Part V SALES FORCE LEADERSHIP Chapter 13: Evaluating Performance Why Evaluate Salespeople? To link compensation and rewards to performance To identify salespeople capable of promotion To identify training and counseling needs To identify criteria for recruitment and selection To clarify work expectations To motivate salespeople To help salespeople set career goals 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 Table 13-1 Output Measures Used in Sales Force Evaluation Sales Profit Sales volume dollars Net profit Sales volume previous year’s growth Gross margin percentage Sales to quota Return on investment Sales growth Net profit as a percentage of sales Sales volume by product Gross margin dollars Sales volume by customer Margin by product category New account sales Accounts Sales volume in units Number of new accounts Sales volume to potential (market share) Number of accounts lost Orders Number of orders Average order size Batting average (orders/calls) Number of accounts sold Number of accounts buying full line 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 Table 13-2 Input or Behavior Measures Used in Sales Force Evaluation Expenses Effort Total expenses Number of calls Selling expenses to budget Number of calls per day Selling expenses as a percentage of sales Number of calls to quota Nonselling Activities Number of days worked Advertising displays set up Number of reports turned in Number of service calls Number of prospecting phone calls Number of customer complaints Selling time vs non-selling time 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 Table 13-7 Qualitative Bases Used in Sales Force Evaluation Attitudinal and Personality Factors Time management Attitude Ability to plan Enthusiasm Appearance and manner Cooperation Knowledge Creativity and resourcefulness Product knowledge Initiative and aggressiveness Pricing knowledge Motivation Knowledge of competition Selling Skills Ethical and moral behavior Communication Skills Team player 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 1 Company Volume Year ($ millions) 2008 2007 2006 2005 26 24 21 17 2 3 Percentage Industry Change from Volume Previous Year ($ millions) + 8.3 +14.3 +23.5 300 219 165 125 4 Company Market Share (percent) 8.6 10.9 15.7 13.6 Measuring Territory Profit Output for Bear Computer Company Territory Performance (thousands) Jones Smith Brown West $825 $570 $1,100 $1,000 Less CGS and Commissions 495 428 744 660 Contribution margin 330 142 356 340 40% 25% 32% 34% 55 35 55 65 Travel 15.5 4.1 3.5 Food and lodging 12.5 3.2 4.5 Entertainment 11.4 0.3 0.5 4.5 2.3 4.5 $231.10 $96.30 $291.80 $260.00 28% 17% 26% 26% Net Sales CM as a percentage of sales Less direct selling costs Sales force salaries Home sales office expense Profit contribution PC as a percentage of sales Ranking Salespeople on 10 Input/Output Factors Ranking Factors Ford Bell 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 36 28 30 31 25 Total of Ranks Shaw Mann Gold Ranking Salespeople on 10 Input/Output Factors Performance factors Pete Jones Ann Smith Sales (annual) $1,400,000 $1,100,000 210 225 1,200 1,500 480 750 $19,000 $14,900 5.7 6.7 40% 50% Sales per order $2,916 $1,466 Expenses per call $15.83 $9.93 Expenses per order $39.58 $19.86 1.35% 1.35% Days worked Calls Orders Expenses Calls per day Batting average (orders per calls) Expenses as % of sales Ranking Salespeople on 10 Input/Output Factors Millions $ 3.87 3.66 3.44 S A L E S Y R 3.23 3.02 COMPROMISERS $3.17 Avg Sales 2.91 Avg contribution $1.13 Avg contribution 1.09 Avg contribution % 37.4 Avg contribution % 35.8 Age 45 2.80 Calls 2.59 Number of salespeople 2.38 Avg Sales Avg contribution Avg contribution % Age Calls Number of salespeople 2.16 1.95 1.74 1.53 1.31 1.10 STARS Avg Sales 1122 18 Age 37 Calls 888 Number of salespeople 1.78 Avg Sales Avg contribution Avg contribution % Age Calls Number of salespeople 0.64 35.8 44 958 11 35.1 2.03 0.75 37.1 35 921 16 SLOWPOKES LAGGARDS 34.8 11 36.0 36.6 37.2 Contribution Margin (%) 37.8 38.7 Relative Performance Efficiency for Sales Rep 22 Variable Type Output Output Output Input Input Input Input Value Measured 100 45,000 20,000 60,500 Variable name Percent Quota Attained (%) Supervisor Evaluation Sales Volume ($) Sales Training Salary ($) Management Ratio Territory Potential ($) Reference Set Influence Salesperson 0.49 Salesperson 20 0.43 Salesperson 45 0.08 Value of 100% Efficient 120 50,500 18,000 50,000 Efficiency=0.85 Iterations=10 Slack 20 5,500 2,000 10,500 Conditions when Outcome versus Behavioral Systems are preferred Outcome Systems(OS) • Customers need Customers information • Customers trust the salesperson • There are ways to close the deal • Sales environment is competitive Behavioral System(BS) • Salespeople lack experience • No need to protect the brand image • Nonselling behaviors are a priority • Difficult to assign sales credit 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 POP 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 Cost to Serve = Total Cost to Serve Account 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) – – Company owned & managed cars – – Salesperson gets car preference Allowances rarely cover full salesperson car costs 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 $ Sales = Days worked x $ Sales = Days worked x – – – – Calls Orders Sales $ Days Worked Calls Orders Batting Average Average Order Size Call Rate 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? ... 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... Consider using DEA (Programming) Evaluating? ?Sales? ?Force? ?Performance: Fleet Car Management A Motivator Salesperson owned car (per mile travel allowance) – – Company owned & managed cars – – Salesperson gets car preference... Four Factor Model $? ?Sales? ?= Days worked x $? ?Sales? ?= Days worked x – – – – Calls Orders Sales? ?$ Days Worked Calls Orders Batting Average Average Order Size Call Rate How can? ?sales? ?be increased?