Evaluating and Controlling the Sales Force.pptx

Sales and Distribution Management

1. Evaluating and Controlling the Salespeople

2. Learning Objectives L o 1. Know the characteristics and control of salespeople’s expenses. LO2. Discuss marketing and sales audits for evaluating a sales organization’s effectiveness. LO3. Analyze sales, marketing cost, profitability, and productivity for evaluating the effectiveness of a sales organization. LO4. Examine purposes and procedure for evaluating and controlling performance of the salespeople. LO5. Know the use of sales force automation tools for performance evaluation and social media as a selling vehicle. LO6. Find ethical, social and legal responsibilities of sales managers and salespeople.

3. Sales Force Expenses Companies have expense plans that reimburse salespeople for their food, lodging, travel, customer entertainment, telephone and any other legitimate expenses incurred while on the job. Characteristics for(or objectives of) deciding an expense plan are: ( i ) It should be fair to the salespeople and the company. (ii) It should be simple to understand and easy to administer. (iii) It should allow ‘ tour advance ‘, and quick reimbursement. For Controlling the selling expenses firms use four types of expenses plans (1) The salesperson pays all expenses. (2) The company pays all expenses (Unlimited payment plan). (3) The company partially pays expenses (Limited-payment plan). (4) Combination plan (Expense-Quota plan).

4. Sale Force Expenses (Continued) (1)The Salesperson Pays all Expenses Characteristics of the plan: Usually, sales people who are compensated by straight commission, pay all the selling expenses. Companies pay a higher commission rate to unable salespeople pay all the selling expenses. Advantages of the plan : No administration cost to the company. Sales person gets income tax benefit . Salesperson has a freedom of operation . Disadvantages of the plan: The company has less control on salesperson’s activities. Salesperson may focus on selling activities and may not give adequate attention to non-selling activities. Salesperson may not visit customers who are at long distances.

5. Sale Force Expenses (Continued) (2) The Company Pays all Expenses (Unlimited Payment Plan ) Characteristics of the plan: The company reimburses salespeople for all business related expenses. Salespeople have to submit expense details for approval to the sales manager. Merits of the plan: The management has good control over salespersons’ activities. Salespersons have freedom from anxiety about the money to be spent. Demerits of the plan: Salespeople may spend more than reasonable amount . (3) The Company Partially Pays Expenses (Limited Payment Plan) Characteristics of the plan: It has two methods:( i )to give salesperson a lump sum for a day or week.(ii) to set a limit on reimbursed amount for each expense item. This is suitable when salespeople have routine and repetitive travel routes.

6. Limited –Payment Plan (Continued) Advantages of the plan: Helps in budget planning as accurate estimate of selling expenses can be done. Disputes between sales managers and salespeople are less. Management can control salespeople’s activities. Disadvantages of the plan: High performing salespeople may not like limits on expenses. It can be inflexible plan. (4) Combination Plan (Expense-Quota Plan) Characteristics of the plan : There are two methods : ( i ) Combine limited and unlimited plans. Advantage is flexibility. (ii) Expense–quota plan in which the management studies individual territories and sets an expense quota. Advantages are that management has some control on selling expenses and salespeople have some flexibility within expense budget.

7. Marketing And Sales Audits The Evaluation Process is same for both, as follows : Management to find out: What Happened Why it Happened What to do About it Marketing Audit It covers a company’s marketing system. It is a comprehensive, periodic and systematic examination of all aspects of a company’s marketing function – e.g. marketing plan, environment, organization, strategies - and recommending an action plan to improve the company’s marketing performance. Sales Audit The purpose is to evaluate the effectiveness of a sales organization. It is a comprehensive, systematic, diagnostic and prescriptive tool. * A company should conduct both marketing and sales audits regularly to identify and correct current and potential problems.  

8. Evaluation of Effectiveness of a Sales Organization To evaluate effectiveness of a sales organization, companies analyze their sales, marketing costs, profitability and productivity. Effectiveness model of a sales organization is as follows : Effectiveness of a Sales Organisation Sales Analysis Marketing Cost Analysis Profitability Analysis Productivity Analysis We shall examine each of the above factors

9. Sales Analysis Sales analysis is a detailed inspection of a company’s sales data. It includes collecting, classifying, comparing sales data and drawing conclusions. Sales data is collected from accounting records of sales invoices or cash register receipts. Sales analysis of a company can be done in different ways. Different alternatives are shown in a framework below: Sales Analysis All levels In a Sales Organization Different Type of Sales Different Type of Analysis National and/or international levels sales organisation Regional level Branch /district level Territory level Individual customer 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 the sales organzsation Comparisons with sales forecasts

10. Sales Analysis (Continued ) Reasons/Purposes of sales analysis: ( i ) For evaluating sales performance at various levels; (ii)For identifying problems; (iii) For taking corrective actions; (iv) For future planning. Many companies use “ Hierarchical sales analysis” for identifying problems. Explained with a company example below : Sales performance at national level is below sales volume budget. Find which regions have problems in achieving sales quotas. Focus sales analysis on the 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. Appropriate 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 of actual with sales quotas or targets are widely used by companies.

11. Marketing Cost and Profitability Analysis Purpose: To measure profitability of a company’s sales or marketing units such as market segments, products, and sales territories. This information helps to decide which marketing units need to be expanded, reduced, or eliminated in future. Procedure for Marketing cost and profitability Analysis : State the purpose of the analysis. Identify major functional (or activity) expenses. Convert (or change) natural accounting expenses into functional expenses. Allocate functional expenses to marketing or sales units. Prepare profitability of sales or marketing units, by using “full-cost approach” or “contribution approach”. We shall discuss the above steps briefly :

12. Marketing Cost and Profitability Analysis(Continued) 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. salesperson’s salary is direct cost for territory analysis, but indirect cost for analysis of products or segments. Identify Major Functional(or Activity) 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 are the major activities.

13. Marketing Cost and Profitability Analysis 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 Total Functional Expenses Personal Selling Adv. and Sales Promotion Warehousing & Inventory Administration Salaries 20,000,000 10,000,000 4,000,000 2,000,000 4,000,000 Rent 10,000,000 2,500,000 1,000,000 5,000,000 1,500,000 Travel 5,000,000 5,000,000 __ __ __ Adv. and Sales Promotion 15,000,000 __ 15,000,000 __ __ Total 50,000,000 17,500,000 20,000,000 7,000,000 5,500,000 A better method for allocating costs is activity-based costing (ABC ), which allocates costs based on cause of the expenses. Note : All figures are in Rupees (Continued)

14. Marketing Cost and Profitability Analysis (Continued) 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 Direct to sales territories for a territory cost analysis. Selling time given to each product and market segment. Advertising Circulation of media to sales territories. Media space for each product & market segment. Sales Promotion Equal charges to marketing units Administration Equal charges for all marketing units.

15. Prepare Profitability of Marketing Units This is done by preparing profit & loss statements for the marketing unit under study. Two approaches are available in allocating marketing costs for profitability analysis: (1) full-cost (or net profit),(2) contribution(or profit contribution). Full-Cost Approach: All marketing costs, both direct & indirect, are allocated to the marketing unit under study. Useful for long-term profitability studies of products or market segments Contribution Approach: Only direct marketing costs are allocated to the marketing unit under study. Useful for short-term decisions like profitability of branches / regions, which are responsible for direct expenses.

16. An Example of Profitability Analysis S.No Particulars Full-cost Approach Contribution Approach Western Region Branch A Branch B Branch C 1 Sales 400 150 130 120 2 Cost of goods sold 300 112.5 97.5 90 3 Gross margin (1-2) 100 37.5 32.5 30 4 Branch direct selling expenses 12.7 4.5 4.2 4 5 W. Region direct selling expenses 12.0 - - - 6 Profit Contribution (3-4-5) 75.3 33.0 28.3 26.0 7 Allocated indirect expenses 36.3 - - - 8 Net profit (6-7) 39.0 - - - Note: All figures are in Rupees million

17. Productivity Analysis It is useful for complete evaluation of sales organizations’ effectiveness. Productivity is generally measured by ratios between outputs & inputs. 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 are: Reducing the sales force size . Hiring manufacturer’s reps. or agents on straight commission basis. Using the internet, telemarketing, direct mail to reach customers. Increasing sales volume substantially. Using communications and computer technology.

18. Evaluating & Controlling Performance of Salespeople Purposes/Objectives of performance evaluation of salespeople are: Mainly to find how salespeople have performed. This information is used for other purposes, such as: Improving the salesperson’s performance. Deciding salary increments and incentive payments. Identifying the salespeople for promotion. Determining training needs of the salespersons. Motivating salespeople through recognition and reward. Understanding strengths and weaknesses of the salespersons.

19. Procedure for Evaluating and Controlling Sales force Performance The steps involved in the procedure are: Set policies on performance evaluation and control. (ii) Decide the bases of salespersons’ performance evaluation. (iii) Establish performance standards. (iv) Compare actual performance with the standards. (v) Review performance evaluation with salespeople. (vi) Decide sales management’s actions and control. We shall describe the above steps briefly :

20. Procedure for Evaluating and Controlling Sales Force Performance(Continued ) ( i ) Set Policies on Performance Evaluation & Control Most companies establish basic policies. Examples are: Frequency of evaluation . Once a year, six- monthly or quarterly. Who conducts evaluation? Mainly first level sales manager – e . g. branch/district sales manager. Assessment Technique s to be used. e.g. Management by objectives (MBO), 360-degree feedback methods. Sources of Information. Sales analysis, new business reports, lost business reports, sales report, call plans, etc. Policies on “ bases of sales force evaluation ” and “ conducting performance review sessions with salespeople” will be discussed in steps (ii) and (v) later in subsequent slides.

21. Procedure for Evaluating and Controlling Sales Force Performance (Continued) (ii) Decide Bases of Salespersons’ Performance Evaluation A firm should decide which of the following bases / criteria it would use: (1) result / outcome based, (2) efforts / behavioral based or (3) both results & behavior based measures for evaluating salespeople’s performance. A company selects specific performance bases or criteria from the above three alternatives, some of them are shown below: Quantitative results / outcome bases / criteria Quantitative efforts / behavioral bases / criteria Qualitative efforts / behavioral bases / criteria Sales volume In value / units Percentage of quota By products & customer segments Accounts ( Customers) New accounts nos. Lost accounts nos. Customer calls No. of calls per day No. of calls per customer Non-selling activities Overdue payments collected No. of reports sent Personal skills / efforts Selling skills Planning ability Team player Personality & Attitu des Cooperation Enthusiasm

22. Procedure for Evaluating and Controlling Sales Force Performance(Continued) (iii) Establish Performance Standards Performance standards are also called sales goals, targets, sales quotas or sales objectives. Performance standards for quantitative results are related to the company’s sales volume budget or sales quotas for regions, branches and salespeople. Performance standards for efforts / behavioral criteria are difficult to set. For this, companies do “time and duty analysis” of sales jobs or use executive judgment . Performance standards should not be too high or too low. After establishing standards, salespeople must be informed .

23. Procedure for Evaluating and Controlling Sales Force Performance (Continued) (iv) Compare Actual Performance with Standards . Salesperson’s actual performance is measured and compared with the performance standards For this, sales managers use different evaluation methods or rating forms: Graphic rating. Ranking. Behaviorally anchored rating scale (BARS) Management by Objectives (MBO) Descriptive statements Companies combine some of the above methods for an effective evaluation system. Sales managers are supplied with the evaluation forms for evaluating salespersons.

24. Procedure for Evaluating and Controlling Sales Force Performance(Continued) (v) Review Performance Evaluation with Salespeople. Performance review / appraisal session is conducted, after evaluation of the salesperson’s performance. This is a challenging and sensitive part of a sales manager’s job. Both the sales manager and salesperson should have a positive attitude towards the review. After the review, sales manager should write to the salesperson about the performance evaluation results and the objectives for the future. A copy should be sent to the sales manager’s boss. Guidelines for reviewing performance of salespersons : First, discuss performance standards / criteria / bases. Ask the salesperson to review his own performance. Sales manager presents his views by first highlighting good qualities of the salesperson . Weak areas and corrective actions should then be discussed. Establish mutual agreement on the performance. If disagreements occur, sales manager should carefully explain the reasons. Thereafter, both should discuss and develop future objectives and action plan.

25. Procedure for Evaluating and Controlling Sales Force Performance (Continued) (vi) Decide Sales Management’s Actions and Control. Many companies combine this step with the previous step – i.e. performance review After the performance review meetings with salespersons, sales manager summarizes the following for all salespeople. Identifies the Problem Areas. e. g. sales quotas not achieved by most salespersons. Finds Causes . e.g. less sales calls made, poor market coverage or superior performance of competitors. Decides Sales Management Actions . e.g. train salespersons, redesign territories or review the company’s sales / marketing strategies. If some salespersons’ performances are good, they should be rewarded and recognized suitably .

26. Sales Force Automation (SFA) SFA gives technological help to sales managers and salespeople to manage sales administration effectively and efficiently. Technological components of SFA are computer hardware and software. SFA Ecosystem includes: ( i ) SFA solutions providers: Some are SFA specialists. Other venders offer CRM suites that include SFA modules. (ii) Hardware and infrastructure vendors: Desktop or laptop computers are used from hardware suppliers. For field salespeople mobile or wireless solutions are needed. (iii) Service Providers : These are needed for modifying a selling process, changing an organization structure or training salespeople.

27. Sales Force Automation (SFA) (Continued) Functions/Applications offered by SFA software are : ( i )Customer (or Account) management : It gives detailed information about customers, which is very useful to salespeople and sales managers. ( ii)Lead management : It permits companies to create, allocate and monitor sales leads. ( iii)Territory management : It helps sales managers to establish, modify and balance sales territories. There are many more applications, including industry specific. Benefits from SFA ( i )For salespeople : higher conversion rates from enquiries to orders and superior sales performance. ( ii)For sales managers : reduced selling costs, improved salespeople productivity and customer relations. ( iii)For senior management : Increased market share, sales revenue and profitability. Value of SFA depends on salespeople’s ability and willingness to adopt SFA technology.

28. Use of Social Media What is Social Media? Social media refers to platforms like Twitter, Face book, and LinkedIn, where people come and communicate with each other, regardless of their locations . How Should We Use Social Media? Use of social media to interact directly with the prospect until the prospect is ready to buy is called social selling . A social seller uses a social media to find potential customers, relate to their needs and interests, and “engage” or attract their attention. Benefits of Social Media? ( i )Real-time communication between the company and prospective customers. (ii)Improved visibility to the salesperson and his company. (iii)Increased customer relationship and loyalty. Compared to the traditional sales channels like distributors, wholesalers, and retailers, social selling is cheaper and more exciting. Social selling is a good tool for salespeople.

29. Ethical, Social , and Legal Responsibilities of Sales Managers & Salespeople Business Ethics and Sales Management Sales managers and salespeople have ethical responsibilities. Some of the ethical situations are: Dealing with the company . Examples: Salespeople’s expense bills, credit for damaged merchandise. Dealing with customers . Examples: 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 .

30. Social Responsibilities Corporate Social Responsibility (CSR) means distinguishing right from wrong and doing the right. Social responsibility is defined as the management’s responsibility to take decisions and actions for welfare and interests of the society and the company. A company has the following four responsibilities to its eight stakeholders: Customers, Community, Creditors, Government, Owners, Managers, Employees, and Suppliers. Acronym: CCCGOMES ( i ) Ethical responsibilities: Dealing with stakeholders with reasonableness and impartiality. Legal responsibilities: Following local, state, and central laws and regulations. Economic responsibilities: Producing and marketing goods / services that the society wants, and making reasonable profits. Voluntary responsibilities: Making social (e.g. philanthropic) contributions. This is the highest criterion of social responsibility .

31. Legal Responsibilities and Sales Management Laws and regulations by local, state or central governments have impact on sales management. Examples are: Price Discrimination. As per Competition Act, 2003, in India, a seller should not discriminate prices among similar buyers (e.g. trade discounts to dealers ). Price Fixing . Under Competition Act, it is unlawful for suppliers or competitors to fix prices or form “ price cartels”. 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 or retain a customer’s business is illegal under Indian Contracts Act 1872 and Sale of Goods act, 1930. Sales managers must take responsibility that laws are not violated.

32. Thank You 32