Evaluating and Controlling Salespeople

Input system -- Behavioral-based

Subjective evaluations
Qualitative measures (Table 16-2)
Use rating scales -- e.g., Likert
Can have bias & halo effects
Generating data
Computerized Call Reports (Fig. 16-3)
Management by Objectives (MBO)(Fig. 16-4)
non-quantitative -- difficult in solution sales
Behavioral Observation Scales (BOS) (Fig 16-5)
Job Dimensions -- critical incidents for job success
Evaluating and Controlling Salespeople
Combining Input & Output Measures
Call Productivity Ratios
Calls per day = # Calls _
# Days worked
Calls per account = # Calls_
# of Accounts
Planned Call = # Planned calls
Total # Calls
Batting Average = # Orders__
Total # Calls
Evaluating and Controlling Salespeople
Combining Input & Output Measures

Expense Ratios

Expense to Sales = Expenses

Sales

Cost per Call = Total Costs

# of Calls
Evaluating and Controlling Salespeople
Combining Input & Output Measures
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
Evaluating and Controlling Salespeople
Models Combining Input & Output Controls

Inputs Inputs Outputs

Behavior
Attitude # Calls # Orders
Motivation Days worked Order Size
Expenses
Skills # New, lost,
Selling vs. non-
Abilities selling time
or active
Job Perception Quotas accounts
Evaluating and Controlling Salespeople
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
 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
Cost Analysis
Object affects direct vs. indirect cost class:
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
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 & software
 Evaluating Sales Force Performance
District Costs
Sales managers vary in ability to control expenses
3-way: district by product by cost
watch for price cutting by salespeople
watch for excessive emphasis on low margin goods
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 (T 15-7)
Consider using DEA (Programming)
Table 15-1 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 years sales 76 Gross margin percentage 34
Sales to quota 65 Return on investment 33
Sales growth 55 Net profit as a 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

Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, Examining the Bases Utilized for Evaluating
Salespeoples performance, Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 61.
 Table 15-2 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

Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, Examining the Bases Utilized for Evaluating
Salespeoples performance, Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 62.
 Table 15-4 Comparing Dollar and Unit Sales at the Bear
Computer Company

1996 Sales 1997 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
Table 15-5 Expense Analysis by Product Line, Bear Computer
Company, 1997

CGS and CGS as a Contribution

1997 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%
Table 15-6 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

Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, Examining the Bases Utilized for Evaluating
Salespeoples performance, Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 63.
Table 15-8 Measuring Territory Profit Output for Bear Computer
Company

Territory Performance (thousands)a

Jones Smith Brown West

Net Sales $825 $570 $1100 $1000
Less CGS and Commissions 495 428 754 660
Contribution margin 330 142 356 340
CM as a percentage of sales 40% 25% 325 345
Less direct selling costs
Sales force salaries 55 35 55 65
Travel 15.5 4.1 3.5 5.0
Food and lodging 12.5 4.0 3.2 4.5
Entertainment 11.4 .3 5 1.0
Home sales office expense 4.5 2.3 2.0 4.5
Profit contribution $231.1 $ 96.6 $291.8 $260.0
PC as a percentage of sales 28% 17% 26% 26%

a
Sales figures are from Table 15-7.
 Table 15-9 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%
Table 15-10 Ranking Salespeople on 10 Input/Output factors

Ranking Factors Ford Bell Shaw Mann Gold

Dollar Sales 2 3 4 5
Sales to Potential 5 3 4 2
Sales to Quota 5 4 2 3
Sales per Order 5 4 3 2
Number of Calls 2 5 3 4
Orders per call 4 2 5 3
Gross Margin Percent 5 3 4 2
Direct Selling Costs 4 3 5 2
New Accounts 4 2 5 3
Number of Reports Turned In 4 3 5 2
Total of Ranks 36 28 30 31 25
Figure 15-3 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
E 2.80
Number of salespeople 18 Number of salespeople 11
S 2.59
2.38
Y Avg sales $1.78 Avg sales $2.03
R 2.16 Avg contribution $ .75
Avg contribution $ .64
2 1.95 Avg contribution % 35.8 Avg contribution % 37.1
1.74 Age 44 Age 35
Calls 958 Calls 921
1.53
Number of salespeople 11 Number of salespeople 16
1.31
1.10 LAGGARDS SLOWPOKES

34.8 35.1 36.0 36.6 37.2 37.8 38.7

Contribution Margin (%)
Table 15-11 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

Source: James S. Boles, Naveen Donthu, and Ritu Lohtia, Salesperson Evaluation Using Relative Performance
Efficiency: The Application of Data Envelopment Analysis, Journal of Personal Selling & Sales Management, Vol.
15, No. 3 (Summer 1995), p. 44.
 Figure 15-2 A Model of Salesperson Evaluation

Input-based System Output-based System

Behavior Results
Calls Sales revenues
Reports Sales growth
Complaints Salesperson Sales/quota
Demonstrations Evaluation Sales/potential
Dealer meetings New accounts
Display set up Contribution margins
Travel/entertainment Contribution
expenses percentage
Table 15-7 Measuring Sales Force Output for Bear Computer
Company

1 2 3 4 5 6 7 8
Market
Sales 96 Sales 97 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
 Figure 15-1: 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
 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
Evaluating and Controlling Salespeople
Models Combining Input & Output Controls
Four Factor Model
Calls Orders Sales $
$ Sales = Days worked x
Days Worked Calls Orders

Batting Average
$ Sales = Days worked x Call Rate
Average Order Size

How can sales be increased?

Optimum Number of sales calls to maximize profits?
Who is doing best? Ann or Pete?
What management strategies for Pete? for Ann?
 Evaluating Sales Force Performance
Profitability Analysis
Full Cost Contribution Margin
Sales Sales
Less: C of GS C of GS & Other
Variables Costs
Equals: Gross Margin Contribution Margin
Less: Operating Expenses Direct Allocable
(Direct + Fixed Selling Costs
Indirect Allocated)
Equals: Profit Contribution Profit Contribution
 Evaluating Sales Force Performance
Profitability Analysis
Full Cost Approach
charge recruiting, training, sales promo &
other marketing expenses to sales manager
allocation is somewhat arbitrary
not under sales manager control
 Evaluating Sales Force Performance
In-Class Exercise 15-1 -- Which Profits?
1. Why would a company that used to use only
sales as a performance criteria for its sales force
wish to consider profitability?
2. What criteria should be established to construct
a workable performance evaluation system?
3. What are the pros and cons of alternative profit
measures?
4. What other problems need to be considered?
Evaluating and Controlling Salespeople
In-Class Exercises 16-1
I Know These Sales Figures Stink
1. What activities should be completed in the
performance evaluation process?
2. What should take place prior to a performance
review meeting?
3. What is covered in the meeting?
4. What to do if an employee disagrees with the
performance ratings?
5. What are additional suggestions for providing
Evaluating and Controlling Salespeople
In-Class Exercises 16-1
I Know These Sales Figures Stink
6. How do you handle hostile reactions?
7. What additional questions should Sherrie ask of
the veteran sales manager?
8. What consideration should be given to a large
customer going out of business?
9. Is sales, the bottom line, the only measure that
should be used for evaluating performance?
10. What are the companies responsibilities in this
role play?
Evaluating and Controlling Salespeople
Input vs. Output Systems
Salary Compensation Commission

Input System favored Output

Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
1. How do the six salespeople compare with one
another? -- Rank them for 1 to 6 overall.
2. Which of the six would you promote to Field
Sales Supervisor (sales manager position)?
3. If you were opening a new territory which is
promising to be quite high in sales potential and
thus both lucrative and challenging, and you had
to assign one of the six to that territory, which
salesperson would you transfer to that territory?
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
4. If you had to reduce the sales force to only 5
salespeople, and thus had to terminate one of the
salespeople, which one would you terminate?
Why?
5. If you had a $10,000 budget for bonuses for your
sales force and had to pay it all out, how much of
the $10,000 would you give to each of the
salespeople? You may allocate the $10,000 in any
manner you wish, as long as the total is exactly
$10,000.
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
Results of a sample of 242 sales managers
How do your results compare with the
managers?
Situation specific evaluations
Overall evaluations
Situation Specific Predictive Ability
which model works best?
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
1. How do the six salespeople compare with one
another? -- Rank them for 1 to 6 overall.
2. Which of the six would you promote to Field
Sales Supervisor (sales manager position)?
3. If you were opening a new territory which is
promising to be quite high in sales potential and
thus both lucrative and challenging, and you had
to assign one of the six to that territory, which
salesperson would you transfer to that territory?
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
4. If you had to reduce the sales force to only 5
salespeople, and thus had to terminate one of the
salespeople, which one would you terminate?
Why?
5. If you had a $10,000 budget for bonuses for your
sales force and had to pay it all out, how much of
the $10,000 would you give to each of the
salespeople? You may allocate the $10,000 in any
manner you wish, as long as the total is exactly
$10,000.
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
Results of a sample of 242 sales managers
How do your results compare with the
managers?
Situation specific evaluations
Overall evaluations
Situation Specific Predictive Ability
which model works best?
Evaluating and Controlling Salespeople
Summarizing Sales force Performance
Performance Matrix
Shows interaction of 3 or more variables at a time
Identifies reps for rewards and punishments
Helps find subtle interactions
Findings in Figure 16-6
Reps begin career selling high margin mix of products
Reps end career by sacrificing margins for revenue
Laggards represent a plateauing problem
Laggards should make more contractor calls
If looking for $$ -- reward compromisers
If looking for profits -- reward the stars
 Evaluating Sales Force Performance
Profitability Analysis
Residual Income Analysis
Sales growth is desirable as long as
profits exceed cost of capital
Most comprehensive single measure of
sales force performance
Existing control factors all included
Expressed in dollars makes it easier to set
sales manager incentives
Directly related to corporate objectives
 Evaluating Sales Force Performance
Profitability Analysis
Return on Assets Managed (ROAM)
Profit Contrib. Sales
X
Sales Assets Managed
Assets under sales management control
District Analysis
Assets managed poorly in District 4
Profit contribution greatest in District 1
 Evaluating Sales Force Performance
Profitability Analysis
ROAM disadvantages
focus on lower assets (inventory + acct. receivable)
does not consider sales level or growth
Solution: Residual Income Analysis (RIA)
Profit Contribution
Less: Acct receivable costs
Inventory carrying costs
Equals Residual Income
 Evaluating Sales Force Performance
Sales Force Evaluation Model
Sales Analysis Principles
80/20 -- 20% of customers yield 80% sales
Iceberg -- sales figures tip of iceberg -- need more
Gathering Sales Data
DSS
hand held computers for field
Steps in Sales Analysis
Pick unit for analysis - by division, district, etc.
Select variables for cross classification - by product
Choose performance measures -- sales to quota, etc.
 Evaluating Sales Force Performance
The Big Picture
Start with aggregate sales by year
Look for changes and trends -- market share, volume
Refining through Cross Classification
Sales by Region
reward areas of strength?
move into areas of weakness
Sales by Product Line
Are you selling what firm wants? or what
salespeople want?
Balance long vs. short term goals
 Evaluating Sales Force Performance
Refining Through Cross Classification
Dollar Vs. Unit Sales
When price change (inflation) distorts dollar
figures
Good for big ticket items
Sales by Distribution Channel
tends to change over time
asks who customers really are
Sales by Customer Type
illustrates 80/20 principle
how to deal with small accounts
Evaluating Sales Force Performance

Cross Classification Techniques

Multi-way Tables
Varying Customer Classifications
Product Lines vs. Product Categories
Brands as Product Class
Table 15-3 Sales Data for Bear Computer Company

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

1997 26 + 8.3 300 8.6

1996 24 +14.3 219 10.9
1995 21 +23.5 165 15.7
1994 17 --- 125 13.6
Table 15-7 Measuring Sales Force Output for Bear Computer
Company

1 2 3 4 5 6 7 8
Market
Sales 96 Sales 97 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
Figure 15-3 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
E 2.80
Number of salespeople 18 Number of salespeople 11
S 2.59
2.38
Y Avg sales $1.78 Avg sales $2.03
R 2.16 Avg contribution $ .75
Avg contribution $ .64
2 1.95 Avg contribution % 35.8 Avg contribution % 37.1
1.74 Age 44 Age 35
Calls 958 Calls 921
1.53
Number of salespeople 11 Number of salespeople 16
1.31
1.10 LAGGARDS SLOWPOKES

34.8 35.1 36.0 36.6 37.2 37.8 38.7

Contribution Margin (%)