Module Nine

Evaluating the
Effectiveness of the Organization
 Learning Objectives

1. Differentiate between sales organization

effectiveness and salesperson performance.
2. Define a sales organization audit and discuss how it
should be conducted.
3. Define benchmarking and discuss how it should be
conducted.
4. Describe how to perform different types of sales
analyses for different organizational levels and types
of sales.

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Learning Objectives

5. Describe how to perform a cost analysis for a

sales organization.
6. Describe how to perform an income statement
analysis, activity-based costing, and return on
assets managed to assess sales organization
profitability.
7. Describe how to perform a productivity analysis
for sales organization.

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Setting the Stage

Increasing Productivity and Evaluating

Effectiveness at SOLCORP

1. What did Salesnet do for SOLCORP?

2. How did the Salesnet CRM package
benefit SOLCORP?

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Organization Effectiveness vs.
Salesperson Performance

Salesforce
Salesforce
Environmental
Environmental Control
Control
Factors
Factors System
System

Salesforce
Salesforce Salesforce
Salesforce Sales
Sales
Salesforce
Salesforce Selling
Selling Outcome
Outcome Organization
Organization
Characteristics
Characteristics Behavioral
Behavioral Performance
Performance Effectiveness
Effectiveness
Performance
Performance

Salesforce
Salesforce
Nonselling
Nonselling
Organizational
Organizational Behavior
Behavior
Factors
Factors Performance
Performance

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Organization Audit

• Comprehensive, systematic, diagnostic and

prescriptive tool.
• Assesses the a firm’s sales management
process
• Provides direction for improved performance
and prescription for needed changes.
• Should be performed regularly,
• Should be conducted by someone from outside
the sales organization.

Although it is an expensive and time-consuming

process, the sales organization audit generates
benefits that usually outweigh the costs.

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Organization Audit Framework

SALES ORGANIZATION SALES ORGANIZATION PLANNING

ENVIRONMENT SYSTEM
Extra-organizational Factors Objectives
• Economic-Demographic Sales Management Program
• Political-Legal Implementation of the Program
•Technological
• Competitive
• Market
• Customer
Sales Force
Management SALES MANAGEMENT
Intra-organizational Factors FUNCTIONS
• Company Organization
Auditor
Sales force Organization
• Sales-Marketing Department Links Recruitment and Selection
• Sales-Other Department Links Sales Training
• Marketing Mix Compensation and Expenses
Supervision, Morale, and Motivation
Sales Forecasting
Budgeting
SALES MANAGEMENT Quotas
EVALUATION Territories and Routing
Adequacy of Sales Managers Sales Analysis
Adequacy of Management Practices Cost/Profitability Analysis
Sales force Evaluation

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Benchmarking

Benchmarking is an ongoing
measurement and analysis
process that compares an
organization’s current
operating practices with the
“best practices” used by
world-class organizations.

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Benchmarking Process

Analyze & Communicate

Plan • Determine current
• Identify what to
performance gap.
benchmark.
• Project future performance levels.
• Identify comparative
companies or sales forces. • Communicate benchmark findings
and gain acceptance.

Implement & Control to

Gather Data Improve Performance
• Determine data • Establish functional goals.
collection method and
collect data. • Develop action plans.
• Implement specific action plans
and monitor progress.
• Recalibrate benchmark.

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Organization
Effectiveness Evaluations

• No one summary measure of sales

organization effectiveness.
• Multiple factors must be assessed
• Four types of analyses are typically
necessary to develop a
comprehensive evaluation of any
sales organization
• Conducting analysis in each of
these areas is a complex task

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Organization
Effectiveness Framework

Sales Profitability
Analysis Analysis
Sales
Organization
Cost Effectiveness Productivity
Analysis Analysis

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Analysis

• When should we count an order as a sale?

– When an order is placed
– When an order is shipped
– When payment is received
• What is the primary metric?
– Dollars Is it possible to
– Units have
have an
What increase
higher salesin
if the
units
dollarssold
shipment
order
withwithout
isfewer
is
ancancelled?
increase
units
refused?
sold and in
sales
lowerdollars
profits? or
profits?

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Analysis Framework

Sales Analysis

Organizational
Level of Analysis Type of Sales Type of Analysis

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Analysis Framework

Sales Analysis

Organizational
Level of Analysis Type of Sales Type of Analysis

• Sales Organization • Districts

• Zones • Territories
• Regions • Accounts

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Analysis Framework

Sales Analysis

Organizational
Level of Analysis Type of Sales Type of Analysis

• Total Sales • Type of Distribution

• Type of Product • Order Size
• Type of Account

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Sales Analysis Framework

Sales Analysis

Organizational
Level of Analysis Type of Sales Type of Analysis

• Comparisons with Forecasts

• Comparisons with Sales quotas
• Comparisons with Previous period
• Comparisons within Sales Organization
• Comparisons with Industry/Competitors

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Example of Hierarchical Sales Analysis
Sales
Organization

Region 1 Region 2 Region 3 Region 4

Sales $62,000,000 $62,000,000 $56,000,000 $73,000,000

District 1 District 2 District 3 District 4 District 5

Sales $11,000,000 $12,000,000 $13,500,000 $7,000,000 $12,500,000

Territory 1 Territory 2 Territory 3 Territory 4 Territory 5 Territory 6

Sales $1,100,000 $1,300,000 $1,250,000 $1,400,000 $750,000 $1,200,000

Additional
Analysis

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Example of Type-of-Sales Analysis

Territory 5

Product Account
Type Sales Type Sales

Product Product Product Account Account Account

Type A Type B Type C Type A Type B Type C

Sales $175,000 $275,000 $300,000 $290,000 $175,000 $285,000

Additional Additional
Analysis Analysis

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Types of Analysis Examples

District 1 District 2 District 3 District 4 District 5

Sales $11,000,000 $12,000,000 $13,000,000 $7,000,000 $12,000,000

Sales Quota $11,250,000 $11,500,000 $12,750,000 $10,000,000 $11,000,000

Effectiveness Index 98 104 102 70 109

Sales Last Year $10,700,000 $11,000,000 $12,250,000 $6,800,000 $10,350,000

Sales Growth 3% 9% 6% 3% 16%
Industry Sales $42,000,000 $42,000,000 $45,000,000 $40,000,000 $45,000,000
Market
26% 29% 29% 18% 27%
Share

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Cost Analysis

• Assess the costs incurred by the sales

organization to generate the achieved levels of
sales.

• Compare the costs incurred with planned

budget.

• Corporate resources earmarked for personal

selling expenses for a designated period
represent the total selling budget.

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Selling Budgets

• Developed at all levels of the sales organization

and for all key expenditure categories.

• Objective is to determine the lowest expenditure

level necessary to achieve the sales quotas.

• Two approaches to setting the selling budget:

– percentage of sales method
– objective and task method

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Selling Expense Categories
Original
Actual Budget April July October
Classification 2002 2003 Revision Revision Revision
Compensation expenses
Salaries
Commissions
Bonuses
Total
Travel expenses
Lodging
Food
Transportation
Miscellaneous
Total
Administrative expenses
Recruiting
Training
Meetings
Sales offices
Total

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Cost Analysis Examples

Compensation Costs Training Costs

Actual Budget Variance Actual Budget Variance

Region 1 $3,660,000 $3,600,000 $60,000 $985,000 $1,030,000 ($45,000)
Region 2 $3,500,000 $3,700,000 ($200,000) $2,110,000 $2,040,000 $70,000
Region 3 $3,150,000 $3,400,000 ($250,000) $830,000 $1,060,000 ($230,000)
Region 4 $4,200,000 $3,900,000 $300,000 $2,3400,000 $2,160,000 $180,000

Actual % Sales Budgeted % Sales Actual % Sales Budgeted % Sales

Region 1 6.1 6.0 2.9 3.0

Region 2 5.8 6.0 3.1 3.0
Region 3 5.4 6.0 2.6 3.0
Region 4 6.0 6.0 3.1 3.0

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Profitability Analysis

Analyzing the profitability of different

organizational levels of different types of
sales.
• Income Statement Analysis
• Activity-Based Costing
• Return on Assets Managed

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Profitability Analysis:
Income Statement Analysis

• Full Cost Approach: Allocate shared costs to

individual units based on some type of cost
allocation procedure.
• Percentage of Sales: Expenditure percentage
multiplied by sales forecast.
• Objective and Task: Budgets and
objectives/tasks are tied together during
planning.
• Contribution Approach: Include only direct costs
in the profitability analysis.

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Profitability Analysis Example

Full Cost
Approach Contribution Approach

Region District 1 District 2 District 3

Sales
$300,000,000 $180,000,000 $70,000,000 $50,000,000
Cost of Goods Sold $255,000,000 $168,500,000 $58,500,000 $28,000,000
Gross Margin $ 45,000,000 $ 11,500,000 $11,500,000 $22,000,000
District Selling Expenses $ 11,000,000 $ 5,000,000 $ 3,500,000 $ 8,250,000
Regional Direct Selling Expenses $ 10,000,000 --- --- ---
Profit Contribution $ 24,000,000 $ 6,500,000 $ 8,000,000 $19,500,000
Allocated Portion of Shared Zone Costs $ 16,000,000
Net Profit $ 8,000,000

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Profitability Analysis:
Activity-Based Costing (ABC)

• Allocates costs to individual units on the

basis of how the units actually expend or
cause these costs.
• Places greater emphasis on more accurately
defining unit profitability by tracing activities
and their associated costs directly to a
specific unit.

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Profitability Analysis: Return on
Assets Managed Analysis (ROAM)

• Calculations provide an assessment of

profitability and useful diagnostic information.
• ROAM is determined by both profit
contribution percentage and asset turnover.

ROAM = Profit contribution as percentage of sales X Asset turnover rate

= `Profit contribution / Sales) X (Sales / Assets managed)

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Return on Assets Managed (ROAM)

District 1 District 2 District 3 District 4

Sales $24,000,000 $24,000,000 $24,000,000 $24,000,000
Cost of Goods Sold 12,000,000 12,000,000 14,000,000 14,000,000

Gross Margin 12,000,000 12,000,000 10,000,000 10,000,000

District Selling Expenses 7,200,000 9,600,000 5,200,000 8,800,000
Profit Contribution 4,800,000 2,400,000 4,800,000 1,200,000
Accounts Receivable 8,000,000 4,000,000 16,000,000 4,000,000

Inventory 8,000,000 4,000,000 16,000,000 4,000,000

Total Assets Managed 16,000,000 8,000,000 32,000,000 8,000,000

Profit Contribution Percentage 20% 10% 20% 5%

Asset Turnover 1.5 3.0 .75 3.0

ROAM 30% 30% 15% 15%

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Productivity Analysis

• Compares profits and asset investments

• Expressed in terms of ratios of inputs to
output
• Productivity improvements are obtained
in one of two basic ways:
1. Increasing output with the same level of input
2. Maintaining the same level of output but
using less input

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Productivity Analysis Example

District 1 District 2 District 3 District 4

Sales $20,000,000 $24,000,000 $20,000,000 $24,000,000
Selling Expenses 2,000,000 2,400,000 3,000,000 3,000,000
Sales Calls 9,000 7,500 8,500 10,000
Proposals 200 180 260 270
Number of Salespeople 20 30 20 30
Sales/Salesperson $ 1,000,000 $ 800,000 $1,000,000 $ 800,000
Expenses/Salesperson $ 100,000 $ 80,000 $ 150,000 $ 100,000
Calls/Salesperson 450 250 425 333
Proposals/Salesperson 11 6 13 9

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams
 Ethical Issues

A salesperson has been on the road for a week and incurs laundry
expenses. He knows that if he places the laundry expenses under the
miscellaneous expense category in his expense report, he will have to
provide receipts. He decides that he can include them under the
meals category because receipts are not required for this category as
long as he stays under his per-diem allowance.

A salesperson is trying to get the customer to purchase a new product.

He decides to take three individuals from the customer’s firm to dinner
and a basketball game, even though he knows that he has exceeded
his entertainment budget for the month. He thinks about hiding these
entertainment expenses in different categories in his expense report.

Professional Selling: Module 9: Ingram LaForge Avila

A Trust-Based Approach Evaluating the Effectiveness of the Organization Schwepker Jr. Williams