Controlling the

Salesforce

March 19, 2011

 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

March 19, 2011

 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

March 19, 2011

 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;
non-selling 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
March 19, 2011
 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

March 19, 2011

 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 3 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 do about it by taking corrective actions

March 19, 2011

 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 Cost Analysis

of a
Sales
Organisation Profitability Analysis

Productivity Analysis

• We shall examine each of the above factors

March 19, 2011

 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 organisatio

Regional level
All levels
In Sales Branch /district level
Organisation Territory level
Individual level

Total sales of the company

By type of products
Different
By type of distribution channels
Type of
Sales By type of customer classifications
By size of orders
si s yl a n A s el a S

Comparisons with sales quotas / targets

Comparisons with previous periods
Different
Comparisons with industry / competitors
Type of Comparisons within sales organisations
Analysis
Comparisons with sales forecasts
March 19, 2011
 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

March 19, 2011

 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 “full-
cost approach”, or “contribution approach”

March 19, 2011

 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 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

March 19, 2011

 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 / Total Functional Expenses
Traditional
Personal Adv. and Warehousing & Administration
Expenses
Selling Sales Inventory
Promotion
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 15,000,000 __ 15,000,000 __ __
Sales
Promotion
Total 50,000,000 17,500,000 20,000,000 7,000,000 5,500,000

Note: All figures are in Rupees

• A better method for allocating costs is activity-based costing
(ABC), which allocates costs based on cause of expenses
 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 • Directly to sales territories
• Selling time given to each product and market
segment
• Sales calls x average time per call to customers &
channels
• Advertising and • Circulation of media to sales territories
sales promotion • Media space for each product & market segment
• Equal charges to customers & channels
• Administration • Equal charges for all marketing units

• Above allocations are done to find marketing costs and

profitability of marketing units
 Prepare Profitability of
Marketing Units
• This is done by preparing profit & loss statements for
the marketing units under study
• Two approaches are available in allocating marketing
costs for profitability analysis: (1) Full-cost, (2)
Contribution
• Full-cost approach: All marketing costs, both direct &
indirect, are allocated to the marketing unit
• Useful for long-term profitability studies of products
and market segments
• Contribution approach: Only direct marketing costs
are allocated to the marketing unit
• Useful for short-term decisions like profitability of
branches / regions
March 19, 2011
 An Example of Profitability
Analysis
SNo Particulars Full-cost Contribution Approach
Approach
Western Region Branch A Branch B Branch C

1 Sales 400 150 130 120

2 Cost of good sold 300 112.5 97.5 90
3 Gross margin (1-2) 100 37.5 32.5 30
4 Branch selling 12.7 4.5 4.2 4
expenses
5 W. Region direct selling 12.0 - - -
expenses
6 Contribution (3-4-5) 75.3 33.0 28.3 26.0
7 Allocated indirect 36.3 - - -
expenses
8 Net profit (6-7) 39.0 - - -

Note: All figures are in Rupees million

 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

March 19, 2011

 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

March 19, 2011

 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

March 19, 2011

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

March 19, 2011

 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 / Quantitative efforts / Qualitative efforts /

outcome bases / criteria behavioural bases / criteria behavioural bases / criteria
• Sales volume • Customer calls • Personal skills
• In value / units  No. of calls per day  Selling skills
•Percentage of quota  No. of calls per  Planning ability
• by products & customer  Team player
segments • Non-selling activities • Personality & Attitudes
• Accounts / customers  overdue payments  Cooperation
 New accounts nos. collected  Enthusiasm
 Lost accounts nos.  No. of reports sent
 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 do “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
March 19, 2011
 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

March 19, 2011

 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

March 19, 2011

 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

March 19, 2011

 Business Ethics and Sales
Management
• Sales managers and salespeople have ethical
responsibilities
• 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

March 19, 2011

 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

March 19, 2011

 Legal Responsibilities and Sales
Management
• Laws and regulations by local, state, or central
governments have impact on sales management
• 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
March 19, 2011
 Key
Learnings
• Salesforce expenses include travel, meals, lodging, telephone,
and customer entertainment
• 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

March 19, 2011

 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

March 19, 2011