Sales Force Management 11th Edition Mark W. Johnston Greg W. Marshall Routledge 2013

The Strategic Role of Information in Sales Management CHAPTER 5 Routledge 2013

IT in Perspective Tools enable rather than transform Implement successful business processes Support w/new technology Routledge 2013

Market Potential, Sales Potential, and Sales Forecasting Process Routledge 2013

Learning Objectives Discuss differences between market potential, sales potential, sales forecast, and sales quota Understand methods by which sales managers develop sales forecasts Outline process of setting a sales quota Explain types of quotas used in sales management Discuss approaches to determining sales force size Describe sales territory design process Understand importance of sales analysis Conduct sales analysis Routledge 2013

Information for Managers Sales forecasts Territory estimates Quotas Sales force size Sales territory design Routledge 2013

Market Opportunity Analysis Market potential – estimate of possible sales for an entire industry in a market during a stated period under ideal conditions Sales potential – portion of market potential the firm can expect to reasonably achieve Sales forecast – estimate of dollar or unit sales for a specified future period Sales quotas – sales goals assigned to a marketing unit to manage sales efforts Routledge 2013

Sales Forecasting Methods Routledge 2013

Subjective Sales Forecasting User expectations – relies on buyers’ expressed intention Sales force composite – sales force opinions Jury of executive opinion - key experts’ opinions Delphi technique – participants prepare estimates which are compared anonymously and iteratively to reach consensus Routledge 2013

Objective Sales Forecasting Market test – places product in select areas Time series analysis – relies on historical data to develop predictions Statistical demand analysis – attempts to determine the relationship between sales and factors that influence sales Routledge 2013

Objective Time Series Analysis Moving average – averages sales results over previous time periods to forecast Exponential smoothing – type of moving average where most recent years given more weight Decomposition – applied to monthly or quarterly data where seasonal pattern is evident Routledge 2013

Example: Moving Average Forecast Routledge 2013

Example: Moving Average Analysis Routledge 2013

Example: Seasonal Index Routledge 2013

Choosing a Forecasting Method No method remains superior under all conditions. Apply multiple forecasting methods to a problem Scenario planning prepares “what-if” questions and produces possible outcomes Routledge 2013

Effects of Territory Estimates Design of sales territories Procedures for identifying potential customers Establishment of sales quotas Compensation and subcomponents Evaluation of salesperson performance Routledge 2013

Planning Tools North American Industry Classification System (NAICS) Developed by US Bureau of the Census, Organizes reporting of business information Each US industry is assigned a two-digit number Buying Power Index (BPI) Published by Sales Marketing Management Magazine Considers income, population and retail sales Most useful with low-priced convenience goods Routledge 2013

Sales Quotas Goals assigned to salespeople Apply to specific periods Tool for planning and controlling field selling activities and results Benchmark for evaluating sales effectiveness Motivate sales people Routledge 2013

Quota Purposes Provide incentives for sales representatives Provide measures to evaluate salespeople's’ performance Routledge 2013

Process for Setting Quotas Identify types of quotas to be used Select level of each type of quota Routledge 2013

Good Quota Characteristics Attainable Easy to understand Complete Timely Routledge 2013

Sales Process and Quota Attainment Level Level 1 Ad Hoc No clearly defined process and approximately half of sales staff are not attaining quota. Large variation in performance levels. Level 2 Tribal Limited process used by certain "tribes" within the company. Still only 50% of staff attaining quota but less variation between best and worst performers. Level 3 Religion Everyone is using the process but not to its full capability. More salespeople making the quota than not making it. Level 4 Dynamic World-Class Fully utilizing people, processes, and technology. Low variation in performance levels of salespeople with very few not attaining quota. Routledge 2013

Quota Types Sales volume – emphasize sales or some aspect of sales Activity – focus on certain sales activities Financial – examine financial criteria such as gross margin or contribution to overhead Routledge 2013

Sales Volume Quotas Most popular Often based on past sales Related directly to market potential, thus credible and easily understood May be expressed in dollars, physical units, or points Routledge 2013

Activity Quotas Reflect territorial conditions Require a detailed analysis of work required for effective territorial coverage Customers influence activity quotas through: Account and order size Purchasing patterns Support required for satisfaction Routledge 2013

Common Types of Activity Quotas Calls on new accounts. Letters to potential customers. Proposals submitted. Field demonstrations arranged. Service calls made. Equipment installations supervised. Displays arranged. Dealer sales meetings held. Meetings and conventions attended. Past-due accounts collected. Routledge 2013

Financial Quotas Direct salespeople to more profitable products and customers Common bases Gross margin Net profit Selling expenses Calculation not straightforward Profit produced affected by factors beyond a salesperson’s control Routledge 2013

Quota Level Considerations Territory available potential Quota’s impact on motivation Long-term company objectives Short-term profitability impact Routledge 2013

Sales Force Deployment Considerations Sales force size or number of territories Design of individual territories Allocation of total selling effort to accounts Simultaneous decisions implemented through software Routledge 2013

Determining Sales Force Size Breakdown method Workload method Incremental method Routledge 2013

Breakdown Method Forecasted (S)ales volume (N)umber of sales personnel needed = Estimated (P)roductivity of each salesperson Routledge 2013

Workload Method Total # hours required to service market Total # salespeople required = # Hours available to each salesperson Routledge 2013

Workload Method Steps Routledge 2013

Incremental Method Add salespeople until incremental profit produced equals incremental cost Decreasing returns associated with addition of salespeople Routledge 2013

Example: Incremental Method Routledge 2013

Territory Design Stages Routledge 2013

Ten Largest US MSAs in Decreasing Order of Size Rank Area 2010 Population (in 000s) 1 New York-Northern New Jersey-Long Island, NY-NJ-PA 18,897.1 2 Los Angeles-Long Beach-Santa Ana, CA 12,828.8 3 Chicago-Joliet-Naperville, IL-IN-WI 9,461.1 4 Dallas-Fort Worth-Arlington, TX 6,371.8 5 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 5,965.3 6 Houston-Sugar Land-Baytown, TX 5,946.8 7 Washington-Arlington-Alexandria, DC-VA-MD-WV 5,582.2 8 Miami-Fort Lauderdale-Pompano Beach, FL 5,564.6 9 Atlanta-Sandy Springs-Marietta, GA 5,268.9 10 Boston-Cambridge-Quincy, MA-NH 4,552.4 Routledge 2013

Account Planning Matrix Routledge 2013

Sales Analysis Gathering, classifying, comparing, studying company sales data Highlights sales concentration in products, customers, orders, territories 80:20 principle Decisions Evaluation system Sources of information Information aggregation type Routledge 2013

Decisions When Conducting a Sales Analysis Routledge 2013

Evaluation Systems Determine how analysis will be conducted Simple Comparative Basis for comparison? Reporting and control system? Routledge 2013

Simple Sales versus Comparative Sales Sales Representative 2012 Sales($) 2012 Quota($) Performance Index Diana Barrington 760.9 700 108.7 John Bendt 793.5 690 115.0 James Dawson 859.2 895 96.0 Gloria Richardson 837.0 775 108.0 Walter Keyes 780.3 765 102.0 Routledge 2013

Information Aggregation Type Possible groupings Region Product Customer Market Method of sale Order size Financial arrangement Considerations Company size Product diversity Sales area Number of markets/customers Management level/type to receive report Hierarchical reports most effective Routledge 2013

Example of Several Sales Reports Routledge 2013