McGraw-Hill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc.

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 5 The Strategic Role of Information in Sales Management

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-3 Learning Objectives Discuss the differences between market potential, sales potential, sales forecast, and sales quota. Understand the various methods by which sales managers develop sales forecasts. Outline the process of setting a sales quota. Explain the various types of quotas used in sales management. Discuss key approaches to determining sales force size. Describe the sales territory design process. Understand the importance of sales analysis for managerial decision making. Conduct a sales analysis.

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-4 Information Drives Management Decision Making and Planning Sales forecasts Territory estimates Quotas Sales force size Sales territory design

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-5 Market Opportunity Analysis Market potential –estimate of possible sales of a commodity, a group of commodities, or a service for an entire industry in a market during a stated period under ideal conditions Sales potential – the portion of the market potential that the firm can expect to reasonably achieve Sales forecast – an estimate of the dollar or unit sales for a specified future period Sales quotas – sales goals assigned to a marketing unit for use in managing sales efforts

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-6

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-7 Subjective Methods of Sales Forecasting User expectations – buyer indicates intention to purchase Sales force composite – sales force opinions Jury of executive opinion - key experts’ opinions Delphi technique – each participant prepares an estimate, and these are compared anonymously and iteratively

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-8 Objective Methods of Sales Forecasting Market test – place product in select areas Time series analysis – relies on historical data to develop predictions for the future Statistical demand analysis – attempts to make a comparison to determine the relationship between sales and factors that influence sales

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-9 Forms of Time Series Analysis Moving average – averaging sales results over previous time periods to forecast into the future Exponential smoothing – a type of moving average where most recent years are given more weight Decomposition – applied to monthly or quarterly data where seasonal pattern is evident A critical adjustment is that of seasonality and cyclical factors

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Choosing a Forecasting Method Which forecasting method should be used and how accurate is the forecast likely to be? In general, the various forecast comparisons suggest that no method remains superior under all conditions. Good forecasters apply multiple forecasting methods to the problem Scenario planning prepares a series of “what-if” questions and produces possible outcomes

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Developing Territory Estimates Territory estimates effect: –The design of sales territories –Procedures for identifying potential customers –The establishment of sales quotas –Compensation and its subcomponents –The evaluation of salesperson performance

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Planning Tools North American Industry Classification System (NAICS) –Developed by the US Bureau of the Census, organizes the reporting of business information –Each industry in the US is assigned a two-digit number Buying Power Index (BPI) –Generated and published by Sales Marketing Management Magazine, considers income, population and retail sales –Most useful with low-priced convenience goods

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Sales Quotas Goals assigned to salespeople Apply to specific periods and may be expressed in dollars or physical units Tool for sales managers’ planning and controlling field selling activities and results Benchmark for evaluating sales effectiveness Motivate sales people

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Purpose of Quotas Quotas facilitate planning and control of the field selling effort –Provide incentives for sales representatives –Provide measures to evaluate salespeople’s performance.

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Characteristics of a Good Quota Attainable Easy to understand Complete Timely

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Types of Quotas Those that emphasize sales or some aspect of sales Those that focus on sales activities Those that examine financial criteria such as gross margin or contribution to overhead

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Sales Volume Quotas Often based on past sales. Related directly to market potential, thus credible and easily understood. May be expresses in dollars, physical units, or points.

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Activity Quotas Reflect territorial conditions Require a detailed analysis of the work required for effective territorial coverage Customers influence activity quotas through: –Account and order size –Purchasing patterns –Support required for satisfaction

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Financial Quotas Reflect the financial goals of the firm –Sales volume –Gross margin –Intended profit margin –Additional sales potential –Cost of support and service

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Determining Sales Force Size Salespeople are among the most productive assets of a company, and they are also among the most expensive! How can an optimal sales force be established? Breakdown method: Number of sales personnel needed = Sales Volume Productivity

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Determining Sales Force Size Workload method uses the buildup method to estimate the work required to serve the entire market Incremental method suggests that sales representatives should be added as long as the incremental profit produce by their addition exceeds the incremental cost

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-22

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-23

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 5-24

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Sales Analysis Simple sales analysis - facts are listed and not measured against any standard Bases for sales comparison –Quotas –Comparative sales forecast –Forecast vs. actual Reports can focus on exceptions or significant deviations from the financial norms or budget.

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Key Terms market potential sales potential sales forecast sales quotas subjective forecasting methods –user expectations method –sales force composite –jury of executive opinion –Delphi technique objective forecasting methods –market test –time-series analysis moving average exponential smoothing decomposition seasonality –statistical demand analysis –scenario planning North American Industry Classification System (NAICS) sales volume quotas activity quotas financial quotas sales force deployment breakdown method workload method incremental method account analysis sales analysis 80:20 principle enterprise resource planning (ERP) Buying Power Index (BPI) iceberg principle isolate and explode

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved Mark W. Johnston Rollins College Greg W. Marshall Rollins College