1 Sales & Distribution Management (2005) Martin Khan Instructor Abdel Fatah Afifi MA&T, MBA, BA, ACPA, CPT 1 st Semester 2009/2010

2 Determination of the size of sales force Chapter 6

3 Marketing Program (marketing mix) Designed around Four Elements of marketing mix: 1. Products to be sold 2. Pricing 3. Promotion 4. Distribution Channels

4 Sales Management Cycle 1. Analysis 2. Planning 3. Organization 4. Direction 5. Control

5 Responsibilities of Sales Management 1. Building the right sales strategy. 2. Hiring the right team. 3. Creating the right compensation plan, territories and quotas. 4. Setting the right projections. 5. Motivating your team. 6. Tracking revenue against goals. 7. Resolving conflicts. 8. Training and coaching sales reps. 9. Managing processes. 10. Getting the sales.

6 Sales Strategy Formulation  Sales strategy is the game plan adopted to achieve the desired objectives. It helps a company to reach a desired position from the existing position.

7 What are the steps in formulating sales strategy? Sales strategy basically involves three steps: 1. Market analysis 2. Setting objectives 3. Designing sales strategy

8 Type of sales force needed 1. Product specialists: For highly technical products, e.g., marketing of banking services, Complicated products like computers. 1. Market specialists: Know the different markets and can adopt different sales approaches for different markets. They need to know more than one line of products. There can be compensation of both products and market specialists in the sales force of a firm.

9 Determination of the size of sales force There are three methods of determining the size of sales force:  Incremental Methods.  Work Load Methods.  Sales Potential Methods.

10 Basis for territory design 1. Geographical basis 2. Sales potential basis 3. Servicing requirement basis 4. Work load basis

11 Channel support and coordination 1. Intensive Distribution 2. Extensive Distribution 3. Selective Distribution 4. Exclusive Distribution 5. Vertical Integration

: Channel support and coordination (cont.) 1. Intensive Distribution: Distribution is made to all the outlets which are many in number and spread in a big area. Maximum exposure to the product is given. 2. Extensive Distribution: Distribution in which we cover a great area but do not concentrate an all customers in the area. Extensive distribution covers a large area and distribution of goods in extensively done. 3. Selective Distribution: Goods are distributed to selected outlets.

13 Channel support and coordination (Cont.) 4. Exclusive Distribution: This is done exclusively by one dealer who provides after sales service like in automobiles. This is done for the cultivation of an exclusive image. This requires greater motivation, greater coordination and efficiency in operation. 5. Vertical Integration: Process of requiring management membership rights at various levels of distribution channel.

14 Determination of the size of sales force There are three methods of determining the size of sales force: 1. Incremental Methods. 2. Sales Potential Methods. 3. Work Load Methods.

15 Incremental Methods It says that we can increase the size of the sales force till the incremental revenue exceeds incremental cost. Assumptions: Profits will increase when additional sales person are employed. Example:  If we have 10 salesmen already, then on adding one extra salesman, the sales volume, cost of goods (60% of sales), and gross margin (40% of sales), vary as depicted in the following table:

16 If we have 10 salesmen already, then on adding one extra salesman, the sales volume, cost of goods (60% of sales), and gross margin (40% of sales), vary as Gross margin 40% Cost of goods sold $ Sales volume in $ No. of salesmen

17 Suppose all salesmen receive a salary and travelling expense of and 6% commission on sales. Calculate the Net Profit in each level of number of salesmen? Net profit(Sal + T) + Comm. Gross MarginNo. of salesmen – 5000 = 5000 ( ) * 6% = = = = – 4400= = = = We see that the 14 th salesman is not feasible as there is a loss of 100 if he is included in the sales force.

18 Sales Potential Methods 1. Management considers what an average sales person with an average performance will accomplish. 2. Amount of sales will be made by the salesman. 3. Find out the forecasted sales volume. 4. Divide the total sales volumes by the work which one sales person can do. 5. Then S/P will give the number of sales person required. In this method we also make allowances for the rate of turnover of sales person.

19 This is the easiest of all the methods. The formula for this method is: N = S / P Where, N= Number of sales persons S= Forecasted sales volume P=Estimated sales productivity of one person Sales Potential Methods

20 Sales Potential Methods Example: If: S = $ 100,000 and, P = $ 10,000 Then: N = S / P = 100,000 / 10,000 = 10

21 Sales Potential Methods Modified Formula If rate of Turnover is 10%, Then, modified formula for the number of sales persons will be: N = S / P + T (S / P) = (S / P) (1 + T), where T = rate of turnover For the above set of values: N= (100,000 / 10,000) + 10% (100,000 / 10,000) = = 11 sale persons.

22 Work Load Methods  This is the most complex method.  According to this method, the assumption is that all sales personnel will shoulder equal responsibilities.  First the total work load is estimated and then it is divided equally among all the sales people.

23 There are six steps involved in applying the work load method. Step 1 : Customer should be classified into sales volume potential category A, B, C, etc. Step 2 : Decide on the length of time per sales call and desired call frequency on each class of customers. Step 3 : Calculate the total work load by multiplying the time taken by one customer into the number of customers. Step 4 : Determine total work time available per person by task. Let the work time available as per the task. Step 5 : Determine total time available per sales person. Step 6 : Calculate total number of sales people needed (N), N = Total work load / work one salesman can do. Work Load Methods