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Part V SALES FORCE LEADERSHIP
Chapter 13: Evaluating Performance
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Why Evaluate Salespeople?
To link compensation and rewards to performance. To identify salespeople capable of promotion. To identify training and counseling needs. To identify criteria for recruitment and selection. To clarify work expectations. To motivate salespeople. To help salespeople set career goals.
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A Sales Force Evaluation Model
Set goals and objectives for sales force, including: Revenues Contribution profits Market share Expense ratios Design sales plan Set product performance standards for: Organization Salespeople Regions Accounts Districts Measure results against standard Take Corrective Action
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Output Measures Used in Sales Force Evaluation
Table 13-1 Output Measures Used in Sales Force Evaluation Sales Profit Sales volume dollars Net profit Sales volume previous year’s growth Gross margin percentage Sales to quota Return on investment Sales growth Net profit as a percentage of sales Sales volume by product Gross margin dollars Sales volume by customer Margin by product category New account sales Accounts Sales volume in units Number of new accounts Sales volume to potential (market share) Number of accounts lost Orders Number of accounts sold Number of orders Number of accounts buying full line Average order size Batting average (orders/calls)
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Output Measures Used in Sales Force Evaluation
Percent Percent Performance Measure Using Performance Measure Using Sales Profit Sales volume dollars 79% Net profit 69% Sales volume previous year’s sales 76 Gross margin percentage 34 Sales to quota 65 Return on investment 33 Sales growth 55 Net profit as a percentage of sales 32 Sales volume by product 48 Margin by product category 28 Sales volume by customer 44 Gross margin dollars 25 New account sales 42 Sales volume in units 35 Sales volume to potential 27 Orders Accounts Number of orders 47 Number of new accounts 69 Average size of order 22 Number of accounts lost 33 Number of accounts buying full line 27
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Input or Behavior Bases Used in Sales Force Evaluation
Table 13-2 Input or Behavior Measures Used in Sales Force Evaluation Expenses Effort Total expenses Number of calls Selling expenses to budget Number of calls per day Selling expenses as a percentage of sales Number of calls to quota Nonselling Activities Number of days worked Advertising displays set up Number of reports turned in Number of service calls Number of prospecting phone calls Number of customer complaints Selling time vs. non-selling time
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Input or Behavior Bases Used in Sales Force Evaluation
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Qualitative Bases Used in Sales Force Evaluation
Table 13-7 Qualitative Bases Used in Sales Force Evaluation Attitudinal and Personality Factors Time management Attitude Ability to plan Enthusiasm Appearance and manner Cooperation Knowledge Creativity and resourcefulness Product knowledge Initiative and aggressiveness Pricing knowledge Motivation Knowledge of competition Selling Skills Ethical and moral behavior Communication Skills Team player
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Qualitative Bases Used in Sales Force Evaluation
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Sales Data for Bear Computer
Company Percentage Industry Company Volume Change from Volume Market Share Year ($ millions) Previous Year ($ millions) (percent)
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Comparing Dollar and Unit Sales at the Bear Computer Company
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Expense Analysis by Product Line,
Bear Computer Company, 2008
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Evaluating Sales Force Performance: Cost Analysis
What costs are relevant? Net Sales Less Variable Costs: Cost of Goods Sold Sales Commissions Equals: Contribution Margin Less: Direct Fixed Selling Costs Equals: Profit Contribution 5 5 5
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Evaluating Sales Force Performance: Product Costs
CGS + Commissions higher for computers paying too much for parts competition has driven down selling prices salespeople cutting computer prices to make deals -- possible actions: limit price negotiation capabilities shift to a gross margin commission change commission structure to emphasize accessories and software 6 7 6
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A Model of Salesperson Evaluation
Input-based System Output-based System Behavior Calls Reports Complaints Demonstrations Dealer meetings Display set up Travel/entertainment expenses Results Sales revenues Sales growth Sales/quota Sales/potential New accounts Contribution margins Contribution percentage Salesperson Evaluation
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Measuring Sales Force Output for Bear Computer Company
1 2 3 4 5 6 7 8 Market Sales ‘07 Sales ‘08 Potential Sales Percentage Jan-Sept Dollar Index Quota of Quota Variance Territory (000) Change Growth (percent) Achieved Jones $750 $825 + $75 10.0% 26% $943 87% – $118 Smith 500 570 + 70 14.0 15 543 105 + 27 Brown 1,025 1,110 + 85 8.3 32 1,160 96 -50 West 960 1,000 + 40 4.2 27 977 102 + 23 $3,235 $3,505 $270 100% $3,623
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Territory Performance (thousands)
Measuring Territory Profit Output for Bear Computer Company Territory Performance (thousands) Jones Smith Brown West Net Sales $825 $570 $1,100 $1,000 Less CGS and Commissions 495 428 744 660 Contribution margin 330 142 356 340 CM as a percentage of sales 40% 25% 32% 34% Less direct selling costs Sales force salaries 55 35 65 Travel 15.5 4.1 3.5 5 Food and lodging 12.5 4 3.2 4.5 Entertainment 11.4 0.3 0.5 1 Home sales office expense 2.3 2 Profit contribution $231.10 $96.30 $291.80 $260.00 PC as a percentage of sales 28% 17% 26%
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Ranking Salespeople on 10 Input/Output Factors
Ranking Factors Ford Bell Shaw Mann Gold Dollar Sales 1 2 3 4 5 Sales to Potential Sales to Quota Sales per Order Number of Calls Orders per call Gross Margin Percent Direct Selling Costs New Accounts Number of Reports Turned In Total of Ranks 36 28 30 31 25
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Ranking Salespeople on 10 Input/Output Factors
Performance factors Pete Jones Ann Smith Sales (annual) $1,400,000 $1,100,000 Days worked 210 225 Calls 1,200 1,500 Orders 480 750 Expenses $19,000 $14,900 Calls per day 5.7 6.7 Batting average (orders per calls) 40% 50% Sales per order $2,916 $1,466 Expenses per call $15.83 $9.93 Expenses per order $39.58 $19.86 Expenses as % of sales 1.35%
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Contribution Margin (%)
Ranking Salespeople on 10 Input/Output Factors Millions $ 3.87 3.66 3.44 3.23 3.02 2.80 2.59 2.38 2.16 1.95 1.74 1.53 1.31 1.10 COMPROMISERS STARS Avg Sales $3.17 Avg contribution $1.13 Avg contribution % 35.8 Age 45 Calls 1122 Number of salespeople 18 Avg Sales 2.91 Avg contribution 1.09 Avg contribution % 37.4 Age 37 Calls 888 Number of salespeople 11 SALES YR 2 Avg Sales 1.78 Avg contribution 0.64 Avg contribution % 35.8 Age 44 Calls 958 Number of salespeople 11 Avg Sales 2.03 Avg contribution 0.75 Avg contribution % 37.1 Age 35 Calls 921 Number of salespeople 16 LAGGARDS SLOWPOKES Contribution Margin (%)
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Relative Performance Efficiency for Sales Rep 22
Variable Type Variable name Value Measured Value of 100% Efficient Slack Output Percent Quota Attained (%) 100 120 20 Supervisor Evaluation 5 Sales Volume ($) 45,000 50,500 5,500 Input Sales Training Salary ($) 20,000 18,000 2,000 Management Ratio 3 2 1 Territory Potential ($) 60,500 50,000 10,500 Reference Set Efficiency=0.85 Influence Iterations=10 Salesperson 7 0.49 Salesperson 20 0.43 Salesperson 45 0.08
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Conditions when Outcome versus Behavioral Systems are preferred
Outcome Systems(OS) Customers need information Customers trust the salesperson There are ways to close the deal Sales environment is competitive Behavioral System(BS) Salespeople lack experience No need to protect the brand image Nonselling behaviors are a priority Difficult to assign sales credit
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The additional slides below are
not covered in IM
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Call Productivity Ratios
Sales to Account = Dollar Sales # Accounts Average Order Size = Dollar Sales # Orders Growth Ratio = # New Accounts Total # Accounts Account Success = Accounts Sold
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Expense Ratios Expense to Sales = Expenses Sales Cost per Call = Total Costs # of Calls
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Account Related Ratios
Sales to Account = Dollar Sales # Accounts Average Order Size = Dollar Sales # Orders Growth Ratio = # New Accounts Total # Accounts Account Success = Accounts Sold
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Models Combining Input & Output Controls: Ranking Procedures
Widely used, simple to use, easy to understand Add ranks for overall performance measure Alternatives to sales/salesperson Sales to potential -- good coverage of (limited) market Sales to quota -- ability to increase revenue Sales per order -- profitability relative to size of customer Batting average -- efficiency of calls Gross margin percentage -- ability to control price selling best mix of products Variation -- weight importance of each criterion 8 8 12 8
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Cost Analysis Object affects direct vs. indirect cost classification:
By Territory By Product P-O-P Display Direct Salesperson Salary Indirect Product Manager Salary VP Operations Salary 5 6 5
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Evaluating Sales Force Performance: Account Cost to Serve
Total Cost to Serve Account Cost to Serve = Revenue from Account Usually decline with revenue Help identify best accounts Downsizing & Profits Consider using DEA (Programming) 8 9 8
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Evaluating Sales Force Performance:
Fleet Car Management -- A Motivator Salesperson owned car (per mile travel allowance) Salesperson gets car preference Allowances rarely cover full salesperson car costs Company owned & managed cars Ties up a lot of cash Costs less than salesperson owned car Leased sales fleet of cars Frees up cash Company performs routine maintenance 13 15 13
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Input and Output Controls
Models Combining Input and Output Controls Four Factor Model How can sales be increased? Optimum number of sales calls to maximize profits? Who is doing better? Ann or Pete? What management strategies for Pete? for Ann? Calls Orders Sales $ $ Sales = Days worked x Days Worked Calls Orders $ Sales = Days worked x Call Rate Batting Average Average Order Size 7 7 7 10
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