1. 5 The Strategic Role of Information in Sales Management McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. IT in Perspective Source: HR Chally Group (2007), The Chally World Class Excellence Research Report: The Route to the Summit. Dayton, OH: HR Chally Group.  Tools enable rather than transform  Implement successful business processes  Support w/new technology Late 19 th Century Mid 20 th Century Late 20 th Century 5-2

3. 5-3 5.1 Market potential, sales potential, and sales forecasting process

4. 5-4  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

5. 5-5 Information for Managers  Sales forecasts  Territory estimates  Quotas  Sales force size  Sales territory design

6. 5-6 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

7. 5-7 5.2 Classification of sales forecasting methods

8. 5-8 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

9. 5-9 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

10. 5-10 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

11. 5-11 5.3 Forecasting Techniques SubjectiveObjective User expectationsMarket test sales force compositeTime series analysis Jury of executive opinionStatistical demand analysis Delphi technique

12. 5-12 5.4 Example of a moving average forecast

13. 5-13 5.5 Graph of actual and forecast sales using moving averages

14. 5-14 5.6 Calculation of a seasonal index

15. 5-15 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

16. 5-16 Effects of Territory Estimates  Design of sales territories  Procedures for identifying potential customers  Establishment of sales quotas  Compensation and subcomponents  Evaluation of salesperson performance

17. 5-17 Planning Tools  North American Industry Classification System (NAICS)  Developed by US Bureau of the Census,  Organizes reporting of business information  Each U.S. 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

18. 5-18 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

19. 5-19 Process for Setting Quotas  Identify types of quotas to be used  Select level of each type of quota

20. 5-20 Quota Purposes  Provide incentives for sales representatives  Provide measures to evaluate salespeople’s performance

21. 5-21 Good Quota Characteristics  Attainable  Easy to understand  Complete  Timely

22. 5-22 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

23. 5-23 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

24. 5-24 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

25. 5-25 5.7 Common types of activity quotas Number of… 1. Calls on new accounts. 2. Letters to potential customers. 3. Proposals submitted. 4. Field demonstrations arranged. 5. Service calls made. 6. Equipment installations supervised. 7. Displays arranged. 8. Dealer sales meetings held. 9. Meetings and conventions attended. 10. Past-due accounts collected.

26. 5-26 Financial Quotas  Direct salespeople to more profitable products and customers  Common bases  Gross margin  Net profit  Selling expenses  Calculation not straight-forward  Profit produced affected by factors beyond a salesperson’s control

27. 5-27 Quota Level Considerations  Territory available potential  Quota’s impact on motivation  Long-term company objectives  Short-term profitability impact

28. 5-28 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

29. 5-29 Determining Sales Force Size  Breakdown method  Workload method  Incremental method

30. 5-30 Breakdown Method (N)umber of sales personnel needed Estimated (P)roductivity of each salesperson Forecasted (S)ales volume =

31. 5-31 Workload Method Total # salespeople required # Hours available to each salesperson Total # hours required to service market =

32. 5-32 5.8 Steps to determine sales force size by the workload method

33. 5-33 Incremental Method  Add salespeople until incremental profit produced equals incremental cost  Decreasing returns associated with addition of salespeople

34. 5-34 5.10 Stages in territory design

35. 5-35 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

36. 5-36 Evaluation Systems  Determine how analysis will be conducted  Simple  Comparative  Basis for comparison?  Reporting and control system?

37. 5-37 5.14 Differences between simple sales analysis and comparative analysis

38. 5-38 Sources of Information  Decisions  Types of comparisons  Integration of sales reports with other reports  Sales invoice  ERP – links bid estimation, order entry, shipping, billing, other work processes Sales Invoice Information Customer name, location Products, services sold Transaction volume, dollar amount Salesperson/agent Product end use Shipping/use location Industry, trade class, distribution channel Terms of sale, discount Freight costs Shipment point Shipping transportation

39. 5-39 5.15 Other sources of information for sales analysis Sales analysis Cash register receipts Salesperson call reports Salesperson expense accounts Individual customer/ prospect records Financial records Credit memos Warranty cards

40. 5-40 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