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

2. Evaluation and Control of the Sales Program
Part 3
Evaluation and Control of the Sales Program
Routledge 2013

3. Chapter 12
Cost Analysis
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4. Real Costs Analysis Leads to Real Benefits1
Operational excellence that brings together an attention to quality, and cost control (Chapter 12) 2
Talent acquisition and retention (Chapter 9) 3
Employee and customer focus (Chapter 2)
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Source: HR Chally Group (2012)

5. Real Costs Analysis Leads to Real Benefits
Chally’s research found customers with a “dedicated” sales service support had higher satisfaction and were better customers than customers with “nondedicated” support:
18% higher customer service ratings
15% higher probability of repeat purchase
23% higher sales volume
30% higher purchase on “standard” products
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6. Learning Objectives
Select appropriate cost allocation method for various sales management situations
Describe how to implement methods
Discuss importance of (ROAM) and calculate
Apply financial cost analyses to sales management situations to make decisions
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7. Innovation: Learning about the Lifetime Value of the Customer
Developing & maintaining a sales force is expensive
Companies assess how to best use this resource
One tool used is Lifetime Value of the Customer
Measure each customer’s long-term value, or profitability
Not all customers are equally profitable
Must analyze cost of doing business with customers
Get up-to-date information on real costs of business
Determine real cost of maintaining customer relationship
Consider short-term and long-term firm objectives
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8. Cost Analysis Development
Sales managers need accurate knowledge of profitability of:
Customers
Geographic areas
Products
Markets
Three approaches to cost analysis:
Full costing
Contribution analysis
Activity-based costing (ABC)
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9. Full Cost versus Contribution Margin
Full-cost (net profit) – many of the indirect costs can be assigned on the basis of a demonstrable cost relationship
Contribution margin – direct product costs identified associated with revenue to yield a true Gross Profit
Profit/loss statement (net income) – distinguishes between costs and expenses
Costs – often restricted to materials, labor, power, rent and other miscellaneous items used in making the product
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10. Exhibit 12.1
Differences in Perspective Between Full-Cost and Contribution Margin Approaches to Marketing Cost Analysis
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11. Profit and Loss Statement By Department Using a Full-Cost Approach
Exhibit 12.2
Profit and Loss Statement By Department Using a Full-Cost Approach
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12. Profit and Loss Statement if Department 1 Were Eliminated
Exhibit 12.3
Profit and Loss Statement if Department 1 Were Eliminated
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13. Contribution Margin By Departments
Exhibit 12.4
Contribution Margin By Departments
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14. ABC Accounting Activity-based costing (ABC)
Allocates costs to activities
Identifies fixed cost components for production and sales and associates them with the products sold
Costs once assumed to be fixed in the short-run can be associated with operating units such as a sales office
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15. A Diagram of Activity-Based Costing
Exhibit 12.5
A Diagram of Activity-Based Costing
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Source: Chea, Ashford, C., "Activity Based Costing in the Service Sector: A Strategic Approach for Enhancing Managerial Decision Making and Competitiveness," International Journal of Business and Management 6 No. 11 (November 2011, pp. 3–10.)
12-15

16. Comparison of Activity Base Costing and Contribution Methods
Exhibit 12.6
Comparison of Activity Base Costing and Contribution Methods
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17. Steps in Conducting a Marketing Profitability Analysis
Exhibit 12.7
Steps in Conducting a Marketing Profitability Analysis
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18. Technology: The Hidden Costs of Trade Promotion
Great amount of variance in the promotional spending of consumer-packaged goods companies:
Companies spend as little as 5% of revenue while others spend as much as 25% of revenue
Research shows promotional spending is ineffective
Closed-loop promotional process is the leading practice for managing trade show promotions
Common inefficiencies include promotional demand planning, partner or vendor planning, event execution, production and distribution, and retailer compliance
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19. Major Functional Accounts that are Useful in Marketing Cost Analysis
Exhibit 12.8
Major Functional Accounts that are Useful in Marketing Cost Analysis
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20. Functional Cost Groups and Bases of Allocations
Exhibit 12.9a
Functional Cost Groups and Bases of Allocations
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21. Functional Cost Groups and Bases of Allocations
Exhibit 12.9b
Functional Cost Groups and Bases of Allocations
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22. Functional Cost Groups and Bases of Allocations
Exhibit 12.9c
Functional Cost Groups and Bases of Allocations
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23. Functional Cost Groups and Bases of Allocations
Exhibit 12.9d
Functional Cost Groups and Bases of Allocations
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24. Leadership: Ripping Off the Company Using the T&E Expense Account
Travel and entertainment account
Fraud related to T&E has increased
Two common frauds:
Mischaracterized expenses – When salespeople have a personal dinner or buy a personal item and charge it as a business expense
Overstated expenses – Making a $50 dinner a $100 expense on the T&E Report
Sources: Ronald Jelinek and Michael Ahearne, “The ABC’s of ACB: Unveiling a Clear and Present Danger in the Sales Force,” Industrial Marketing Management 35, no. 4 (May 2006), p. 457, “The Enemy Within: Examining Salesperson Deviance and Its Determinants,” The Journal of Personal Selling & Sales Management 26, no. 4 (Fall 2006), p. 327.
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25. Example of Profit and Loss Statement
Exhibit 12.10
Example of Profit and Loss Statement
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26. Allocation of Natural Accounts to Functional Accounts
Exhibit 12.11
Allocation of Natural Accounts to Functional Accounts
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27. Basic Data Used for Allocations
Exhibit 12.12
Basic Data Used for Allocations
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28. Profitability Analysis By Salesperson
Exhibit 12.13
Profitability Analysis By Salesperson
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29. The Process Illustrated
Direct Selling -
Salary and commission items need little explanation.
They reflect what each representative is paid and commission each earned on what was sold
Contact management software such as GoldMine enables sales managers and salespeople to track sales calls by type
Advertising –
Amount spent on advertising for each product
Three reasons to allocate per-unit-product –
It is one of the most popular
There is no clearly preferred alternative in the literature
The example illustrates the cost analysis process
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30. The Process Illustrated
Warehousing and shipping
The profitability analysis by sales representative does not include an allocation for the warehouse person’s salary
Order processing
The costs allocated are the direct expenses for postage and supplies
Transportation
Charged against the individual sales representatives according to the number of bicycles each sold.
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31. Activities of Tucker Broken Down by Account
Exhibit 12.14
Activities of Tucker Broken Down by Account
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32. Profitability Analysis for Tucker Broken Down by Customer
Exhibit 12.15
Profitability Analysis for Tucker Broken Down by Customer
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33. Marketing Cost Analyses: Promises and Problems
Benefit – isolates most/least profitable segments of business
Combined with effective sales analysis, provides a formidable tool for managing personal selling
Improves planning and control
Required data may be costly to acquire, maintain
Cost allocation decisions can be difficult
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34. Return on Assets Managed
Sales analysis – measures the results achieved by the sales force
Cost analysis – measures the cost of producing those results
ROAM = Contribution as a percentage of sales × asset turnover rate
Contribution as percentage of sales = ratio of net contribution divided by sales
Asset turnover rate = sales divided by the assets needed to produce those sales
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35. Analysis of Return on Assets Managed
Exhibit 12.16
Analysis of Return on Assets Managed
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36. Expanded Return on Assets Managed Model (ROAM)
Exhibit 12.17
Expanded Return on Assets Managed Model (ROAM)
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37. Impact of a Reduction in Accounts Receivable to $250,000 in Branch A
Exhibit 12.18
Impact of a Reduction in Accounts Receivable to $250,000 in Branch A
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38. Routledge 2013