1. Evaluating and Controlling Salespeople Input system -- Behavioral-based Subjective evaluations –Qualitative measures (Table 16-2) –Use rating scales -- e.g., Likert –Can have bias & halo effects Generating data –Computerized Call Reports (Fig. 16-3) –Management by Objectives (MBO)(Fig. 16-4) non-quantitative -- difficult in solution sales –Behavioral Observation Scales (BOS) (Fig 16-5) Job Dimensions -- critical incidents for job success

2. Evaluating and Controlling Salespeople Combining Input & Output Measures Call Productivity Ratios Calls per day = # Calls _ # Days worked Calls per account = # Calls_ # of Accounts Planned Call = # Planned calls Total # Calls Batting Average = # Orders__ Total # Calls

3. Evaluating and Controlling Salespeople Combining Input & Output Measures Expense Ratios Expense to Sales= Expenses Sales Cost per Call =Total Costs # of Calls

4. Evaluating and Controlling Salespeople Combining Input & Output Measures 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_ Total # Accounts

5. Evaluating and Controlling Salespeople Models Combining Input & Output Controls Inputs Attitude Motivation Skills Abilities Job Perception Inputs Behavior # Calls Days worked Expenses Selling vs. non- selling time Quotas Outputs # Orders Order Size # New, lost, or active accounts

6. Evaluating and Controlling Salespeople 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

7. 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

8. Evaluating Sales Force Performance Cost Analysis Object affects direct vs. indirect cost class: CostBy TerritoryBy Product P-O-P displayDirect Direct Salesperson SalaryDirect Indirect Product Manager SalaryIndirect Direct VP Operations SalaryIndirect Indirect

9. 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 & software

10. Evaluating Sales Force Performance District Costs Sales managers vary in ability to control expenses 3-way: district by product by cost –watch for price cutting by salespeople –watch for excessive emphasis on low margin goods

11. Evaluating Sales Force Performance Account Cost to Serve Total Cost to serve account Cost to Serve = Usually decline with revenue Help identify best accounts Downsizing & Profits (T 15-7) Consider using DEA (Programming) Revenue from Account

12. Table 15-1 Output Measures Used in Sales Force Evaluation Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, “Examining the Bases Utilized for Evaluating Salespeoples’ performance,” Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 61.

13. Table 15-2 Input or Behavior Bases used in Sales Force Evaluation Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, “Examining the Bases Utilized for Evaluating Salespeoples’ performance,” Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 62.

14. Table 15-4 Comparing Dollar and Unit Sales at the Bear Computer Company 1996 Sales1997 Sales

15. Table 15-5 Expense Analysis by Product Line, Bear Computer Company, 1997

16. Table 15-6 Qualitative Bases used in Sales Force Evaluation Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, “Examining the Bases Utilized for Evaluating Salespeoples’ performance,” Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 63.

17. Table 15-8 Measuring Territory Profit Output for Bear Computer Company

18. Table 15-9 Evaluating Performance Using Behavior and Outcome Data Performance factorsPete JonesAnn Smith Sales (annual)$1,400,000$1,100,000 Days worked210225 Calls1,2001,500 Orders480750 Expenses$19,000$14,900 Calls per day5.76.7 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 sales1.35%1.35%

19. Table 15-10 Ranking Salespeople on 10 Input/Output factors Dollar Sales  2345 Sales to Potential5342  Sales to Quota542  3 Sales per Order5  432 Number of Calls25  34 Orders per call4253  Gross Margin Percent5  342 Direct Selling Costs435  2 New Accounts  4253 Number of Reports Turned In43  52 Total of Ranks3628303125 Ranking FactorsFordBellShawMannGold

20. Figure 15-3 Ranking Salespeople on 10 Input/Output factors 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 Avg sales$3.17 Avg contribution$1.13 Avg contribution %35.8 Age45 Calls1122 Number of salespeople18 STARS Avg sales$2.91 Avg contribution$1.09 Avg contribution %37.4 Age37 Calls888 Number of salespeople11 Avg sales$1.78 Avg contribution$.64 Avg contribution %35.8 Age44 Calls958 Number of salespeople11 LAGGARDS Avg sales$2.03 Avg contribution$.75 Avg contribution %37.1 Age35 Calls921 Number of salespeople16 SLOWPOKES Millions $ Contribution Margin (%) 34.835.136.036.637.237.838.7 SALES YR2SALES YR2

21. Table 15-11 Relative performance efficiency for Sales Rep 22 Value if Value100% Variable TypeVariable NameMeasuredEfficientSlack OutputPercent Quota Attained (%)10012020 OutputSupervisor Evaluation550 OutputSales Volume ($)45,00050,5005,500 InputSales Training550 InputSalary ($)20,00018,0002,000 InputManagement Ratio321 InputTerritory Potential ($)60,50050,00010,500 Influence Salesperson 70.49 Salesperson 200.43 Salesperson 450.08 Reference SetEfficiency = 0.85 Iterations = 10 Source: James S. Boles, Naveen Donthu, and Ritu Lohtia, “Salesperson Evaluation Using Relative Performance Efficiency: The Application of Data Envelopment Analysis,” Journal of Personal Selling & Sales Management, Vol. 15, No. 3 (Summer 1995), p. 44.

22. Figure 15-2 A Model of Salesperson Evaluation Input-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 Output-based System Salesperson Evaluation

23. Table 15-7 Measuring Sales Force Output for Bear Computer Company 12345678 Market Sales ‘96Sales ‘97PotentialSalesPercentageSales Jan-SeptJan-SeptDollarSalesindexQuotaof QuotaVariance Territory(000)(000)ChangeGrowth(percent)(000)Achieved(000) Jones$ 750$ 825+ $7510.0%26.0%$ 94387.0%– $118 Smith500570+ 7014.015543105+ 27 Brown10251110+ 858.332116096– 50 West 960 1000+ 40 4.2 27 977102+ 23 $3235$3505+$2708.3%100.0%$3623

24. Figure 15-1: 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: OrganizationSalespeople RegionsAccounts Districts Measure results against standard Take Corrective Action

25. 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

26. Evaluating and Controlling Salespeople Models Combining Input & Output Controls Four Factor Model –How can sales be increased? –Optimum Number of sales calls to maximize profits? –Who is doing best? Ann or Pete? –What management strategies for Pete? for Ann? $ Sales = Days worked x Calls OrdersSales $ Days Worked CallsOrders $ Sales = Days worked x Call Rate Batting Average Order Size

27. Evaluating Sales Force Performance Profitability Analysis Full Cost Sales Less: C of GS Equals: Gross Margin Less: Operating Expenses (Direct + Indirect Allocated) Equals: Profit Contribution Contribution Margin Sales C of GS & Other Variables Costs Contribution Margin Direct Allocable Fixed Selling Costs Profit Contribution

28. Evaluating Sales Force Performance Profitability Analysis “Full Cost” Approach –charge recruiting, training, sales promo & other marketing expenses to sales manager –allocation is somewhat arbitrary –not under sales manager control

29. Evaluating Sales Force Performance In-Class Exercise 15-1 -- “Which Profits?” 1. Why would a company that used to use only sales as a performance criteria for its sales force wish to consider profitability? 2. What criteria should be established to construct a workable performance evaluation system? 3. What are the pros and cons of alternative profit measures? 4. What other problems need to be considered?

30. Evaluating and Controlling Salespeople In-Class Exercises 16-1 “I Know These Sales Figures Stink” 1. What activities should be completed in the performance evaluation process? 2. What should take place prior to a performance review meeting? 3. What is covered in the meeting? 4. What to do if an employee disagrees with the performance ratings? 5. What are additional suggestions for providing feedback to others?

31. Evaluating and Controlling Salespeople In-Class Exercises 16-1 “I Know These Sales Figures Stink” 6. How do you handle hostile reactions? 7. What additional questions should Sherrie ask of the veteran sales manager? 8. What consideration should be given to a large customer going out of business? 9. Is sales, the bottom line, the only measure that should be used for evaluating performance? 10. What are the companies responsibilities in this role play?

32. Evaluating and Controlling Salespeople Input vs. Output Systems Salary CompensationCommission InputSystem favored Output

33. Evaluating and Controlling Salespeople Using Judgment Models -- Ranking Procedures 1. How do the six salespeople compare with one another? -- Rank them for 1 to 6 overall. 2. Which of the six would you promote to Field Sales Supervisor (sales manager position)? 3. If you were opening a new territory which is promising to be quite high in sales potential and thus both lucrative and challenging, and you had to assign one of the six to that territory, which salesperson would you transfer to that territory?

34. Evaluating and Controlling Salespeople Using Judgment Models -- Ranking Procedures 4. If you had to reduce the sales force to only 5 salespeople, and thus had to terminate one of the salespeople, which one would you terminate? Why? 5. If you had a $10,000 budget for bonuses for your sales force and had to pay it all out, how much of the $10,000 would you give to each of the salespeople? You may allocate the $10,000 in any manner you wish, as long as the total is exactly $10,000.

35. Evaluating and Controlling Salespeople Using Judgment Models -- Ranking Procedures Results of a sample of 242 sales managers –How do your results compare with the managers? –Situation specific evaluations –Overall evaluations –Situation Specific Predictive Ability which model works best?

36. Evaluating and Controlling Salespeople Using Judgment Models -- Ranking Procedures 1. How do the six salespeople compare with one another? -- Rank them for 1 to 6 overall. 2. Which of the six would you promote to Field Sales Supervisor (sales manager position)? 3. If you were opening a new territory which is promising to be quite high in sales potential and thus both lucrative and challenging, and you had to assign one of the six to that territory, which salesperson would you transfer to that territory?

37. Evaluating and Controlling Salespeople Using Judgment Models -- Ranking Procedures 4. If you had to reduce the sales force to only 5 salespeople, and thus had to terminate one of the salespeople, which one would you terminate? Why? 5. If you had a $10,000 budget for bonuses for your sales force and had to pay it all out, how much of the $10,000 would you give to each of the salespeople? You may allocate the $10,000 in any manner you wish, as long as the total is exactly $10,000.

38. Evaluating and Controlling Salespeople Using Judgment Models -- Ranking Procedures Results of a sample of 242 sales managers –How do your results compare with the managers? –Situation specific evaluations –Overall evaluations –Situation Specific Predictive Ability which model works best?

39. Evaluating and Controlling Salespeople Summarizing Sales force Performance Performance Matrix –Shows interaction of 3 or more variables at a time –Identifies reps for rewards and punishments –Helps find subtle interactions –Findings in Figure 16-6 Reps begin career selling high margin mix of products Reps end career by sacrificing margins for revenue Laggards represent a plateauing problem Laggards should make more contractor calls If looking for $$ -- reward compromisers If looking for profits -- reward the stars

40. Evaluating Sales Force Performance Profitability Analysis Residual Income Analysis –Sales growth is desirable as long as profits exceed cost of capital –Most comprehensive single measure of sales force performance –Existing control factors all included –Expressed in dollars makes it easier to set sales manager incentives –Directly related to corporate objectives

41. Evaluating Sales Force Performance Profitability Analysis Return on Assets Managed (ROAM) Profit Contrib.Sales SalesAssets Managed Assets under sales management control District Analysis –Assets managed poorly in District 4 –Profit contribution greatest in District 1 X

42. Evaluating Sales Force Performance Profitability Analysis ROAM disadvantages –focus on lower assets (inventory + acct. receivable) –does not consider sales level or growth Solution: Residual Income Analysis (RIA) Profit Contribution Less:Acct receivable costs Inventory carrying costs EqualsResidual Income

43. Evaluating Sales Force Performance Sales Force Evaluation Model Sales Analysis Principles –80/20 -- 20% of customers yield 80% sales –Iceberg -- sales figures tip of iceberg -- need more Gathering Sales Data –DSS –hand held computers for field Steps in Sales Analysis –Pick unit for analysis - by division, district, etc. –Select variables for cross classification - by product –Choose performance measures -- sales to quota, etc.

44. Evaluating Sales Force Performance The Big Picture –Start with aggregate sales by year –Look for changes and trends -- market share, volume Refining through Cross Classification –Sales by Region reward areas of strength? move into areas of weakness –Sales by Product Line Are you selling what firm wants? or what salespeople want? Balance long vs. short term goals

45. Evaluating Sales Force Performance Refining Through Cross Classification –Dollar Vs. Unit Sales When price change (inflation) distorts dollar figures Good for big ticket items –Sales by Distribution Channel tends to change over time asks who customers really are –Sales by Customer Type illustrates 80/20 principle how to deal with small accounts

46. Evaluating Sales Force Performance Cross Classification Techniques –Multi-way Tables –Varying Customer Classifications –Product Lines vs. Product Categories –Brands as Product Class

47. Table 15-3 Sales Data for Bear Computer Company 1 2 3 4 Company Percentage Industry Company Volume Change from Volume Market Share Year ($ millions) Previous Year ($ millions) (percent) 199726+ 8.3300 8.6 199624+14.321910.9 199521+23.516515.7 199417 ---12513.6

48. Table 15-7 Measuring Sales Force Output for Bear Computer Company 12345678 Market Sales ‘96Sales ‘97PotentialSalesPercentageSales Jan-SeptJan-SeptDollarSalesindexQuotaof QuotaVariance Territory(000)(000)ChangeGrowth(percent)(000)Achieved(000) Jones$ 750$ 825+ $7510.0%26.0%$ 94387.0%– $118 Smith500570+ 7014.015543105+ 27 Brown10251110+ 858.332116096– 50 West 960 1000+ 40 4.2 27 977102+ 23 $3235$3505+$2708.3%100.0%$3623

49. Figure 15-3 Ranking Salespeople on 10 Input/Output factors 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 Avg sales$3.17 Avg contribution$1.13 Avg contribution %35.8 Age45 Calls1122 Number of salespeople18 STARS Avg sales$2.91 Avg contribution$1.09 Avg contribution %37.4 Age37 Calls888 Number of salespeople11 Avg sales$1.78 Avg contribution$.64 Avg contribution %35.8 Age44 Calls958 Number of salespeople11 LAGGARDS Avg sales$2.03 Avg contribution$.75 Avg contribution %37.1 Age35 Calls921 Number of salespeople16 SLOWPOKES Millions $ Contribution Margin (%) 34.835.136.036.637.237.838.7 SALES YR2SALES YR2