1. Part I THE BIG PICTURE Management Resource: Sales Force Investment and Budgeting

2. You are probably undersized if:  Key customers wonder where your representative is.  Current customers are considering switching suppliers.  New customer development is down.  Your salespeople feel overworked, but costs seem under control.  Your salespeople do not have enough time to determine how customer needs might be changing or providing solutions to those needs. You are probably too large if:  Your favorite customers are asking, “Didn’t I just see you?”  Overall, your customers seem to be getting plenty of attention.  Your salespeople seem to have considerable free time.  Your salespeople don’t seem to be sufficiently stimulated.  Finance has noticed that your cost of sales is out of line with industry norms. Figure MR2-1 Is Your Sales Force Sized Correctly?

3. Sales Due to 2000 Effort Pre-2000 Carryover Sales 2000 Sales 2001 Sales Sales Due to 2001 Effort Sales Due to 2000 Effort Pre-2000 Carryover Sales $100 Million Figure MR2-2 An Illustration of Carryover $115 Million

4. Figure MR2-3 Conditions That Affect Carryover Low Carryover High Carryover  Low switching costs  High switching costs  High levels of new incremental business  Low levels of new incremental business  small purchase volumes  Many new customers  Short selling cycles  Few new customers  Large purchase volumes  Long selling cycles  No maintenance or service activity  High levels of maintenance or service activity  New products  Mature products  High levels of competitive noise  Low levels of competitive noise  Growing market  Flat or declining market  Products similar or nearly identical to competitors’ products  Highly differentiated products  Weak brand and/or company loyalty or new brand and/or company  Strong brand and/or company loyalty  Sales force is the only promotion vehicle  Many promotion vehicles in addition to the sales force

5. Gradual Downsizing Case: Metropolitan Area

6. 1 Gradual Downsizing Case: Original Territories 6 5 4 3 2

7. Gradual Downsizing Case: Closed Territory 2 6 5 4 3 1

8. Gradual Downsizing Case: Rebalancing 6 5 4 3 1

9. Gradual Downsizing Case: Territory 6 Closed 3 5 4 1

10. Gradual Downsizing Case: Rebalancing 3 5 4 1

11. Gradual Downsizing Case: Three Different Salespeople 3 5 4 1

12. Number of Frequency of Length of Number of salespeople = Accounts X Sales Calls X a Sales Call Selling time available for one salesperson THE WORKLOAD FORMULA

13. Moderate Call Frequency Sales Low Call Frequency High Call Frequency Textile Segment Carpet Segment Figure MR2-4 Sales Response Relationship

14. COMPANY SIZEINDUSTRY Under $5 Million (MM)14.7%Business services 1.7 $5-$25 MM10.5Chemicals 2.9 $25-$100 MM7.9Communications 9.8 $100-$250 MM3.5Educational services47.9 Over $250 MM6.8Electronics 4.2 Fabricated metals10.8 PRODUCT OR Health services19.9 SERVICEHotels & other lodgings21.4 Industrialproducts4.1Instruments 2.3 Industrial services6.4Machinery10.1 Office products9.4Manufacturing13.6 Office services8.1Office equipment 9.0 Consumer products5.4Paper and allied products 6.8 Consumer services7.9Printing and publishing12.0 Retail 6.1 Trucking and warehousing12.2 Wholesale (consumer goods) 3.7 Wholesale (industrial goods) 9.5 Average 6.9% Sales Force Total Cost as a Percentage of Sales Sales Force Total Cost as a Percentage of Sales Table MR2-1 Sales Force Selling Expenses as a Percentage of Sales

15. $10,000,000Expected Sales x.136Field sales expense ratio (wages, commissions & travel) $ 1,360,000Sales budget x.85Percent of budget for sales force $ 1,156,000Budget available for salespeople Dollars available = $1,156,000 = 20 (number that Wages and expenses per person can be hired) PERCENT OF SALES APPROACH: A PAPER COMPANY EXAMPLE

16. Suppose:  A division has 80 salespeople  Sales for next year are forecasted to be $128 million  Each salesperson is expected to generate $1.6 million in sales  Each salesperson costs $225,000 Then: Sales force costs would equal 14% of forecasted sales ($225,000 x 80 = $18 million / $128 million) Suppose:  A division has 80 salespeople  Sales for next year are forecasted to be $128 million  Each salesperson is expected to generate $1.6 million in sales  Each salesperson costs $225,000 Then: Sales force costs would equal 14% of forecasted sales ($225,000 x 80 = $18 million / $128 million) Suppose another 10 salespeople are added to the sales force. Suppose the new salespeople are expected to sell $500,000 each. Assuming the same cost per salesperson for the new people, what will be the new sales force cost ratio as a percent of sales? Suppose another 10 salespeople are added to the sales force. Suppose the new salespeople are expected to sell $500,000 each. Assuming the same cost per salesperson for the new people, what will be the new sales force cost ratio as a percent of sales? THE PROFIT IMPACT OF SALES FORCE SIZE: AN ILLUSTRATION

17. Suppose our division has a 60% contribution margin. What will be our division’s contribution dollar projection for the original 80 salespeople? Suppose our division has a 60% contribution margin. What will be our division’s contribution dollar projection for the original 80 salespeople? If we hire the 10 new salespeople and they generate $500,000 each, while costing us $225,000 each: What happens to contribution dollars? If we hire the 10 new salespeople and they generate $500,000 each, while costing us $225,000 each: What happens to contribution dollars? So your sales force cost ratio has increased from 14.1% to 15.2%, but your contribution dollars also increased from $58.8 million to $59.55 million. PROFIT ILLUSTRATION (continued)

18. Compare actual expenditures with plans Revise expenditure categories Request additional funds as needed Revise expenditure categories Request additional funds as needed Figure MR2-5 The Sales Budgeting Process Estimate personal selling costs needed to reach sales goals Forecast sales Design marketing program Set advertising and promotion expenditure levels Design marketing program Set advertising and promotion expenditure levels

19. Figure MR2-6 The Customer-Product MatrixConvergenceSelling$__________ New Business Development $__________ Account Management $__________LeverageSelling$__________ CUSTOMERS PRODUCTS New Current NewCurrent

20. SALES FORCE EXPENSE CLASSIFICATIONS  Sales force salaries, commissions, and bonuses  Social Security  Retirement plans  Hospitalization and life insurance  Automobile  Travel, meals, lodging, and entertainment

21.  Sales manager salaries, commissions, and bonuses  Office supplies and postage  Office rent and utilities  Clerical and secretarial services  Recruiting and training  Samples and other sales aids SALES FORCE EXPENSE CLASSIFICATIONS