Part V SALES FORCE LEADERSHIP

1. Part VSALES FORCE LEADERSHIP Chapter 13: Evaluating Performance

2. SALLES PERFORMANCE REVIEW : • At first glance , evaluating salesperson's performance seems simple : merely measure sales volume . The thinking behind this theory is that higher volume means increased performance . But the focus on sales volume can be misleading . • We define evaluation as a comparison of sales force goals and objectives with actual achievements in the field . A general model of the evaluation process on shown in Figure 13-1. • The most common objectives are the attainment of specific sales revenues , contribution profits , market shares , and expense levels . Then ,a sales plan must be prepared to show how the goals are to to be achieved . The next step is to performance standards for individual products for different levels in the organization . • Differences between the performance standards and the results attained are determind .

3. A Sales Force Evaluation Model Take Corrective Action 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

4. Selecting Performance Measures • The task of selecting performance measure for a firm is difficult because so many unique factors can be used. Most experts agree that performance measures should be tailored to the goals and objectives of each organization . • A great unresolved controversy in sales management is whether output measures Table 13 -1 , input factors such as those in Table 13-2 , or qualitative criteria are best for evaluating sales performance . • Qualitative measures include attitude , communication skills , and product knowledge . Research indicates that qualitative factors are the most widely used , but they are difficult to measure and often lead to biased evaluations . • One explanation is that sales organizations rely less on input performance measure , when there are more people to evaluate .

5. 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

6. Input or Behavior Bases Used in Sales Force Evaluation

7. Qualitative Bases Used in Sales Force Evaluation

8. THE BIG PICTURE • A logical first step in a sales analysis to look at aggregate sales figures for accompany or division .

9. 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) 2006 26 + 8.3 300 8.6 2005 24 +14.3 219 10.9 2004 21 +23.5 165 15.7 2003 17 --- 125 13.6

10. Dollar versus Unit Sales : • Sales can also be broken out in terms of number of solutions sold (Table 13-4 ) . Unit sales can be useful when inflation and other price changes distort dollar sales figures . • A decline in the number of units installed is serious problem in an expanding market , so adjustments should be made in the wage and quota systems to achieve more balanced growth . Unit sales growth is desirable because it keeps production lines and employees busy .

11. Comparing Dollar and Unit Sales at the Bear Computer Company 2005 Sales 2006 Sales

12. Sales by Customer Type : • Another useful approach is to break down sales by individual customer.

13. EXPENSE ANALYSIS : • Although a sales analysis provides useful data on the operation of a field sales force , it dose not tell the whole story . Sales figures show trends , but they do not reveal the effects of price – cutting or the differences in selling expenses , potential , and saturation that exist across products or territories . • What Expenses Are Relevant ? • We believe that controllable expenses such as wages and travel are the figures that are relevant to field sales managers . Thus , national advertising and production costs , which are not directly controlled by sales manages , should not be used o judge the efficiency of the sales organization .

14. Product Expenses : • A logical first step in an expense analysis is to look the differences associated with each product line .

15. 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

16. Expense Analysis by Product Line, Bear Computer Company, 2006

17. EVALUATING SALESPEOPLE : • One of the most difficult tasks you will face as a sales manager is evaluating the performance of salespeople under your control . Although appraisals are opportunities to motivate salespeople to higher levels of achievement , they also provide evidence for disciplinary action . Thus , performance reviews demand that sales managers play the role of coach and judge . • It is the most difficult job of the sales mangers because of the difficulty of finding the optimal level of monitoring and the difficulty of eliminating biases in the evaluation process .

18. EVALUATING SALESPEOPLE : • Why Are Performance Reviews Needed ? • Performance reviews are usually conducted on an annual basis , although many firms conduct evaluations semiannually or quarterly . While these reviews are difficult to administer , they do provide valuable information for staffing decisions and serve as a basis to improve salesperson performance . The result of performance reviews can be used to answer a number of important questions such as : Who should receive raises , bonuses , prizes , and etc.

19. Behavior versus Output Performance Measures : • Although behavior control systems are more widely used than output measures , there is considerable debate as to which approach is better .

20. 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

21. BEHAVIOR – BASED EVALUATION : • Behavioral systems are concerned with keeping track of what happens at each stage of the sales operation . This means that management must closely monitor sales force Activities and direct and intervene to improve customer relations . • Behavior – based systems usually require managers to make some subjective evaluations about individual salespeople . The most common qualitative factors used in these performance evaluations are given in table 13- 6 . • Since behavioral –based evaluations focus on the activities and procedures of successful selling these systems can enhance salesperson knowledge and commitment .

22. Qualitative Bases Used in Sales Force Evaluation

23. Using behavior based systems : • Successful implementation of behavioral evaluations requires periodic analysis of data on sales force activities . one widely used way to gather this information is through the completion of daily ,weekly ,or monthly call reports by salespeople . • These reports detail who was called on ,at what stage he prospect is within the sales cycle ,and what follow up activities are needed in the future . • Some manager use the 10-3-1 rule ,meaning that for every 10 qualified prospects, 3 will entertain a proposal and 1 will become a customer .

24. BEHAVIOR – BASED EVALUATION : • Management by objectives : • A common behavioral system is management by objectives (MBO) also called development and performance management .with this method ,salesperson and sales managers jointly set personal development goals for the subordinate that can be completed within a specific time period . salespeople then develop an action plan to reach each goal . written performance appraisal are presented to sales people during review sessions with sales managers . Reps react favorably to MBO systems because they can see where they stand and know that progress toward their goals will be rewarded .

25. BEHAVIOR – BASED EVALUATION : • Behavioral observation scales : • An improvement on MBO is an approach called behavioral observation scales (BOS) which focus on identifying a list of critical incidents that lead to job success. This approach assumes that some of salesperson's job requirements are more critical to job success than are others , and the key to evaluating people is to focus on these factors . • One advantage of the BOS is that this system requires an extensive analysis of the salesperson's job responsibilities that lead to success .

26. Results based evaluations • in which managers set performance standards for each salesperson and evaluate the results against the present standards .results based evaluations have been shown to improve salesperson job attitudes when the salesperson understands what is expected and is able to modify his or her work strategy to meet the expected goals .

27. Measuring Sales Force Output for Bear Computer Company Differences in potential 1 2 3 4 56 7 8 Market Sales ‘05 Sales ‘06 Potential Sales Percentage Sales Jan-Sept Jan-Sept Dollar Sales index Quota of Quota Variance Territory (000) (000) Change Growth (percent) (000) Achieved (000) Jones $ 750 $ 825 + $75 10.0% 26.0% $ 943 87.0% – $118 Smith 500 570 + 70 14.0 15 543 105 + 27 Brown 1025 1110 + 85 8.3 32 1160 96 – 50 West 960 1000 + 40 4.2 27 977 102 + 23 $3235 $3505 +$270 8.3% 100.0% $3623

28. Measuring Territory Profit Output for Bear Computer Company Contribution based evaluations