Part V SALES FORCE LEADERSHIP

Part VSALES FORCE LEADERSHIP Chapter 13: Evaluating Performance

Why Evaluate Salespeople? • To link compensation and rewards to performance. • To identify salespeople capable of promotion. • To identify training and counseling needs. • To identify criteria for recruitment and selection. • To clarify work expectations. • To motivate salespeople. • To help salespeople set career goals.

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

Output Measures Used in Sales Force Evaluation

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

Input or Behavior Bases Used in Sales Force Evaluation

Qualitative Bases Used in Sales Force Evaluation

Sales Data for Bear Computer 1 2 3 4 Company Percentage Industry Company Volume Change from Volume Market Share Year ($ millions) Previous Year ($ millions) (percent) 2008 26 + 8.3 300 8.6 2007 24 +14.3 219 10.9 2006 21 +23.5 165 15.7 2005 17 --- 125 13.6

Comparing Dollar and Unit Sales at the Bear Computer Company ----------2008 Sales---------- ----------2007 Sales----------

Expense Analysis by Product Line, Bear Computer Company, 2008

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

Evaluating Sales Force Performance: Product Costs • CGS + Commissionshigher forcomputers • 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 and software

A Model of Salesperson Evaluation Input-based System Output-based System Results Sales revenues Sales growth Sales/quota Sales/potential New accounts Contribution margins Contribution percentage Behavior Calls Reports Complaints Demonstrations Dealer meetings Display set up Travel/entertainment expenses Salesperson Evaluation

Measuring Sales Force Output for Bear Computer Company

Measuring Territory Profit Output for Bear Computer Company

Ranking Salespeople on 10 Input/Output Factors

Ranking Salespeople on 10 Input/Output Factors Millions $ 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 STARS SALES YR 2 SLOWPOKES LAGGARDS 34.8 35.1 36.0 36.6 37.2 37.8 38.7 Contribution Margin (%)

Relative Performance Efficiency for Sales Rep 22

Conditions when Outcome versus Behavioral Systems are preferred Outcome Systems(OS) • Customers need information • Customers trust the salesperson • There are ways to close the deal • Sales environment is competitive Behavioral System(BS) • Salespeople lack experience • No need to protect the brand image • Nonselling behaviors are a priority • Difficult to assign sales credit

The additional slides below are not covered in IM

Call Productivity 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

Expense Ratios Expense to Sales = Expenses Sales Cost per Call = Total Costs # of Calls

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

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

Cost Analysis • Object affects direct vs. indirect cost classification:

Evaluating Sales Force Performance: Account Cost to Serve • Usually decline with revenue • Help identify best accounts • Downsizing & Profits • Consider using DEA (Programming) Total Cost to Serve Account Cost to Serve = Revenuefrom Account

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

Models Combining Input and Output Controls • Four Factor Model • How can sales be increased? • Optimum number of sales calls to maximize profits? • Who is doing better? Ann or Pete? • What management strategies for Pete? for Ann? Calls Orders Sales $ $ Sales = Days worked x Days Worked Calls Orders $ Sales = Days worked x Call Rate Batting Average Average Order Size

Part V SALES FORCE LEADERSHIP