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Evaluating the Effectiveness of the Organization

Evaluating the Effectiveness of the Organization. Module Nine. Sales Analysis. Profitability Analysis. Sales Organization Effectiveness. Cost Analysis. Productivity Analysis. Sales Organization Effectiveness Framework. Sales Analysis Example. District 1. District 2. District 3.

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Evaluating the Effectiveness of the Organization

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  1. Evaluating theEffectiveness of the Organization Module Nine

  2. Sales Analysis Profitability Analysis Sales Organization Effectiveness Cost Analysis Productivity Analysis Sales Organization Effectiveness Framework

  3. Sales Analysis Example District 1 District 2 District 3 District 4 District 5 Sales $11,000,000 $12,000,000 $13,000,000 $7,000,000 $12,000,000 $11,250,000 $11,500,000 $12,150,000 $10,000,000 $11,000,000 Sales Quota Effectiveness Index (Sales / Sales Quota) 98 104 102 70 109 Sales Last Year $10,700,000 $11,050,000 $12,250,000 $10,350,000 $6,800,000 Sales Growth (Sales-LY Sales)/LY Sales 3% 9% 6% 3% 6% Industry Sales $42,000,000 $42,000,000 $45,000,000 $40,000,000 $45,000,000 Market Share Sales/Industry Sales 26% 29% 29% 18% 27%

  4. What is Cost Analysis • The emphasis is on assessing the costs incurred by the sales organization to generate the achieved levels of sales. • The general approach is to compare the costs incurred with planned costs as defined by selling budgets.

  5. Original Budget 2003 Actual 2002 April Revision July Revision OctoberRevision Classification Compensation expenses Salaries Commissions Bonuses Total Travel expenses Lodging Food Transportation Miscellaneous Total Administrative expenses Recruiting Training Meetings Sales offices Total Selling Expense Categories $14750 $15000 $15500 $15400 $15400

  6. Compensation Costs Training Costs Actual Budget Variance Actual Budget Variance Region 1 Region 2 Region 3 Region 4 $3,660,000 $3,500,000 $3,150,000 $4,200,000 $3,600,000 $3,700,000 $3,400,000 $3,900,000 $60,000 ($200,000) ($250,000) $350,000 $985,000 $2,110,000 $830,000 $2,3400,000 $1,030,000 $2,040,000 $1,060,000 $2,160,000 ($45,000) $70,000 ($230,000) $180,000 Actual % Sales Actual % Sales Budgeted % Sales Budgeted % Sales Region 1 Region 2 Region 3 Region 4 6.1 5.8 5.4 6.0 2.9 3.1 2.6 3.1 3.0 3.0 3.0 3.0 6.0 6.0 6.0 6.0 Cost Analysis Examples Note: ( ) indicates you spent less than budget.

  7. Profitability Analysis:Income Statement Analysis • Full cost approach attempts to allocate shared costs to individual units based on some type of cost allocation procedure • Contribution approach only includes direct costs in the profitability analysis

  8. Full Cost Approach: Sales - Cost of goods sold Gross Margin - Direct selling expense - Allocated expenses Net Profit Contribution Approach: Sales - Cost of goods sold Gross Margin - Direct selling expense Contribution to Profit Full Cost Versus Contribution Approaches

  9. District 1 District 2 District 3 Contribution Approach Sales $180,000,000 $70,000,000 $50,000,000 Cost of Goods Sold $168,500,000 $58,500,000 $28,000,000 Gross Margin $ 11,500,000 $11,500,000 $22,000,000 District Selling Expenses $ 5,000,000 $ 3,500,000 $ 2,500,000 Regional Direct Selling Expenses --- --- --- Profit Contribution $ 6,500,000 $ 8,000,000 $19,500,000 Allocated Portion of Shared Zone Costs** Net Profit Profitability Analysis Example Full Cost Approach Region $300,000,000 $255,000,000 $ 45,000,000 $ 11,000,000 $ 10,000,000 $ 24,000,000 $ 16,000,000 Note: District Costs Total To Regional Costs $ 8,000,000 * Regional Direct Selling Expenses are expenses from the Regional Direct Sales Effort. **Allocated shared zone costs are fixed and variable costs due to having an office and managing and administering the district salespeople. ``

  10. Profitability Analysis:Activity-Based Costing (ABC) • Allocates costs to individual units on the basis of how the units actually expend or cause these costs. • Places greater emphasis on more accurately defining unit profitability by tracing activities and their associated costs directly to a specific unit.

  11. ROAM = Profit contribution as percentage of sales X Asset turnover rate = (Profit contribution / Sales) X (Sales / Assets managed) Profitability Analysis: Return onAssets Managed Analysis (ROAM) • Calculations provide an assessment of profitability and useful diagnostic information. • ROAM is determined by both profit contribution percentage and asset turnover.

  12. Sales Cost of Goods Sold Gross Margin District Selling Expenses Accounts Receivable Inventory Total Assets Managed Profit Contribution Percentage ROAM = (Profit contribution / Sales) X (Sales / Assets managed) Asset Turnover ROAM Return on Assets Managed (ROAM) District 1 District 2 District 3 District 4 $24,000,000 $24,000,000 $24,000,000 $24,000,000 12,000,000 12,000,000 14,000,000 14,000,000 12,000,000 12,000,000 10,000,000 10,000,000 7,200,000 9,600,000 5,200,000 8,800,000 Profit Contribution 4,800,000 2,400,000 4,800,000 1,200,000 4,000,000 8,000,000 4,000,000 16,000,000 4,000,000 8,000,000 4,000,000 16,000,000 8,000,000 16,000,000 8,000,000 32,000,000 5% 20% 10% 20% 3.0 1.5 3.0 .75 15% 30% 30% 15%

  13. Productivity Analysis • Expressed in terms of ratios of inputs to output • Productivity improvements are obtained in one of two basic ways: • Increasing output with the same level of input • Maintaining the same level of output but using less input

  14. Productivity Analysis Example District 1 District 2 District 3 District 4 Sales $20,000,000 $24,000,000 $20,000,000 $24,000,000 Selling Expenses 2,000,000 2,400,000 3,000,000 3,000,000 Sales Calls 9,000 7,500 8,500 10,000 Proposals 200 180 260 270 Number of Salespeople 20 30 20 30 $ 800,000 Sales/Salesperson $ 1,000,000 $ 800,000 $1,000,000 $ 100,000 Expenses/Salesperson $ 100,000 $ 80,000 $ 150,000 333 Calls/Salesperson 450 250 425 9 Proposals/Salesperson 11 6 13

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