Sales Management Chapter 9, 10

sales organization effecitveness
-function of how well the sales organization achieved its goals and objectives
-goal: determine level of effectiveness: who achieved better results, generate higher sales per sales person
-action: if warranted, make strategic/ policy changes
salesperson performance
-function of how well each salesperson performs in his/her particular position
-goal: determine individual performance levels
-action: if warranted, make tactical changes with specific individuals
sales organization audit
-comprehensive, systematic, diagnostic and prescriptive tool- most comprehensive approach for evaluating SOE
– purpose:
– assesses the firms sales management process
– provide direction for improve performance and prescription for needed changes
– should be performed regularly
– should be conducted by someone outside the sales organization
– although it is an expensive and time consuming process, the sales organization audit generates benefits that usually outweigh the costs
sales force management auditor/sales organization audit framework addresses four major areas
-sales organization environment
-sales organization planning system
-sales management evaluation
-sales management function
purpose is to investigate, systematically, and comprehensively, each of these areas to identify existing or potential problems, determine their causes and take necessary corrective action
1. sales organization environment
-extra organizational factors: economic-demographic, political-legal, technological, competitive, market; customer
-intra-organizational factors: company organization, sales marketing department links, sales-other department links, marketing mix
2. sales organization planning system
-objectives
-sales management program
-implementation of the program
3. sales management evaluation
-adequacy of sales managers
-adequacy of management practices
4. sales management function
-sales for organization: recruitment and selection
-sales training: compensation and expenses
– supervision, morale, and motivation
-sales forecasting: budgeting, quotas
-territories and routing: sales analysis
– cost/profitability analysis: sales force evaluation
sales organization effectiveness evaluations
-multiple goals, and objectives thus multiple factors must be assessed
-four types of analyses necessary to develop comprehensive evaluation of any sales organization
1. sales analysis-evaluate sales, productivity results, and profitability (focus on total sales, sales of specific product, sales of specific and other sales including quotas, competitors); performed at different levels of the organization (zones, regions, districts, and territories)
2. cost
3. profitability
4. productivity
-conducting analysis in each of these areas is a complex task
-also rely heavily on customer satisfaction- surveying customers
four types of analysis to develop comprehensive evaluation of any organization
-sales
-cost
-profitability
-productivity
methods used to measure salesforce effectiveness
-sales results versus goals
-customer satisfaction
-profit versus goals.
-sales manager feedback
-market share
-cost of sales
-sales employee feedback
-return on investment of sales resources
sales analysis
when should we count an order as a sale
-when an order is placed
– when an order is shipped (most common)
– when payment is received
what is the primary metric
– sales dollars
-sales units
useful to include both
the key is to be consistent and develop an information system to track sales based on whatever sales definition is used
sales analysis framework
-organizational level of analysis
-types of sales
-type of analysis
sales analysis framework- organizational level of analysis
performed for all levels in the sales organization for two basic reasons
– slaes managers at each level neeeds sales analysis at their level and the next level below for evaluation and control purposes
– a useful way to identify problem areas in acheiving sales effectiveness is to perform a heirarchial sales analysis
-zone
-region
-district
-territory
-accounts
hierarchical sales analysis
which consists of evaluating sales results throughout the sales organization from a top down perspective
– the analysis begins with total sales for the sales organization and proceeds through each successively lower level in the sales organization
– the emphasis on identifying potential problem areas at each level and then using analysis at lower levels to pinpoint specific problems
example of hierarchical sales analysis
in this example, sales for region 3 appear to be much lower than those for the other regions, so the analysis proceeds to investigate the sales for all the districts in region 3.
– low sales are identified for district 4, then district 4 sales are analyzed by territory 5
-additional analysis would be performed to determine why sales are so low for territory 5 and to take corrective action to increase sales from this territory
sales analysis framework- types of sales
-type of product
-type of account
-type of distribution
-order size
analysis at different sales organizational levels increases managements ability to detect and define problem areas in sales performance
sales analysis framework- type of sales example
the hierarchical analysis could have included once the potential sales problem in territory 5 is isolated, analysis of different types of sales could be used to perform the problem more fully
– this example suggests especially how low sales volume for product type A and account type B, additional analysis within these product and account types would need to be determined why sales are low in these areas and what needs to be done to improve effectiveness
sales analysis framework- type of analysis
-comparisons with forecasts
-comparisons with sales quotas
-comparisons with previous period
-comparisons within sales organizations
-comparisons with industry/competitors
methods of analysis
comparing actual sales results with sales forecasts and quotas are extremely revealing, effectiveness index
– another is the comparison of actual sales results to those achieved by competitors (market share)
-sales analysis approach from sales data
methods of analysis- sales forcecast
represents an expected level of firms sales for defined products, markets, and time periods and for a specified strategy
provides a basis for establishing specific sales quotas and reasonable sales objectives for a territory, district, region, or zone
effectiveness index
can be computed by dividing actual sales results by the sales quota and multiplying by 100
sales results in excess of quota will have an index values greater than 100
sales results lower than quota will have index values less than 100
makes it easier to compare directly the sales effectiveness of different organizational levels and types of sales
cost analysis
-assesses the costs incurred by the sales organization to generate the achieved levels of sales
-compare the costs incurred with planned budget
-corporate resources earmarked for personal selling expenses for a designated period represent the total selling budget
selling budget
-developed at all levels of the sales organization and for all key expenditure categories
-task is to determine the best way to allocate these sales resources throughout the sales organization and across different selling activities
-process is to instill cost consciousness and profit awareness throughout the organization
-necessary for establishing benchmarks for evaluating sales costs
-objectives is to determine the lowest expenditure level necessary to achieve the sales quotas
-two approaches to selling the selling budget
-percentage of sales method
– objective task method
sales management budget
budget responsibly depends on the degree of centralization or decentralization in the sales organization
– the more centralized sales organization will place budget responsibility at a higher sales management level
achieving productivity improvements
sales managers might cut costs to improve profitability in the short run but if expenditures for training, travel, are too low, long run sales and profits will be sacrificed
-if expenses can be reduced to more effective or more efficient spending these improvements can produce increased profitability in the long run
determining expenditure level- % of sales method
– calculates an expenditure level for each category by expenditure % x forecasted sales
-need reliable forecast
-need accurate expenditure %
determining expenditure level- objective and task method
-is a type of zero based budgeting
-state objectives
-identify tasks necessary to achieve objectives
-estimate costs of tasks
sales expense categories
-compensation expense: salaries, commissions, bonuses
-travel expenses: lodging, food, transportation, miscellaneous
-administrative expenses: recruiting, training, meetings, sales offices
profitability analysis
analyzing the profitability of different organizational levels of different types of sales
-income statement analysis
-activity based costing
-return on assets managed
profitability analysis: income statement analysis
-statements can be developed for profitablity analysis
-difficulties is that come costs are shared btw organizational levels or sales types
full cost approach
contribution approach
profitability analysis: income statement analysis- full cost approach
allocate shared costs to individual units based on some type of cost allocation procedure
this results in a net profit figure for each unit
profitability analysis: income statement analysis- contribution approach
include only direct costs in the profitability analysis
represents the profit contribution of the unit being analyzed- must be sufficient to cover indirect costs and other overhead and provide the net profit for the firm
profit contribution
is generated for each district
the profitability calculations for the region include district selling expenses, region direct selling expenses that have not been allocated to the districts and an allocated portion of shared zone costs
this produces a new profit figure for a profitability evaluation of the region
profitability analysis: activity based costing (ABC)
-allocates costs to individual units on the basis of how the units actually expend or cause these costs
-cost are accumulated and then allocated to the units by the appropriate drivers, factors that drive costs up or down
-places greater emphasis on more accurately defining unit profitability by tracing activities and their associated costs directly to a specific unit- identified which customers could be served just as well by phone, saving both reps and the company time and money
-helps foster an understanding of resource expenditures, how customer value is created and where money is being made or lost
profitability analysis: return on assets managed analysis (ROAM)
-calculations provide an assessment of profitability and useful diagnostic information
– is determined by both profit contribution percentage and asset turnover
ROAM= profit contribution as a percentage of sales X asset turnover rates
= (Profit contribution/sales) X (sales/assets managed)
ROAM example
this example illustrates calculations for sales districts within a region
-notice that district 1 ans district 2 produce the same ROAM but achieve their results in different ways. District 1 generates a relatively high profit contribution percentage, whereas District 2 operates with relatively high asset turnover.
– Both District 3 and 4 are achieving poor levels of ROAM but for different reasons. District 3 has an acceptable profit contribution % but very low asset turnover ratio. this low asset turnover ratio is the result of both inventory accumulations or problems in payments from accounts. District 4 has an acceptable asset turnover ratio but low profit contribution %, this low profit contribution % may be a result of selling low marking products, negotiating low selling prices or accruing excessive selling expenses
productivity analysis
-compares profits and asset investments
-expressed in terms of ratio of inputs and outputs
-productivity improvements are obtained in one of two basic ways
1. increasing output with the same level of input
2. maintaining the same level of output but using less input
benchmarking
is an ongoing measurement and analysis process that compares an organization’s current operating practices with the best practices used by world class organizations
benchmarking process 1.plan
-identify what to benchmark
-identify comparative companies or salesforces
benchmarking process 2. gather data
-determine data collection method and collect data
benchmarking process 3. analyze and communicate
-determine current performance gap
-project future performance levels
-communicate benchmark findings and gain acceptance
benchmarking process 4. implement and control to improve performance
-establish functional goals
-develop action plans
-implement specific action plans and monitor progress
-re calibrate benchmark
six sigma
-data driven methodology that attempts to eliminate defects in any process
-3.4 mistakes per million opportunities
– improve processes by reducing variation
-credited with saving large companies hundreds of millions of dollars
the steps of six sigma
1. define
2. measure
3. analyze
4. improve
5. control
ethical issues – right/ wrong
A salesperson has been on the road for a week and incurs laundry expenses. He knows that if he places the laundry expenses under the miscellaneous expense category in his expense report, he will have to provide receipts. He decides that he can include them under the meals category because receipts are not required for this category as long as he stays under his per-diem allowance.
ethical issues- right/wrong
A salesperson is trying to get the customer to purchase a new product. He decides to take three individuals from the customer’s firm to dinner and a basketball game, even though he knows that he has exceeded his entertainment budget for the month. He thinks about hiding these entertainment expenses in different categories in his expense report.
purpose of salesperson performance evaluations
1. to ensure that compensation and other reward disbursements are consistent with actual salesperson performance
2. to identify salespeople that might be promoted
3. to identify salespeople whose employment should be terminated and to supply evidence to support the need for termination
4. to determine the specific training and counseling needs of individual salespeople and the overall sales force
5. to provide information for effective human resource planning
purpose of salesperson performance evaluations
6. to identify criteria that can be used to recruit and select salespeople in the future
7. to advise salespeople of work expectations
8. to motivate salespeople
9. to help salespeople set career goals
10. to relate salesperson performance to sales organization goals
purpose of salesperson performance evaluations
11. to enhance communications btw salesperson and sales manager
12. to improve salesperson performance
performance evaluation example
-for determining compensation and special rewards should emphasize activities and results related to the salespersons current job and situation
-for the purpose of identifying salespeople for promotion into sales management positions should focus on criteria related to potential effectiveness as a sales manager and not just current performance as a salesperson
-to be effective sales performance reviews should also be action oriented and tied to real time selling activities
sales person evaluation approaches 1.
1. most sales organizations evaluate salesperson performance annually, although many firms conduct evaluations semiannually or quarterly
– Recently there has been a growing trend toward the use of more frequent performance reviews and even continuous reviews that flow out of the coaching and feedback relationship btw sales manager and salesperson
sales person evaluation approaches 2.
most sales organizations use combinations of input and output criteria that are evaluated by quantitative and qualitative measures.
-However emphasis seems to be placed on outputs with evaluation of sales volume results the most popular
sales person evaluation approaches 3.
sales organizations that set performance standards or quotas tend to enlist the aid of sales people in establishing these objectives.
-the degree to which salesperson input and involvement does, however appear to vary across firms
sales person evaluation approach 4.
many sales organizations assign weights to different performance objectives and incorporate territory data when establishing these objectives
sales person evaluation approach 5.
most firms use more than one source of information in evaluating salesperson performance; client and peer feedback are some of the common sources of information
sales person evaluation approach 6.
most salesperson performance evaluations are conducted by the field sales manager who supervises the sales person
-however some firms involve the manager above the field sales manager in the salesperson performance appraisal
sales person evaluation approach 7,
most sales organizations provide sales people with a written copy of their performance review and have sales managers discuss the performance evaluation with each salesperson
-these discussions typically take place in an office, although sometimes they are conducted in the field
salesperson performance evaluation approaches
1. evaluate on an annual basis
2. combine input and output criteria which are evaluated using quantifiable and qualitative measures
3. when used, performance standards or quotas are set in collaboration with salespeople
4. assign weights to different objectives and incorporate territory data
5. use multiple sources of information
6. conducted by the field sales manager who supervises the salesperson
7. provide written copy of the review and personal discussion
360-degree feedback system
-salesperson is evaluated by multiple raters including sales managers, internal and external customers, team members and even salespeople themselves
-helps salespeople better understand their ability to add value to their organization and their customers
-understnad customer needs, detect bariers to success, asses developmental needs, create job involvement, reduce assesment bias, and improve performance
-tend to make employees feel valued and stay at the company longer
keys to effective 360 degree feedback system 1.
1. ensure that participants willingly provide honest feedback by distributing the feedback instrument confidently, aggregating responses by rating source, having rating forms sent directly to the person or group organizing the data and including feedback from at least three respondents in each rater group
(ex; co-workers, customers, team members)
allow participants some input in selecting raters
keys to effective 360 degree feedback system 2.
2. explain to all participants how data will be used
keys to effective 360 degree feedback system 3.
3. ensure that the data sources remain confidential so those being rated do not know specifically who did the rating
keys to effective 360 degree feedback system 4.
4. verify the data are accurate. the assessment tools used to gather the data should be reliable and valid
keys to effective 360 degree feedback system 5.
5. ensure that subjects can use the data to improve their performance. present the feedback from the different groups (perspectives), it should be in a format that is easy to use and interpret. compare feedback from others with ones own perceptions. feedback should be linked to development tools and processes
keys to effective 360 degree feedback system 6.
6. determine how the system will affect the organization overall and systematically evaluate its effectiveness
keys to effective 360 degree feedback system 7.
7. do not rely exclusively on 360 degree feedback. timely feedback concerning day to day performance is important
performance management
-another evaluation approach that moves away from the traditional top down appraisal
-this approach involves sales managers and salespeople working together on setting goals, giving feedback, reviewing and rewarding
-with this system sales people create their own development plans and assume responsibility for their careers
– the sales manager acts as a partner in the process providing feedback that is timely, specific, regular, solicited and focused on what is within the sales persons control to change
-ultimately focuses on improving salesperson performance by finding new and better ways to satisfy customers
stage one of performance management
the sales manager ans salesperson discuss the salespersons evaluation which is based on feedback from multiple sources such as the manager, customers, team members and the sales people
-this discussion should include activities and performance across the entire period and not focus on the most recent item that was very successful or a failure
stage two of performance management
the sales manager rates the salesperson according to predetermined criteria or standards of performance in order to determine whether the salesperson is above or below expectations
stage three of performance management
the salespersons performance is reviewed relative to his or her previous performance evaluation to ascertain accomplishments in performance and areas that need improvement
-include both the good and bad
the final state of performance management
focuses on improving the system and the salespersons development of future performance
-during this stage the sales manager and sales person work together to specify resources, structure, and training needed for performance improvements
-mutual agreements is reached regarding objectives, degree and type of improvement and the action plan
-the action plan lays out a road map to improvement and lets the salesperson know exactly what he or she needs to do to measure up and provides a way to develop needed skills through coaching, seminars, and other means
key issues in evaluating and controlling salesperson performance
outcome-based
behavior-based
outcome based
focuses on objective measures of results with little monitor or directing of salesperson behavior by sales managers
perspective: little monitoring of people
little managerial direction of salespeople
straightforward objectives measures of results
behavioral based
incorporates complex and often subjective assessments of salesperson characteristics and behaviors with considerable monitoring and directing of salesperson behavior by sales managers
-perspective: considerable monitoring of salespeople
:high levels of managerial direction of salespeople
:subjective measures of salesperson characteristics, activities, and strategies
behavior based versus outcome based implications
– the more professionally competent, team oriented, risk averse, planning oriented, sales-support oriented, and customer oriented sales people will be
– the more intrinsically and recognition- motivated salespeople will be
-the more committed to sales organization will be
-the more likely salespeople will be to accept authority, participate in decision making and welcome management performance reviews
– the lower need for using pay as a control mechanism
-the more innovative and supportive the culture is likely to be
-the more inclined salespeople are to sell smarter rather than harder
dimensions of salesperson performance evaluation
-behavioral and-professional development (behavioral based)
-results and-profitability (outcome based)
criteria for performance evaluation- behavior
-consists of criteria related to activities performed by individual salespeople emphazing what each sales person actually does including
-sales calls
– customer complaints
– required reports submitted
– training meetings
– letters and calls
-should not only address activities related to short term sales generation but should also include nonselling activities needed to ensure long term customer satisfaction and provide necessary information to the sales organization
criteria for performance evaluation- professional development
assess improvements in certain characteristics of salespeople that are related to successful performance in the sales job
-ex: if product knowledge is critical in a particular selling situation then evaluations of the product knowledge of individual salespeople over various periods should be conducted
-many sales organizations incorporate multiple criteria into their salesperson evaluations- bc sales people have control over the development of personal characteristics related to success in their selling situation
-introduce long term perspective into the process
example of professional development criteria
-communication skills
-product knowledge
-attitude
-selling skills
-initiative and aggressiveness
-appearance and manner
-knowledge of competition
-team player
-enthusiasm
-time management
-judgement
-cooperation
-motivation
criteria for performance evaluation- results
-salespeople measured objectively based on results such as
– sales, market share, and accounts
-a sales quota represents a reasonable sales objective for a territory, district, region or zone
-some research shows that rewards for achieving results have a negative effect on performance and satisfaction
-the only way to address potential problems is to compare actual results with standards that reflect the unique territory situation faced by each salesperson
problems with using results criteria
is that the overall results measure do not reflect the territory situations faced by individual salespeople
– the sales person with the highest level of sales may have the best territory and may not necessarily be the best performer in generating sales
sales quota
represents a reasonable sales objective for territory, district, region, or zone
elements important in assigning sales quotas
-concentration of businesses within the territory
-commitment by the sales manager to assist the sales representative
-growth of businesses within the territory
– complexity of products sold
elements important in assigning sales quotas
-sales representatives’s past sales performance
-extent of product line
-financial support (compensation) a firm provides
-relationship of product line
-amount of clerical support
criteria for performance evaluation: profitability
-salespeople have an impact on gross profit through the specific products they sell and or through the prices they negotiate for final sale
-salespeople affect net profits by the expenses they incur in generating sales- travel and entertainment expenses
-criteria examples
-net profit dollars
– gross margin per sale
– return on investment
– number of orders secured
– selling expenses versus budget
performance evaluation methods- characteristics any method should inlcude
-job relatedness
-reliability
-validity
-standardization
-practicality
-comparability
-discriminability
– usefulness
job relatedness
the performance evaluation method should be designed to meet the needs of each specific sales organization
reliability
the measures should be stable over time and exhibit internal consistency
validity
the measure should provide accurate assessments of the criteria they are intended to measure
standardization
the measurement of instruments and evaluation process should be similar throughout the sales organization
practicality
sales managers and salespeople should understand the entire performance appraisal process and should be able to implement it in a reasonable amount of time
comparability
the results of the performance evaluation process should make it possible to compare the performance of individual salespeople directly
discriminability
the evaluative methods must be capable of detecting differences in the performance of individual salespeople
usefulness
the information provided by the performance evaluation must be valuable to sales managers in making various decisions
performance evaluation method: graphic rating/checklist methods
-salespeople are evaluated using some type of performance evaluation form
-contains the criteria to be used in the evaluation as well as some means to provide assessment of how well each salesperson performed on each criterion
-especially useful in evaluating behavioral and professional development criteria
-posses many desirable characteristics, especially in terms of job relatedness, standardization, practicallity and comparability
-may be filled out by customers
-disadvantage is providing evaluations that discriminate sufficiently among the performance of individual salespeople or among the performances on different criteria for the same salesperson
-subject to halo effect meaning that their evaluations on one criterion affect their rating on other
performance evaluation method: graphic rating/checklist methods example
1. ask customers for their ideas for promoting business 1-5 rating
2 offers customers help in solving their problems
3. is constantly smiling when interacting with customers
4. admits when she/he doesnt know the answer but promises to find out
5. generates new ways of tackling new or ongoing problems
6. returns customer calls the same day
performance evaluation method: ranking method
-rank all salespeople according to relative performance on each performance criterion rather than evaluating them against a set of performance criteria
-provide a standardization approach to evaluation and thus these methods force discrimination as to the performance of individual sales people
-may be complex
-ranking only reveals relative performance evaluation
– ranking one salesperson against another
performance evaluation method: objective setting methods
-management by objective (MBO)
-most common and comprehensive goal setting method
– mutual setting of well- defined and measurable goals within a specific time period
– managing activities within the specific time period toward the accomplishment of the stated sales objectives
– appraisal of performance against objectives
performance evaluation methods: behaviorally anchored rating scales (BARS)
-links behaviors to specific results
-is an iterative process that actively incorporates members of the salesforce
-salespeople are used to develop performance results and critical behaviors
-positive feedback about behaviors may be more affective than positive output feedback
example of BARS rating sale
-the performance result in this example is achieving cooperative relation with sales team members
-seven behaviors have been assigned numbers on a 10 point rating scale to reflect the linkages btw engaging in the behavior and achieving the result.
-this scale can then be used to evaluate individual salespeople
– for instance the example rating 5.0 suggests that the salesperson occasionally supports the sales team on problems encountered in the field and thus achieves only a moderate amount of cooperation with sales team members
comparison of performance evaluation methods
evaluation criteria
performance evaluation method
performance evaluation bias
-occurs when a manager evaluation of a salesperson is affected by considerations other than the specified criteria
-common sources of bias:
– personal relationship
– perceived difficulty of territory
– outcomes (ends justify the means)
outcome bias
occurs when the outcome of a decision rather than the appropriateness of the decision influences an evaluators rankings
-when managers rate the quality of a salespersons decision, outcome information (sales person did or did not make sale) often influences their ratings across all criteria when the decision is perceived to have been inappropriate
-using BARS helps to reduce bias
evaluating team performance
-consider the criteria on which members will be evaluated and the methods used to evaluate performance
-establish a link btw team performance and positive outcomes to promote individual and team effort
-may be beneficial to allow team to help drop goals and evaluation criteria
comparison of performance evaluation methods- steps for measuring team performance
1. develop team and individual performance standards and measures that will be used to gauge the level of performance achieved
2. map the standards and measurements to relevant individual and team level activities that will contribute to achievement of the team
3. define the terminology precisely and review the criteria with team members to ensure both awareness and understanding
comparison of performance evaluation methods- steps for measuring team performance
4. integrate inputs from management and team members to develop relative importance weights for the performance standards
5. decide how to collect the data and track performance for each standard and feed this information back to the team
6. take action based on the evaluations in order to recognize and reward appropriately
framework for using performance information
-evaluate salespeople against relevant performance criteria
– comparable salesperson evaluations to identify problem area
-investigate problem areas to identify causes of performance problems
-determine sales management actions to eliminate causes of future problems and to solve existing problems
salesperson job satisfaction
-job satisfaction related to turnover, absenteeism, motivation, and organizational commitment
– job satisfaction may be related to performance (direction of relationship is unknown)
-INDSALES may be used to measure job satisfaction
-results may identify areas where managers may intervene to improve job staisfaction