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Part VPart V
SALES FORCE SALES FORCE LEADERSHIPLEADERSHIP
Part VPart V
SALES FORCE SALES FORCE LEADERSHIPLEADERSHIP
Chapter 13:Chapter 13:
Evaluating PerformanceEvaluating PerformanceChapter 13:Chapter 13:
Evaluating PerformanceEvaluating Performance
Why Evaluate Why Evaluate Salespeople?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.
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 ModelA Sales Force Evaluation Model
Take Corrective ActionMeasure results against
standard
Set product performance standards for:Organization SalespeopleRegions AccountsDistricts
Design sales plan
Set goals and objectives forsales force, including:
RevenuesContribution profitsMarket shareExpense ratios
Table 13-1 Output Measures Used in Sales Force Evaluation
Sales Profit
Sales volume dollars Net profit
Sales volume previous year’s growth Gross margin percentage
Sales to quota Return on investment
Sales growth Net profit as a percentage of sales
Sales volume by product Gross margin dollars
Sales volume by customer Margin by product category
New account sales Accounts
Sales volume in units Number of new accounts
Sales volume to potential (market share) Number of accounts lost
Orders Number of accounts sold
Number of orders Number of accounts buying full line
Average order size
Batting average (orders/calls)
Output Measures Used in Sales Output Measures Used in Sales Force EvaluationForce Evaluation
Output Measures Used in Sales Output Measures Used in Sales Force EvaluationForce Evaluation
Performance MeasurePercentUsing Performance Measure
PercentUsing
SalesSales volume dollarsSales volume previous year’s salesSales to quotaSales growthSales volume by productSales volume by customerNew account salesSales volume in unitsSales volume to potential
AccountsNumber of new accountsNumber of accounts lostNumber of accounts buying full line
79%7665554844423527
693327
ProfitNet profitGross margin percentageReturn on investmentNet profit as a percentage of salesMargin by product categoryGross margin dollars
OrdersNumber of ordersAverage size of order
69%3433322825
4722
Table 13-2 Input or Behavior Measures Used in Sales Force Evaluation
Expenses Effort
Total expenses Number of calls
Selling expenses to budget Number of calls per day
Selling expenses as a percentage of sales Number of calls to quota
Nonselling Activities Number of days worked
Advertising displays set up Number of reports turned in
Number of service calls Number of prospecting phone calls
Number of customer complaints Selling time vs. non-selling time
Input or Behavior Bases Used in Input or Behavior Bases Used in Sales Force EvaluationSales Force Evaluation
Input or Behavior Bases Used in Input or Behavior Bases Used in Sales Force EvaluationSales Force Evaluation
BasePercentUsing Base
PercentUsing
Selling expenses to budget
Total expenses
Selling expenses as a % of sales
Number of calls
55%
53
49
48
Number of calls per day
Number of reports turned in
Number of days worked
Selling time vs. nonselling time
42%
38
33
27
Qualitative Bases Used in Sales Qualitative Bases Used in Sales Force EvaluationForce Evaluation
Table 13-7 Qualitative Bases Used in Sales Force Evaluation
Attitudinal and Personality Factors Time management
Attitude Ability to plan
Enthusiasm Appearance and manner
Cooperation Knowledge
Creativity and resourcefulness Product knowledge
Initiative and aggressiveness Pricing knowledge
Motivation Knowledge of competition
Selling Skills Ethical and moral behavior
Communication Skills Team player
Qualitative Bases Used in Sales Qualitative Bases Used in Sales Force EvaluationForce Evaluation
BasePercentUsing Performance Measure
PercentUsing
Communication skills
Product knowledge
Attitude
Selling skills
Initiative and aggressiveness
Appearance and manner
Knowledge of competition
Team player
Enthusiasm
88%
85
82
79
76
75
71
67
66
Time management
Cooperation
Judgment
Motivation
Ethical/Moral behavior
Planning ability
Pricing knowledge
Report preparation and submission
Creativity
63%
62
62
61
59
58
55
54
54
1 2 3 4 Company Percentage Industry Company
Volume Change from Volume Market ShareYear ($ millions) Previous Year ($ millions) (percent)
2008 26 + 8.3 300 8.62007 24 +14.3 219 10.92006 21 +23.5 165 15.72005 17 --- 125 13.6
Sales Data for Bear ComputerSales Data for Bear Computer
Comparing Dollar and Unit Comparing Dollar and Unit Sales at the Bear Computer Sales at the Bear Computer CompanyCompany
Products
Thousands of Dollars
Units
Avg Price Per Unit
Thousands Of Dollars
Units
Avg Price Per Unit
Computers
Accessories
Software
$16,800
4,800
2,400
560
4,000
1,200
$30,000
1,200
2,000
$18,200
5,200
2,600
520
4,727
1,280
$35,000
1,100
2,031
Total $24,000 5,760 $26,000 6,527
----------2007 Sales--------------------2007 Sales---------- ----------2008 Sales--------------------2008 Sales----------
Expense Analysis by Product Expense Analysis by Product Line, Line, Bear Computer Company, 2008Bear Computer Company, 2008
Products
2008 Sales
(000)
CGS and Commission
$
CGS as a Percentage
Of Sales
Contribution
Margin
Contribution Margin
Percentage
Computers
Accessories
Software
$18,200
5,200
2,600
$12,740
3,120
520
70
60
20
$5,460
2,080
2,080
30
40
80
Total $26,000 $16,380 63% $9,620 37%
What costs are relevant?
Net SalesNet Sales
Less Variable Costs: Less Variable Costs: Cost of Goods SoldCost of Goods Sold
Sales CommissionsSales Commissions
Equals: Equals: Contribution MarginContribution Margin
Less: Less: Direct Fixed Selling Direct Fixed Selling CostsCosts
Equals:Equals: Profit ContributionProfit Contribution
What costs are relevant?
Net SalesNet Sales
Less Variable Costs: Less Variable Costs: Cost of Goods SoldCost of Goods Sold
Sales CommissionsSales Commissions
Equals: Equals: Contribution MarginContribution Margin
Less: Less: Direct Fixed Selling Direct Fixed Selling CostsCosts
Equals:Equals: Profit ContributionProfit Contribution
Evaluating Sales Force Evaluating Sales Force Performance: Cost AnalysisPerformance: Cost Analysis
CGS + CommissionsCGS + Commissions higher forhigher for computerscomputers– paying too much for partspaying too much for parts– competition has driven down selling pricescompetition has driven down selling prices– salespeople cutting computer prices to make deals -- salespeople cutting computer prices to make deals --
possible actions:possible actions: limit price negotiation capabilitieslimit price negotiation capabilities shift to a gross margin commissionshift to a gross margin commission change commission structure to emphasize change commission structure to emphasize
accessories and softwareaccessories and software
CGS + CommissionsCGS + Commissions higher forhigher for computerscomputers– paying too much for partspaying too much for parts– competition has driven down selling pricescompetition has driven down selling prices– salespeople cutting computer prices to make deals -- salespeople cutting computer prices to make deals --
possible actions:possible actions: limit price negotiation capabilitieslimit price negotiation capabilities shift to a gross margin commissionshift to a gross margin commission change commission structure to emphasize change commission structure to emphasize
accessories and softwareaccessories and software
Evaluating Sales Force Evaluating Sales Force Performance: Product Costs Performance: Product Costs
A Model of Salesperson A Model of Salesperson EvaluationEvaluation
Input-based System Input-based System
ResultsResultsSales revenuesSales growthSales/quotaSales/potentialNew accountsContribution marginsContribution
percentage
Output-based System Output-based System
SalespersonSalespersonEvaluationEvaluation
BehaviorBehaviorCallsReportsComplaintsDemonstrationsDealer meetingsDisplay set upTravel/entertainment
expenses
Measuring Sales Force Output Measuring Sales Force Output for Bear Computer Companyfor Bear Computer Company
Measuring Territory Profit Measuring Territory Profit Output for Bear Computer Output for Bear Computer CompanyCompany
Territory Performance (thousands)
Jones Smith Brown WestNet Sales $825 $570 $1,100 $1,000
Less CGS and Commissions 495 428 744 660
Contribution margin 330 142 356 340
CM as a percentage of sales 40% 25% 32% 34%
Less direct selling costs
Sales force salaries 55 35 55 65
Travel 15.5 4.1 3.5 5
Food and lodging 12.5 4 3.2 4.5
Entertainment 11.4 0.3 0.5 1
Home sales office expense 4.5 2.3 2 4.5
Profit contribution $231.10 $96.30 $291.80 $260.00
PC as a percentage of sales 28% 17% 26% 26%
Ranking Salespeople on 10 Ranking Salespeople on 10 Input/Output FactorsInput/Output Factors
Ranking Factors Ford Bell Shaw Mann Gold
Dollar Sales 1 2 3 4 5
Sales to Potential 5 3 4 2 1
Sales to Quota 5 4 2 1 3
Sales per Order 5 1 4 3 2
Number of Calls 2 5 1 3 4
Orders per call 4 2 5 3 1
Gross Margin Percent 5 1 3 4 2
Direct Selling Costs 4 3 5 1 2
New Accounts 1 4 2 5 3
Number of Reports Turned In 4 3 1 5 2
Total of Ranks 36 28 30 31 25
Ranking Salespeople on 10 Ranking Salespeople on 10 Input/Output FactorsInput/Output Factors
Performance factors Pete Jones Ann Smith
Sales (annual) $1,400,000 $1,100,000
Days worked 210 225
Calls 1,200 1,500
Orders 480 750
Expenses $19,000 $14,900
Calls per day 5.7 6.7
Batting average (orders per calls) 40% 50%
Sales per order $2,916 $1,466
Expenses per call $15.83 $9.93
Expenses per order $39.58 $19.86
Expenses as % of sales 1.35% 1.35%
Ranking Salespeople on Ranking Salespeople on 10 Input/Output Factors10 Input/Output Factors
3.87
3.66
3.44
3.23
3.02
2.80
2.59
2.38
2.16
1.95
1.74
1.53
1.31
1.10
Millions$
Contribution Margin (%)Contribution Margin (%)
34.8 35.1 36.0 36.6 37.2 37.8 38.7
SSAALLEESS YYR R 22
Avg Sales $3.17
Avg contribution $1.13
Avg contribution % 35.8
Age 45
Calls 1122
Number of salespeople 18
COMPROMISERSCOMPROMISERS
Avg Sales 2.91
Avg contribution 1.09
Avg contribution % 37.4
Age 37
Calls 888
Number of salespeople 11
STARSSTARS
Avg Sales 1.78
Avg contribution 0.64
Avg contribution % 35.8
Age 44
Calls 958
Number of salespeople 11
LAGGARDSLAGGARDS
Avg Sales 2.03
Avg contribution 0.75
Avg contribution % 37.1
Age 35
Calls 921
Number of salespeople 16
SLOWPOKESSLOWPOKES
Relative Performance EfficiencyRelative Performance Efficiencyfor Sales Rep 22for Sales Rep 22
Variable Type Variable nameValue
MeasuredValue of 100%
Efficient Slack
Output Percent Quota Attained (%) 100 120 20
Output Supervisor Evaluation 5 5 0
Output Sales Volume ($) 45,000 50,500 5,500
Input Sales Training 5 5 0
Input Salary ($) 20,000 18,000 2,000
Input Management Ratio 3 2 1
Input Territory Potential ($) 60,500 50,000 10,500
Reference Set Efficiency=0.85
Influence Iterations=10
Salesperson 7 0.49
Salesperson 20 0.43
Salesperson 45 0.08
Conditions when Outcome Conditions when Outcome versus Behavioral Systems are versus Behavioral Systems are preferredpreferred
Outcome Outcome Systems(OS)Systems(OS)
• Customers Customers need informationinformation
• Customers trust Customers trust the salespersonthe salesperson
• There are ways to There are ways to close the dealclose the deal
• Sales environment Sales environment is competitiveis competitive
Outcome Outcome Systems(OS)Systems(OS)
• Customers Customers need informationinformation
• Customers trust Customers trust the salespersonthe salesperson
• There are ways to There are ways to close the dealclose the deal
• Sales environment Sales environment is competitiveis competitive
Behavioral Behavioral System(BS)System(BS)
• Salespeople lack Salespeople lack experienceexperience
• No need to protect No need to protect the brand imagethe brand image
• Nonselling Nonselling behaviors are a behaviors are a prioritypriority
• Difficult to assign Difficult to assign sales creditsales credit
Behavioral Behavioral System(BS)System(BS)
• Salespeople lack Salespeople lack experienceexperience
• No need to protect No need to protect the brand imagethe brand image
• Nonselling Nonselling behaviors are a behaviors are a prioritypriority
• Difficult to assign Difficult to assign sales creditsales credit
The additional slides below are not covered in IM
Sales to Account = Sales to Account = Dollar Sales Dollar Sales
# Accounts# Accounts
Average Order Size = Average Order Size = Dollar Sales Dollar Sales
# Orders# Orders
Growth Ratio = Growth Ratio = # New Accounts# New Accounts
Total # AccountsTotal # Accounts
Account Success = Account Success = Accounts Sold Accounts Sold
Total # AccountsTotal # Accounts
Sales to Account = Sales to Account = Dollar Sales Dollar Sales
# Accounts# Accounts
Average Order Size = Average Order Size = Dollar Sales Dollar Sales
# Orders# Orders
Growth Ratio = Growth Ratio = # New Accounts# New Accounts
Total # AccountsTotal # Accounts
Account Success = Account Success = Accounts Sold Accounts Sold
Total # AccountsTotal # Accounts
Call Productivity RatiosCall Productivity Ratios
Expense to SalesExpense to Sales = = ExpensesExpenses
SalesSales
Cost per Call =Cost per Call = Total CostsTotal Costs
# of # of CallsCalls
Expense to SalesExpense to Sales = = ExpensesExpenses
SalesSales
Cost per Call =Cost per Call = Total CostsTotal Costs
# of # of CallsCalls
Expense RatiosExpense Ratios
Sales to Account = Sales to Account = Dollar Sales Dollar Sales
# Accounts# Accounts
Average Order Size = Average Order Size = Dollar Sales Dollar Sales
# Orders# Orders
Growth Ratio = Growth Ratio = # New Accounts# New Accounts
Total # AccountsTotal # Accounts
Account Success = Account Success = Accounts Sold Accounts Sold
Total # AccountsTotal # Accounts
Sales to Account = Sales to Account = Dollar Sales Dollar Sales
# Accounts# Accounts
Average Order Size = Average Order Size = Dollar Sales Dollar Sales
# Orders# Orders
Growth Ratio = Growth Ratio = # New Accounts# New Accounts
Total # AccountsTotal # Accounts
Account Success = Account Success = Accounts Sold Accounts Sold
Total # AccountsTotal # Accounts
Account Related RatiosAccount Related Ratios
Widely used, simple to use, easy to understandWidely used, simple to use, easy to understand Add ranks for overall performance measureAdd ranks for overall performance measure Alternatives to sales/salespersonAlternatives 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 criterionVariation -- weight importance of each criterion
Widely used, simple to use, easy to understandWidely used, simple to use, easy to understand Add ranks for overall performance measureAdd ranks for overall performance measure Alternatives to sales/salespersonAlternatives 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 criterionVariation -- weight importance of each criterion
Models Combining Input & Models Combining Input & Output Controls: Ranking Output Controls: Ranking ProceduresProcedures
Cost AnalysisCost Analysis
CostCost By TerritoryBy Territory By ProductBy Product
P-O-P Display Direct Direct
Salesperson Salary Direct Indirect
Product Manager Salary Indirect Direct
VP Operations Salary Indirect Indirect
Object affects direct vs. indirect cost classification:Object affects direct vs. indirect cost classification: Object affects direct vs. indirect cost classification:Object affects direct vs. indirect cost classification:
Usually decline with revenueUsually decline with revenue
Help identify best accountsHelp identify best accounts
Downsizing & ProfitsDownsizing & Profits
Consider using DEA (Programming)Consider using DEA (Programming)
Usually decline with revenueUsually decline with revenue
Help identify best accountsHelp identify best accounts
Downsizing & ProfitsDownsizing & Profits
Consider using DEA (Programming)Consider using DEA (Programming)
Evaluating Sales Force Evaluating Sales Force Performance: Account Cost to Performance: Account Cost to ServeServe
Total Cost to Serve Account
Cost to Serve = Revenue from Account
Salesperson owned carSalesperson owned car ( (per mile travel per mile travel allowance)allowance)– Salesperson gets car preferenceSalesperson gets car preference– Allowances rarely cover full salesperson car Allowances rarely cover full salesperson car
costscosts Company owned & managed carsCompany owned & managed cars
– Ties up a lot of cashTies up a lot of cash– Costs less than salesperson owned carCosts less than salesperson owned car
Leased sales fleet of carsLeased sales fleet of cars– Frees up cashFrees up cash– Company performs routine maintenanceCompany performs routine maintenance
Salesperson owned carSalesperson owned car ( (per mile travel per mile travel allowance)allowance)– Salesperson gets car preferenceSalesperson gets car preference– Allowances rarely cover full salesperson car Allowances rarely cover full salesperson car
costscosts Company owned & managed carsCompany owned & managed cars
– Ties up a lot of cashTies up a lot of cash– Costs less than salesperson owned carCosts less than salesperson owned car
Leased sales fleet of carsLeased sales fleet of cars– Frees up cashFrees up cash– Company performs routine maintenanceCompany performs routine maintenance
Evaluating Sales Force Evaluating Sales Force Performance: Performance: Fleet Car Management -- A Fleet Car Management -- A MotivatorMotivator
Four Factor ModelFour Factor Model
– How can sales be increased?How can sales be increased?– Optimum number of sales calls to maximize profits?Optimum number of sales calls to maximize profits?– Who is doing better? Ann or Pete?Who is doing better? Ann or Pete?– What management strategies for Pete? for Ann?What management strategies for Pete? for Ann?
Four Factor ModelFour Factor Model
– How can sales be increased?How can sales be increased?– Optimum number of sales calls to maximize profits?Optimum number of sales calls to maximize profits?– Who is doing better? Ann or Pete?Who is doing better? Ann or Pete?– What management strategies for Pete? for Ann?What management strategies for Pete? for Ann?
Models CombiningModels CombiningInput and Output ControlsInput and Output Controls
Calls Orders Sales $$ Sales = Days worked x
Days Worked Calls Orders
$ Sales = Days worked x Call Rate
BattingAverage
AverageOrder Size