Sales Organization Concepts Sales Organization Concepts Salesforce Specialization GENERALISTS All...

Sales Organization ConceptsSales Organization ConceptsSalesforce Specialization

GENERALISTSGENERALISTSAll selling activitiesand all products to

all customers

SPECIALISTSSPECIALISTSCertain selling activities

for certain productsfor certain customers

Some specializationof selling activities,products, and/or

customers

Sales Organization ConceptsSales Organization ConceptsCentralization

Degree to which important decisions and tasks are

performed at higher levels in the management hierarchy

Span of Control vs Management LevelsSpan of Control vs Management Levels

Span of Control

Flat Sales Organization Managem

ent Levels

DistrictSales Manager





NationalSales Manager

Span of Control

Tall Sales Organization

Managem

ent Levels







RegionalSales Manager

RegionalSales Manager

NationalSales Manager

District

Line vs Staff PositionsLine vs Staff Positions

Sales Training Manager

Sales Training Manager

Salespeople

District Sales Manager

Regional Sales Manager

National Sales Manager

Selling SituationSelling Situation

• Consideration of Specialization– Empirical support for the notion that:

• A generalized salesforce should be used when selling effort is more important than selling skill

• A specialized salesforce should be used when selling skill is more important than selling effort

• Consideration of Environmental Characteristics, Task Characteristics, and Performance Objectives

• Consideration of Customer Needs and Product Complexity

Internal: Horizontal Structure

• Geography: States/Regions, Downtown/Suburban

• Product Type: Equipments, consumer products

• Customer Type: Industrial/Consumer, Hospitals/Schools, Wholesalers/Retailers

• Selling Function: Prospecting, presenting, servicing

Geographical Sales Organization

Eastern RegionalSales Manager

Sales Force Organization: Geographical

National SalesManager

Western RegionalSales Manager

Southern RegionalSales Manager

Southern District Southern District Sales ManagerSales Manager

Eastern District Eastern District Sales ManagerSales Manager

western District western District Sales ManagerSales Manager

Geographic Organization

• Simplest and most common form• Each salesperson handles all sales functions in

the territory.• Advantages:

– Cheaper: travel, management– One point of contact for customer

• Disadvantages:– No division/specialization of labor– Salespeople focus on products/customers

that benefits themselves.

Product Specialized Sales Force

Sales Force Organization: Product Specialists



Northeast District Northeast District Sales ManagerSales Manager


PrinterPrinterEquipmentEquipmentSalespersoSalesperso

nn

Server Server SalespersoSalesperso

nn

MinicomputMinicomputer er

SalespersonSalesperson

ProgrammabProgrammablele

CalculatorCalculatorSalespersonSalesperson

CopierCopierSalespersoSalesperso

nn

Large Large ComputerComputer

SalespersonSalesperson

Central District Central District Sales ManagerSales Manager

Product Orientation

• Used primarily by firms with large and diverse product lines, and firms with highly technical products.

• Advantages:– Familiarity with technology and applications– Can lead to closer coordination with production– Better control: can allocate across company lines.

• Disadvantages:– Duplication of effort higher selling costs– Need more coordination– Multiple contact people for customers

Customer Specialized Sales Force

Sales Force Organization: Customer Specialists



Northeast District Northeast District Sales ManagerSales Manager


SalespersonSalespersonFor For

Educational Educational InstitutionsInstitutions

Salesperson Salesperson for for

ManufacturersManufacturers

Salesperson Salesperson for Retail for Retail

CustomersCustomers

Salesperson Salesperson for for

Government Government AgenciesAgencies

Salesperson Salesperson for Bank for Bank

CustomersCustomers

Central District Central District Sales ManagerSales Manager

National AccountsManager

Manager ofExport Sales

Salesperson Salesperson for Wholesale for Wholesale

CustomersCustomers

Customer/Market Organization

• Advantages:– Better understanding of customers’ needs– Can be trained to sell to particular customers (e.g.

Hospitals vs. Schools)– Can gain insight into product applications, innovations,

new products– Managers can vary sales force size to market

• Disadvantages:– Higher selling expenses– Large customers can have multiple sales contacts

Functional Specialization

Sales Force Organization: Functional Specialists

DivisionMarketing Manager

SystemsManager

IndustrySales Manager

AdministrativeManager

System RepsSystem Reps(Technical Support)(Technical Support)

Account Account ExecutivesExecutives (Salespeople)(Salespeople)

MarketMarketAdministrativeAdministrative

(Training & Installation)(Training & Installation)

Selling Function Organization

• Acquiring new customers (development specialists) vs. maintaining and servicing existing customers

• Telemarketing: Inside/Outside Sales– Prospecting/Qualifying: turn leads over– Servicing problems quickly: hotlines– Seeking repeat sales: especially small &

remote customers– Quicker communication on noteworthy

developments– Feed-in via targeted advertising, direct mail,

toll-free lines, web pages

• Why do we need to motivate?

– Sales people often face rejection and frustration

– A good motivational program that taps the inner resources of salespeople can make the difference between getting the order and getting the brush-off

(Source: Hite and Johnston)

Maslow’s Hierarchy of Needs…

Fulfilled through:Self-development,

Managerial actions:Provide/offer advanced

training, assignments to special projects, more responsibility and

authority.

Fulfilled through: Status, recognition.Managerial actions: Recognize sales rep achievements

personally and publicly through title changes, commendation letters, promotions.

Fulfilled through: Affiliation, friendship, acceptance.Managerial actions: Use team selling, hold social functions, distribute

employee newsletters, hold sales meetings, mentoring.

Fulfilled through: Job security, safety, income security.Managerial actions: Provide safe work environment, set mutually agreed-upon

performance standards, communicate job performance expectations and consequences

of failure to perform.

Fulfilled through: Food, shelter, clothing, health care.Managerial actions: Provide/offer adequate income and good benefits package.

Safe

ty

need

s

Social

needs

Physiol

ogica

l

needs

Esteem

nee

ds

Self-a

ctual

izatio

n

needs

challenge.

Hertzberg’s Dual-Factor Theory

HYGIENE FACTORS MOTIVATION FACTORS

• pay

• company policies

• supervision conditions

• work

• recognition

• responsibility

• challenge

• growth opportunities

Career Stages• Exploration

– Primary concern is finding a suitable occupation– Underdeveloped skills and knowledge– Many drop out or are terminated

• Establishment– Primary concern is improving skills and performance– Lack of promotion may cause disengagement or quitting– New commitments make pay important– High expectancy for promotion and pay

• Maintenance– Primary concern is maintaining position, status, and performance– Have highest sales volumes and percentage of quota and pay promotion

• Disengagement– Primary concern is preparing for retirement and/or developing outside

interest

• What is the sales manager’s job when it comes to motivation?

– Keeping the salesperson's morale up in the face of adversities

– Helping salespeople motivate themselves to work at some level close to, if not at , potential

Types of Motivational Rewards

• Extrinsic

– Financial benefits

• Salary

• Commission

• Bonuses

• Stock options

• Fringe benefits

– Health insurance

– Life insurance

– Company car

• Intrinsic – Less tangible

(Psychological rewards)• Job security• Relationships with:

superiorsCo-

workers

customers• Challenging assignments• Recognition for special

achievements

Motivation

• Three elements affecting motivation can be found within the organizational environment

– The individual salesperson

– The sales job

– The organization environment

Motivation• The individual salesperson

– Unique needs of each individual salesperson

– Positive reinforcement

– Once financial security is met, appeal to other needs

– If time restraints make it impossible for the sales manager to learn and respond to the needs of each salesperson, then segment the sales force in clusters. Explain the job requirements and expectations

Motivation

• The individual salesperson

– Train the salespeople to be professionals– Provide the incentives necessary for salespeople to

want to do their best– Sales management should provide rewards that are:

• Simple• Immediate• Frequent• Related to the special act

– Sales management should be cognizant of the motivational value of personal visits, personal phone calls and letter, and small, intimate sales meetings

Motivation

• The sales job

– Sufficient product information– Communication– Help each salesperson set reasonable goals and

design plans to attain those goals, and provide feedback

– Positions should be challenging, have some authority, and provide some freedom

– Recognize the frequent adversities faced by the salesperson

– Prevent job dissatisfaction by providing a fair basic compensation plan, helpful and constructive supervision, acceptable fringe benefits, and job security

Motivation

• The organization environment

– Take an active role in developing the motivational processes

– Provide a participative environment

– Must communicate and maintain an open, constructive, and relaxed environment

– where trust, faith, and fairness are openly practiced

– Through formal and informal channels, communicate that the salespeople are mature, professional individuals involved in significant, meritorious work

– Communicate clearly the relationship between performance and recognition

Non-monetary Motivation• Once the desired level of income has been reached, salespeople

typically strive to satisfy such needs as status, prestige, recognition, the need to win, and opportunity to serve, and the respect and affection of management and peers

• Four important aspects that unsuccessful salespeople do not have:– Positive attitude– Personal goals– Time organization– Enthusiasm

• Three facets of non monetary motivation:– Recognition– Awards– Special communications

Non-monetary motivation• Recognition

– Recognize everyone

– Recognize publicly

– Record the recognition

– Involve top management

– Make it personal

– Don’t use negative recognition

– Put the winner in the center

Non-monetary motivation

• Award- is physical evidence that the receiver can take home and show friends, family, and peers

– Personal and fit the occasion

– Distinctive

– Show that the individual level of achievement is consistent with the organization’s goals

– Can be honorary job titles

Non-monetary motivation

• Special communications

– Newsletters

• Articles or news features about special efforts made

• Pictures of the top salespeople

• Spot for award recognition

– Individual letters/special telephone calls

Sale force compensation

• The compensation plan assumes at least two prerequisites:

– 1) the sales manager knows what the salespeople do

– 2) the sales manager has some behavioral priorities or objectives in which compensation plans can play a role

Factors Influencing Sales Force ExpensesFactors Influencing Sales Force Expenses

Communication

Expenses Gifts

Lodging

Meals

Office supplies

Transportation Entertainment

Characteristics of a Sound Expense PlanCharacteristics of a Sound Expense Plan

• No net gain or loss

• Equitable treatment

• No curtailment of beneficial activities

• Simple and economical

• Avoidance of disputes

Salesperson Expense Options

Method Reimbursement Advantages Disadvantages

Salespeople pay None Simple, no costs Reps may not spend

Unlimited All legitimate Flexible and fair, Encourages excessive

their own expenses enough on customers

payment plan business expenses allows for territory spending differences

Limited Specific amounts Limited and predictable Inflexible payment plan allowed expenses

Possibility for$80/day - lodging switching expenses

$45/day - food between categories$0.26/mile – transportation

Flat allowance $700 per week Limited and predictable Inflexible expenses

e.g.

Factors Influencing Automobile Ownership Decision: Factors Influencing Automobile Ownership Decision: Company Owned, Company Leased, or Salesperson Company Owned, Company Leased, or Salesperson

OwnedOwned

Maintenance Special design

Size of sales force

Operating

Control

Mileage

Investment

Administrative problems

Personal preference

Automobile Allowance PlansAutomobile Allowance Plans

Method Example

Flat amount Rs 4000 /month

Fixed mileage rate Rs 5.00/KM

Graduate mileage rate Rs4.00/KM, first 15,000 KMRs3.50/KM, second 15,000

KM

Combination flat and Rs 2500/month + Rs 2.50/KM

Other Methods of Expense ControlOther Methods of Expense Control

• Training and enforcement

• Credit cards

• Expense bank account

• Change in nature of entertainment

• Telemarketing

• Careful travel planning

Objectives of a Compensation Plan• Needs of the salespeople

– Equitable

– Stable

– Provide incentive

– Understandable

• Company needs

– Attract and retain desirable salespeople

– Encourage specific activities

– Reward outstanding performance

– Provide the optimum balance between costs and results

– Develop long-term relationships with customers

– Provide easy administration

How to Develop a Compensation Plan

• Major decision areas

– Gross level of compensation

– The compensation mix

– Measurement



– Gross level of compensation• Depends on:

1) The experience, education, and ability necessary to perform the job requirements successfully

2) The income level of comparable jobs within the company

3) The competitive market demand for comparable salespeople



– The compensation mix

• What is the balance between salary, commissions and bonuses

• A base salary will assure a minimum income level during a bad period for the sales rep



– Measurement• Should be tied directly to specific

organization objectives

• Salary is paid for performing activities not directly measured by sales

• Sales manger must be able to evaluate each salesperson’s performance

How to Develop a Compensation Plan• The process

– Evaluate the job description

– Establishing specific objectives

– Determine levels of compensation

– Develop the compensation mix

– Pretest the plan

– Administer the plan

– Evaluate the plan


• The process– Evaluate the job description

– Establishing specific objectives• Important to reinforce behavior that will help

the company and the salespeople achieve their objectives or needs

– Increased profitability– Improved cash flow– Lower selling costs– Increased gross sales

How to Develop a Compensation Plan• The process

– Determine levels of compensation

• Create job ranking and levels of compensation for each job

»Sales trainee»Salesperson»Senior salesperson

Should salespeople be able to make more then their sales mangers?

– Develop the compensation mix• What proportion of each salesperson's total

income should be earned through incentives?• Should the incentive schedule be regressive

or progressive

How to Develop a Compensation Plan• Progressive- used as a means

of increasing the salesperson's income

• Series of progressively larger commissions or bonuses as sales increase

• 5% commission for sales up to 110% of the quota


• 7% commission for sales over 120% of the quota

• Regressive- used as a means of limiting the salesperson's income

• Series of progressively smaller commissions or bonuses as sales increase



• 3% commission for sales over 120% of the quota

Types of Compensation Plans

• Straight salary

• Commission

• Bonuses

• Combinations

Types of Compensation Plans Straight salary- a fixed amount of money

for a given period of time

• Pros- –A greater sense of loyalty to the company is developed–The salesperson is assured a steady income–Greater flexibility–Greater control is maintained over the activities of the sales force–Simple to administer–A large part of the company’s sales costs are fixed, and thus known–May be easier to recruit when they can assure the applicants of a regular income–Salespeople on straight salary are more likely to operate in the best interests of the firm

Cons-– Does not offer financial

incentive– Can cause selling costs

to be out of line– The least productive

salespeople tend to be overpaid and the most productive underpaid

– Leads to “adequate” performance

Types of Compensation PlansStraight Commission- an amount of compensation that

varies with results, usually sales or profits• Pros-

– The income of salespeople is directly related to their performance

– A commission plan is easy both to compute and to understand

– Salespeople realize that their earnings are really limited only by themselves, by their abilities and desire to work

– There are little or no sales costs when there are no sales

– Large amounts of capital does not have to be tied up in salaries

• Cons-– Except in the rare case where

the base for commissions is profits, inordinate emphasis is placed on obtaining more sales rather than profitable sales

– Very little loyalty is generated toward the company

– Neglect non-selling activities– In good conditions, income may

be excessive– Tendency for salespeople to

overload customers with unneeded products

– Turnover increases when business turns bad

– Salespeople are less secure– Salespeople are less flexible to

change

Types of Compensation Plans

• Bonuses- a lump sum of money paid for some form of outstanding performance

• Pros-– Flexible (provide quick and positive behavior

reinforcement when needed)– Create motivation

• Cons-– May not be paid fast– People may ride on the laurels and efforts of other

group members• Not pull their weight

Possible Combination Compensation Plans

COMMISSION

BONUSSALARY

Types of Compensation Plans Combinations- includes all the variations of

salary, commission, and bonus plans

• Pros- – Can offer the advantages of

both the salary and the commission plans without the accompanying disadvantages

– Offers the greatest flexibility and tightest control over salespeople

– Provided security plus incentive

– Salespeople can be compensated for all those activities deemed important by management

• Cons-– Can be complex and

easily misunderstood– Can be expensive– If improperly

implemented can fail to meet the needs of salespeople and those of management

– Incentive portion may be too small to really motivate

Summary

• Each salesperson is different

• The needs of salespeople change over time

• Compensation is a critical factor in keeping salespeople motivated

• Financial and non-financial incentives plans must be kept current

Method Advantage Disadvantage Best Used

Straight salary

Provides security and stability for reps

Better for directing and controlling sales activities

Ensures proper treatment of customers

Direct incentive is easily lost if not administered properly

Represents a fixed cost

Requires supervision to direct, control, and evaluate

Difficult to direct and supervise sales people

Customers’ best interests may be ignored

Sales people’s earnings may fluctuate widely

Added cost

May be seen as inequitable if not administered properly

For products that require a lot of presale and/or post-sale service

For building long-term customer relationships

When supervision is available for new recruits

For new territories

For missionary salesStraight commission

Bonus

When a strong incentive is needed to attain sales

For products that require little presale and/or post-sale service

The sale is a one-time sale

Adequate field supervision is not available

Company is in a weak financial position

Company uses part-time or independent sales people

Provides a strong incentive

Sales people have more freedom

Acts as a screening method

Added incentive

Can be used for specific activities - flexible

To encourage above-normal performance of specific activities

Non-Guaranteed Plan

Month Draw Sales Commission Volume Earned End-of-Month Payment to Rep

January 1,800 40,000 4,000 2,200 (4,000 -$1,800 = 2,200)

February 1,800 15,000 1,500 0 (rep owes $300)

March 1,800 30,000 3,000 900 (computed as follows) Commission = 3,000

Less draw - 1,800

Less February debt - 300

Net 900

Guaranteed Plan

Month Draw Sales Commission Volume Earned End-of-Month Payment to Rep

January 1,800 40,000 4,000 2,200 (4,000 - 1,800 = 2,200)

February 1,800 15,000 1,500 0 (rep owes 0)

March 1,800 30,000 3,000 1,200 (3,000 - 1,800 = 1,200)

Drawing Account ExamplesDrawing Account Examples

Product Line: Equipment Clothing Total Equipment Clothing TotalTotal sales (000) $480 $720 $ 1,200 $220 $460 $ 680 Sporting goods stores 320 440 760 160 320 480 Ski shops 160 280 440 60 140 200Total calls made 700 900 Sporting goods stores 300 500 Ski shops 400 400Total orders taken 500 600 Sporting goods stores 150 450 Ski shops 350 150Days worked 220 240Expenses $48,000 $40,000Miles traveled 60,000 45,000

Total market potential $2.00 $4.00 $6.00 $1.20 $2.40 $ 3.60 (millions) Sporting goods stores 1.60 2.40 4.00 0.80 1.60 2.40 Ski shops 0.40 1.60 2.00 0.40 0.80 1.20

Sporting Sporting Goods Ski Goods SkiStores Shops Total Stores Shops Total

Average order $5,087 $1,257 $2,400 $1,067 $1,333 $1,133Batting average 0.500 0.875 0.714 0.900 0.375 0.666Calls per day 3.18 3.75Miles per call 86 50Expense per sales dollar 4.00% 5.90%Cost per call, excludingcommission $68.57 $44.44

Cost per order, excluding $96.00 $66.67commission

Equipment Clothing Total Equipment Clothing TotalTotal percent of market 24.0% 18.0% 20.0% 18.3% 19.0% 19.0% Sporting goods stores 20.0% 18.0% 19.0% 20.0% 20.0% 20.0% Ski shops 40.0% 17.5% 22.0% 15.0% 17.5% 16.7%

Joe Jackson Gus Dean

Product Line: Equipment Clothing Total Equipment Clothing TotalTotal sales (000) $240 $280 $ 520 $940 $1,460 $ 2,400 Sporting goods stores 100 160 260 580 920 1,500 Ski shops 140 120 260 360 540 900Total calls made 1,100 2,700 Sporting goods stores 500 1,300 Ski shops 600 1,400

Total orders taken 850 1,950 Sporting goods stores 400 1,000 Ski shops 450 950Days worked 230 690Expenses $36,000 $124,000Miles traveled 35,000 140,000

Total market potential (millions) $1.20 $1.20 $ 2.40 $4.40 $ 7.60 $ 12.00 Sporting goods stores 0.72 0.64 1.36 3.12 4.64 7.76 Ski shops 0.48 0.56 1.04 1.28 2.96 4.24

Sporting SportingGoods Ski GoodsStores Shops Total Stores Ski Shops Total

Average order $ 650 $ 578 $ 612 $1,500.00 $947.00 $1,231.00Batting average 0.800 0.750 0.773 0.679 0.769 0.722Calls per day 4.8 3.9Miles per call 32 52Expense per sales dollar 6.90% 5.20%Cost per call, excluding $32.72 $ 45.92commission

Cost per order, excluding $42.23 $ 63.59commission

Equipment Clothing Total Equipment Clothing TotalTotal percent of market 20.0% 23.3% 21.7% 21.4% 19.2% 20.0% Sporting goods stores 13.9% 25.0% 19.1% 18.6% 19.8% 19.3%

Ski shops 29.2% 21.4% 25.0% 28.1% 18.2% 21.2%

TotalPaula Burns

Sales Organization Concepts Sales Organization Concepts Salesforce Specialization GENERALISTS All...

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