Chapter 10 Sales Force Quotas and Expenses Learning

Chapter 10 Sales Force Quotas and Expenses

Learning Objectives � Purpose of sales quotas � Types of sales quotas � Factors influencing sales force expenses � Characteristics of sound expenses plans

Sales Quotas � Sales quotas is a performance goal assigned to marketing unit for a specific period of time. � Sales quotas are developed for several purposes. 1. To indicate strong or weak spots in the selling structure – tell why sales exceed or fail to meet quotas. 2. To furnish goals and incentives for the sales force – express expectation in a specific quotas. 3. To control salesperson’s activities – quotas enable management to direct the sales activities more effectively.

Sales Quotas-cont. 4. 5. 6. 7. To evaluate productivity of salespeople – quotas provide a yardstick. To improve effectiveness of compensation plans – quotas can furnish incentives to salespeople. To control selling expenses – a company may set an expense quota and let the salespeople know their effectiveness is being judged in part by how well they meet it. To evaluate sales contest results – sales quotas are used frequently in conjunction with sales contests.

Fig. 10 -1 Purpose of Sales Quotas Evaluate sales contest results Control selling expenses Indicate strong / weak spots in selling structure Sales quotas are used to… Improve compensation plan effectiveness Furnish sales force goals / incentives Control sales force activities Evaluate sales force productivity

Types of sales quotas-cont. � Sales volume – most widely used and is based on sales volume. A volume quota may be established based on geographical area, a product line, a customer, a time period or a combination of these bases. � Profit quotas – quotas based on gross margin or net profit. For example, a gross margin quota may be set for a salesperson, a branch, or a group of products. It may reflects the importance of profit rather than volume.

Types of sales quotas-cont. � Expense quotas – a company may attempt to encourage a profit consciousness by establishing a quota based on the rep’s travel and other expenses. A rep’s attention may be devoted more on cutting expenses rather than boosting the sales profits. � Activity quotas and customer satisfaction – quota based on activities. Management may based it on (1) daily calls, (2) new customer called on, (3) orders from new accounts, (4) product. If properly established can do much to stimulate a fully balanced sales job. � Combination quotas – this seeks to use the strong points of several types but it is a bit more complex.

Fig. 10 -2 Types of Sales Quota bases Sales volume Gross margin or net profit Combination Expenses Activities

Sales Force Expenses � Sales reps are among the few company employees who are allowed to spend the company’s money, even when the expenses are properly managed, sales force expense accounts are a nuisance/problem.

Factors Influencing Sales Force Expenses Office supplies Transportation Meals Communication Entertainment Expenses Gifts Lodging

Characteristics of a sound expense plan • No net gain or loss – the expense plan should be designed so that employees neither profit nor lose. • Equitable treatment – sales reps should be able to maintain approximately the same standard of living on the road as at home. • No limitation of beneficial activities – a good expense plan should not impede the performance of selling duties, nor should it limits activities beneficial to the company. • Simple and economical – clerical and administrative expenses should be minimized.

Characteristics of a sound expense plan • Clarity – a good expense plan should be clear enough to prevent misunderstandings between management and the sales force. • Company control of expenses and elimination of padding – a sales manager should be able to get all the benefits of control without damaging sales force morale and should be able to eliminate padding.

Salesperson Expense Options Method Reimbursement Advantages Disadvantages Salespeople pay their own expenses None Simple, no costs Reps may not spend enough on customers Unlimited payment plan All legitimate Flexible and fair, Encourages excessive business expenses allows for territory spending differences Limited payment plan Specific amounts Limited and predictable allowed expenses e. g. Possibility for $80/day - lodging $45/day - food $0. 26/mile - transportation Inflexible switching expenses between categories Sales may resent Flat allowance $700 per week Limited and predictable expenses Sales may resent Inflexible

Factors Influencing Automobile Ownership Decision: Company Owned, Company Leased, or Salesperson Owned Maintenance Special design Size of sales force Control Mileage Operating Personal preference Investment Administrative problems

Automobile Allowance Plans Method Example Flat amount $400 /month Fixed mileage rate $. 28/mile Graduate mileage rate $. 25/mile, first 15, 000 miles $. 15/mile, second 15, 000 miles Combination flat and mileage rate $200/month + $. 16/mile

Other Methods of Expense Control • Training and enforcement – teach sales reps how they are expected to spend the company money. • Credit cards – accepting charges from designated list of hotels and restaurants. • Expense bank account – firms place a certain sums in a checking account for each reps.

Other Methods of Expense Control • Change in nature of entertainment - stop taking clients to expensive places. • Telemarketing – sales reps pushing customers to make purchases via company’s websites. • Careful travel planning – minimize travel expenses by careful advanced planning.