Part V SALES FORCE LEADERSHIP Chapter 13 Evaluating

Part V SALES FORCE LEADERSHIP Chapter 13: Evaluating Performance

Why Evaluate Salespeople? n To link compensation and rewards to performance. n To identify salespeople capable of promotion. n To identify training and counseling needs. n To identify criteria for recruitment and selection. n To clarify work expectations. n To motivate salespeople. n To help salespeople set career goals.

A Sales Force Evaluation Model Set goals and objectives for sales force, including: Revenues Contribution profits Market share Expense ratios Design sales plan Set product performance standards for: Organization Salespeople Regions Accounts Districts Measure results against standard Take Corrective Action

Output Measures Used in Sales Force Evaluation 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 orders Average order size Batting average (orders/calls) Number of accounts sold Number of accounts buying full line

Output Measures Used in Sales Force Evaluation Performance Measure Sales volume dollars Sales volume previous year’s sales Sales to quota Sales growth Sales volume by product Sales volume by customer New account sales Sales volume in units Sales volume to potential Accounts Number of new accounts Number of accounts lost Number of accounts buying full line Percent Using Performance Measure 79% 76 65 55 48 44 42 35 27 69 33 27 Percent Using Profit Net profit Gross margin percentage Return on investment Net profit as a percentage of sales Margin by product category Gross margin dollars 69% 34 33 32 28 25 Orders Number of orders Average size of order 47 22

Input or Behavior Bases Used in Sales Force Evaluation 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 Sales Force Evaluation

Qualitative Bases Used in Sales Force 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 Force Evaluation

Sales Data for Bear Computer Year 1 Company Volume ($ millions) 2008 2007 2006 2005 26 24 21 17 2 Percentage Change from Previous Year + 8. 3 +14. 3 +23. 5 --- 3 Industry Volume ($ millions) 4 Company Market Share (percent) 300 219 165 125 8. 6 10. 9 15. 7 13. 6

Comparing Dollar and Unit Sales at the Bear Computer Company -----2007 Sales-----2008 Sales-----

Expense Analysis by Product Line, Bear Computer Company, 2008

Evaluating Sales Force Performance: Cost Analysis § What costs are relevant? Net Sales Less Variable Costs: Cost of Goods Sold Sales Commissions Equals: Contribution Margin Less: Direct Fixed Selling Costs Equals: Profit Contribution

Evaluating Sales Force Performance: Product Costs n CGS + Commissions higher for computers – – – paying too much for parts competition has driven down selling prices salespeople cutting computer prices to make deals -possible actions: n n n limit price negotiation capabilities shift to a gross margin commission change commission structure to emphasize accessories and software

A Model of Salesperson Evaluation Input-based System Output-based System Behavior Calls Reports Complaints Demonstrations Dealer meetings Display set up Travel/entertainment expenses Results Sales revenues Sales growth Sales/quota Sales/potential New accounts Contribution margins Contribution percentage Salesperson Evaluation

Measuring Sales Force Output for Bear Computer Company 1 2 3 4 5 6 7 8 Market Sales Growth Potential Index (percent) Sales Quota (000) Percentage of Quota Achieved Sales Variance (000) Territory Sales ‘ 07 Sales ‘ 08 Jan-Sept (000) Dollar Change Jones $750 $825 + $75 10. 0% 26% $943 87% – $118 Smith 500 570 + 70 14. 0 15 543 105 + 27 Brown 1, 025 1, 110 + 85 8. 3 32 1, 160 96 -50 West 960 1, 000 + 40 4. 2 27 977 102 + 23 $3, 235 $3, 505 $270 100% $3, 623

Measuring Territory Profit Output for Bear Computer Company Territory Performance (thousands) Jones Smith Brown West $825 $570 $1, 100 $1, 000 Less CGS and Commissions 495 428 744 660 Contribution margin 330 142 356 340 40% 25% 32% 34% 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 4. 5 2. 3 2 4. 5 $231. 10 $96. 30 $291. 80 $260. 00 28% 17% 26% Net Sales CM as a percentage of sales Less direct selling costs Sales force salaries Home sales office expense Profit contribution PC as a percentage of sales

Ranking Salespeople on 10 Input/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 Input/Output Factors Performance factors Pete Jones Ann Smith Sales (annual) $1, 400, 000 $1, 100, 000 210 225 1, 200 1, 500 480 750 $19, 000 $14, 900 5. 7 6. 7 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% Days worked Calls Orders Expenses Calls per day Batting average (orders per calls)

Ranking Salespeople on 10 Input/Output Factors Millions $ 3. 87 3. 66 3. 44 S A L E S Y R 2 3. 23 3. 02 COMPROMISERS $3. 17 Avg Sales 2. 91 Avg contribution $1. 13 Avg contribution 1. 09 Avg contribution % 37. 4 Avg contribution % 35. 8 Age 45 2. 80 Calls 2. 59 Number of salespeople 18 2. 38 Avg Sales Avg contribution % Age Calls Number of salespeople 1. 78 2. 16 1. 95 1. 74 1. 53 1. 31 1. 10 STARS Avg Sales 1122 Age 37 Calls 888 Number of salespeople Avg Sales Avg contribution % Age Calls Number of salespeople 0. 64 35. 8 44 958 11 35. 1 2. 03 0. 75 37. 1 35 921 16 SLOWPOKES LAGGARDS 34. 8 11 36. 0 36. 6 37. 2 Contribution Margin (%) 37. 8 38. 7

Relative Performance Efficiency for Sales Rep 22 Variable Type Output Input Variable name Percent Quota Attained (%) Supervisor Evaluation Sales Volume ($) Sales Training Salary ($) Management Ratio Territory Potential ($) Reference Set Influence Salesperson 7 0. 49 Salesperson 20 0. 43 Salesperson 45 0. 08 Value Measured Value of 100% Efficient Slack 100 5 45, 000 5 20, 000 3 60, 500 120 5 50, 500 5 18, 000 2 50, 000 20 0 5, 500 0 2, 000 1 10, 500 Efficiency=0. 85 Iterations=10

Conditions when Outcome versus Behavioral Systems are preferred Outcome Systems(OS) • • Customers need information Customers trust the salesperson There are ways to close the deal Sales environment is competitive Behavioral System(BS) • • Salespeople lack experience No need to protect the brand image Nonselling behaviors are a priority Difficult to assign sales credit

The additional slides below are not covered in IM

Call Productivity Ratios Sales to Account = Average Order Size Growth Ratio = Accounts Account Success = Accounts Dollar Sales # Accounts = Dollar Sales # Orders # New Accounts Total # Accounts Sold Total #

Expense Ratios Expense to Sales = Expenses Sales Cost per Call Total Costs # of Calls =

Account Related Ratios Sales to Account = Average Order Size Growth Ratio = Account Success = Dollar Sales # Accounts = Dollar Sales # Orders # New Accounts Total # Accounts Sold Total # Accounts

Models Combining Input & Output Controls: Ranking Procedures § § § Widely used, simple to use, easy to understand Add ranks for overall performance measure Alternatives 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 criterion

Cost Analysis n Object affects direct vs. indirect cost classification: Cost By Territory By Product P-O-P Display Direct Salesperson Salary Direct Indirect Product Manager Salary Indirect Direct VP Operations Salary Indirect

Evaluating Sales Force Performance: Account Cost to Serve = Total Cost to Serve Account Revenue from Account n Usually decline with revenue n Help identify best accounts n Downsizing & Profits n Consider using DEA (Programming)

Evaluating Sales Force Performance: Fleet Car Management -- A Motivator n Salesperson owned car (per mile travel allowance) – – n Company owned & managed cars – – n Salesperson gets car preference Allowances rarely cover full salesperson car costs Ties up a lot of cash Costs less than salesperson owned car Leased sales fleet of cars – – Frees up cash Company performs routine maintenance

Models Combining Input and Output Controls n Four Factor Model $ Sales = Days worked x – – Calls Orders Sales $ Days Worked Calls Orders Batting Average Order Size Call Rate How can sales be increased? Optimum number of sales calls to maximize profits? Who is doing better? Ann or Pete? What management strategies for Pete? for Ann?