evaluating and controlling salespeople input system -- behavioral-based subjective evaluations...

Evaluating and Controlling SalespeopleInput system -- Behavioral-based

• Subjective evaluations– Qualitative measures (Table 16-2)– Use rating scales -- e.g., Likert– Can have bias & halo effects

• Generating data– Computerized Call Reports (Fig. 16-3)– Management by Objectives (MBO)(Fig. 16-4)

• non-quantitative -- difficult in solution sales– Behavioral Observation Scales (BOS) (Fig 16-5)

• Job Dimensions -- critical incidents for job success

Evaluating and Controlling Salespeople

Combining Input & Output Measures Call Productivity Ratios

Calls per day = # Calls _# Days worked

Calls per account = # Calls_ # of Accounts

Planned Call = # Planned calls Total # Calls

Batting Average = # Orders__ Total # Calls


Combining Input & Output Measures

Expense Ratios

Expense to Sales = Expenses Sales

Cost per Call = Total Costs # of Calls


Combining Input & Output MeasuresAccount Related Ratios

Sales to Account = Dollar Sales _ # Accounts

Average Order Size = Dollar Sales # Orders

Growth Ratio = # New AccountsTotal # Accounts

Account Success = Accounts sold_ Total # Accounts


Models Combining Input & Output Controls

Inputs

• Attitude

• Motivation

• Skills

• Abilities

• Job Perception

InputsBehavior• # Calls• Days worked• Expenses• Selling vs. nonselling time• Quotas

Outputs

• # Orders• Order Size• # New, lost,

or active

accounts

Evaluating and Controlling SalespeopleModels 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

Evaluating Sales Force PerformanceCost 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 PerformanceCost Analysis

• Object affects direct vs. indirect cost class:

Cost By Territory By ProductP-O-P display Direct Direct

Salesperson

Salary Direct Indirect

Product Manager

Salary Indirect Direct

VP Operations

Salary Indirect Indirect

Evaluating Sales Force Performance

Product Costs • 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:• limit price negotiation capabilities• shift to a gross margin commission• change commission structure to emphasize

accessories & software


District Costs

• Sales managers vary in ability to control expenses

• 3-way: district by product by cost

– watch for price cutting by salespeople

– watch for excessive emphasis on low margin goods


Account Cost to Serve

Total Cost to serve account• Cost to Serve =

• Usually decline with revenue

• Help identify best accounts

• Downsizing & Profits (T 15-7)

• Consider using DEA (Programming)

Revenue from Account

Table 15-1 Output Measures Used in Sales Force 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

Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, “Examining the Bases Utilized for Evaluating Salespeoples’ performance,” Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 61.

Table 15-2 Input or Behavior Bases used in Sales 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


Table 15-4 Comparing Dollar and Unit Sales at the Bear Computer Company

ProductsThousandsof Dollars Units

Avg PricePer Unit

ThousandsOf Dollars Units

Avg PricePer 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

1996 Sales 1997 Sales

Table 15-5 Expense Analysis by Product Line, Bear Computer Company, 1997

Products1997 Sales

(000)

CGS andCommission

$

CGS as aPercentage

Of SalesContribution

Margin

ContributionMargin

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%

Table 15-6 Qualitative Bases used in Sales Force 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


Table 15-8 Measuring Territory Profit Output for Bear Computer Company

Territory Performance (thousands)a

Jones Smith Brown West

Net Sales $825 $570 $1100 $1000

Less CGS and Commissions 495 428 754 660

Contribution margin 330 142 356 340

CM as a percentage of sales 40% 25% 325 345

Less direct selling costs

Sales force salaries 55 35 55 65

Travel 15.5 4.1 3.5 5.0

Food and lodging 12.5 4.0 3.2 4.5

Entertainment 11.4 .3 5 1.0

Home sales office expense 4.5 2.3 2.0 4.5

Profit contribution $231.1 $ 96.6 $291.8 $260.0

PC as a percentage of sales 28% 17% 26% 26%

aSales figures are from Table 15-7.

Table 15-9 Evaluating Performance Using Behavior and Outcome Data

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%

Table 15-10 Ranking Salespeople on 10 Input/Output factors

Dollar Sales 2 3 4 5Sales to Potential 5 3 4 2 Sales to Quota 5 4 2 3Sales per Order 5 4 3 2Number of Calls 2 5 3 4Orders per call 4 2 5 3 Gross Margin Percent 5 3 4 2Direct Selling Costs 4 3 5 2New Accounts 4 2 5 3Number of Reports Turned In 4 3 5 2Total of Ranks 36 28 30 31 25

Ranking Factors Ford Bell Shaw Mann Gold

Figure 15-3 Ranking Salespeople on 10 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

COMPROMISERS

Avg sales $3.17Avg contribution $1.13Avg contribution % 35.8Age 45Calls 1122Number of salespeople 18

STARS


Avg sales $1.78Avg contribution $ .64Avg contribution % 35.8Age 44Calls 958Number of salespeople 11

LAGGARDS


SLOWPOKES

Millions$

Contribution Margin (%)

34.8 35.1 36.0 36.6 37.2 37.8 38.7

SALES YR 2

Table 15-11 Relative performance efficiency for Sales Rep 22

Value ifValue 100%

Variable Type Variable Name Measured 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

InfluenceSalesperson 7 0.49Salesperson 20 0.43Salesperson 45 0.08

Reference Set Efficiency = 0.85

Iterations = 10

Source: James S. Boles, Naveen Donthu, and Ritu Lohtia, “Salesperson Evaluation Using Relative Performance Efficiency: The Application of Data Envelopment Analysis,” Journal of Personal Selling & Sales Management, Vol. 15, No. 3 (Summer 1995), p. 44.

Figure 15-2 A Model of Salesperson Evaluation

Input-based System

BehaviorCallsReportsComplaintsDemonstrationsDealer meetingsDisplay set upTravel/entertainment

expenses

ResultsSales revenuesSales growthSales/quotaSales/potentialNew accountsContribution marginsContribution

percentage

Output-based System

SalespersonEvaluation

Table 15-7 Measuring Sales Force Output for Bear Computer Company

1 2 3 4 5 6 7 8Market

Sales ‘96 Sales ‘97 Potential Sales Percentage SalesJan-Sept Jan-Sept Dollar Sales index Quota of Quota Variance

Territory (000) (000) Change Growth (percent) (000) Achieved (000)

Jones $ 750 $ 825 + $75 10.0% 26.0% $ 943 87.0% – $118

Smith 500 570 + 70 14.0 15 543 105 + 27

Brown 1025 1110 + 85 8.3 32 1160 96 – 50

West 960 1000 + 40 4.2 27 977 102 + 23

$3235 $3505 +$270 8.3% 100.0% $3623

Figure 15-1: A Sales Force Evaluation Model

Set goals and objectives forsales force, including:

RevenuesContribution profitsMarket shareExpense ratios

Design sales plan

Set product performance standards for:Organization SalespeopleRegions AccountsDistricts

Measure results against standard Take Corrective Action

Evaluating Sales Force PerformanceFleet Car Management -- A Motivator

• Salesperson owned car (per mile travel allowance)

– Salesperson gets car preference– Allowances rarely cover full salesperson car costs

• Company owned & managed cars– 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 & Output Controls• Four Factor Model

– How can sales be increased?– Optimum Number of sales calls to maximize profits?– Who is doing best? Ann or Pete?– What management strategies for Pete? for Ann?

$ Sales = Days worked x Calls Orders Sales $Days Worked Calls Orders

$ Sales = Days worked x Call Rate BattingAverage

Average Order Size


Profitability AnalysisFull Cost

Sales

Less: C of GS

Equals: Gross Margin

Less: Operating Expenses

(Direct +

Indirect Allocated)

Equals: Profit Contribution

Contribution MarginSales

C of GS & Other

Variables Costs

Contribution Margin

Direct Allocable

Fixed Selling Costs

Profit Contribution


Profitability Analysis

• “Full Cost” Approach

– charge recruiting, training, sales promo &

other marketing expenses to sales manager

– allocation is somewhat arbitrary

– not under sales manager control

Evaluating Sales Force PerformanceIn-Class Exercise 15-1 -- “Which Profits?”

1. Why would a company that used to use only

sales as a performance criteria for its sales force

wish to consider profitability?

2. What criteria should be established to construct

a workable performance evaluation system?

3. What are the pros and cons of alternative profit

measures?

4. What other problems need to be considered?


In-Class Exercises 16-1“I Know These Sales Figures Stink”

1. What activities should be completed in the performance evaluation process?

2. What should take place prior to a performance review meeting?

3. What is covered in the meeting?

4. What to do if an employee disagrees with the performance ratings?

5. What are additional suggestions for providing feedback to others?

Evaluating and Controlling SalespeopleIn-Class Exercises 16-1

“I Know These Sales Figures Stink”

6. How do you handle hostile reactions?

7. What additional questions should Sherrie ask of the veteran sales manager?

8. What consideration should be given to a large customer going out of business?

9. Is sales, the bottom line, the only measure that should be used for evaluating performance?

10. What are the companies responsibilities in this role play?


Input vs. Output Systems

Salary Compensation Commission

Input System favored Output


Using Judgment Models -- Ranking Procedures

1. How do the six salespeople compare with one another? -- Rank them for 1 to 6 overall.

2. Which of the six would you promote to Field Sales Supervisor (sales manager position)?

3. If you were opening a new territory which is promising to be quite high in sales potential and thus both lucrative and challenging, and you had to assign one of the six to that territory, which salesperson would you transfer to that territory?


Using Judgment Models -- Ranking Procedures4. If you had to reduce the sales force to only 5

salespeople, and thus had to terminate one of the salespeople, which one would you terminate? Why?

5. If you had a $10,000 budget for bonuses for your sales force and had to pay it all out, how much of the $10,000 would you give to each of the salespeople? You may allocate the $10,000 in any manner you wish, as long as the total is exactly $10,000.



• Results of a sample of 242 sales managers

– How do your results compare with the managers?

– Situation specific evaluations

– Overall evaluations

– Situation Specific Predictive Ability• which model works best?



1. How do the six salespeople compare with one another? -- Rank them for 1 to 6 overall.

2. Which of the six would you promote to Field Sales Supervisor (sales manager position)?

3. If you were opening a new territory which is promising to be quite high in sales potential and thus both lucrative and challenging, and you had to assign one of the six to that territory, which salesperson would you transfer to that territory?


Using Judgment Models -- Ranking Procedures4. If you had to reduce the sales force to only 5

salespeople, and thus had to terminate one of the salespeople, which one would you terminate? Why?

5. If you had a $10,000 budget for bonuses for your sales force and had to pay it all out, how much of the $10,000 would you give to each of the salespeople? You may allocate the $10,000 in any manner you wish, as long as the total is exactly $10,000.



• Results of a sample of 242 sales managers

– How do your results compare with the managers?

– Situation specific evaluations

– Overall evaluations

– Situation Specific Predictive Ability• which model works best?


Summarizing Sales force Performance• Performance Matrix

– Shows interaction of 3 or more variables at a time– Identifies reps for rewards and punishments– Helps find subtle interactions– Findings in Figure 16-6

• Reps begin career selling high margin mix of products

• Reps end career by sacrificing margins for revenue

• Laggards represent a plateauing problem

• Laggards should make more contractor calls

• If looking for $$ -- reward compromisers

• If looking for profits -- reward the stars


Profitability Analysis• Residual Income Analysis

– Sales growth is desirable as long as profits exceed cost of capital

– Most comprehensive single measure of

sales force performance– Existing control factors all included – Expressed in dollars makes it easier to set

sales manager incentives

– Directly related to corporate objectives


Profitability Analysis• Return on Assets Managed (ROAM)

Profit Contrib. Sales

Sales Assets Managed

• Assets under sales management control

• District Analysis– Assets managed poorly in District 4

– Profit contribution greatest in District 1

X


Profitability Analysis• ROAM disadvantages

– focus on lower assets (inventory + acct. receivable)– does not consider sales level or growth

• Solution: Residual Income Analysis (RIA)Profit Contribution

Less: Acct receivable costs

Inventory carrying costs

Equals Residual Income

Evaluating Sales Force PerformanceSales Force Evaluation Model

• Sales Analysis Principles– 80/20 -- 20% of customers yield 80% sales– Iceberg -- sales figures tip of iceberg -- need more

• Gathering Sales Data– DSS– hand held computers for field

• Steps in Sales Analysis– Pick unit for analysis - by division, district, etc.– Select variables for cross classification - by product– Choose performance measures -- sales to quota, etc.

Evaluating Sales Force Performance• The Big Picture

– Start with aggregate sales by year– Look for changes and trends -- market share, volume

• Refining through Cross Classification– Sales by Region

• reward areas of strength?• move into areas of weakness

– Sales by Product Line• Are you selling what firm wants? or what

salespeople want?• Balance long vs. short term goals

Evaluating Sales Force Performance• Refining Through Cross Classification

– Dollar Vs. Unit Sales• When price change (inflation) distorts dollar

figures• Good for big ticket items

– Sales by Distribution Channel• tends to change over time• asks who customers really are

– Sales by Customer Type• illustrates 80/20 principle• how to deal with small accounts


• Cross Classification Techniques

– Multi-way Tables

– Varying Customer Classifications

– Product Lines vs. Product Categories

– Brands as Product Class

Table 15-3 Sales Data for Bear Computer Company

1 2 3 4 Company Percentage Industry Company

Volume Change from Volume Market ShareYear ($ millions) Previous Year ($ millions) (percent)

1997 26 + 8.3 300 8.61996 24 +14.3 219 10.91995 21 +23.5 165 15.71994 17 --- 125 13.6

Table 15-7 Measuring Sales Force Output for Bear Computer Company

1 2 3 4 5 6 7 8Market

Sales ‘96 Sales ‘97 Potential Sales Percentage SalesJan-Sept Jan-Sept Dollar Sales index Quota of Quota Variance

Territory (000) (000) Change Growth (percent) (000) Achieved (000)

Jones $ 750 $ 825 + $75 10.0% 26.0% $ 943 87.0% – $118

Smith 500 570 + 70 14.0 15 543 105 + 27

Brown 1025 1110 + 85 8.3 32 1160 96 – 50

West 960 1000 + 40 4.2 27 977 102 + 23

$3235 $3505 +$270 8.3% 100.0% $3623

Figure 15-3 Ranking Salespeople on 10 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

COMPROMISERS


STARS



LAGGARDS


SLOWPOKES

Millions$

Contribution Margin (%)

34.8 35.1 36.0 36.6 37.2 37.8 38.7

SALES YR 2

evaluating and controlling salespeople input system -- behavioral-based subjective evaluations...

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