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