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Ingram LaForge AvilaSchwepker Jr. Williams

Professional Selling:A Trust-Based Approach

Module 9:Evaluating the Effectiveness of the Organization

Learning ObjectivesLearning Objectives

1. Differentiate between sales organizationeffectiveness and salesperson performance.

2. Define a sales organization audit and discusshow it should be conducted.

3. Define benchmarking and discuss how it shouldbe conducted.

4. Describe how to perform different types of salesanalyses for different organizational levels andtypes of sales.

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Learning ObjectivesLearning Objectives

5. Describe how to perform a cost analysis for asales organization.

6. Describe how to perform an income statementanalysis, activity-based costing, and return onassets managed to assess sales organizationprofitability.

7. Describe how to perform a productivity analysisfor sales organization.

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Setting the StageSetting the Stage

1. What did Salesnet do for SOLCORP?

2. How did the Salesnet CRM packagebenefit SOLCORP?

Increasing Productivity and EvaluatingEffectiveness at SOLCORP

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Sales Organization Effectiveness vs.Salesperson Performance

Sales Organization Effectiveness vs.Salesperson Performance

OrganizationalFactors

SalesOrganizationEffectiveness

SalesforceNonsellingBehavior

Performance

EnvironmentalFactors

SalesforceSelling

BehavioralPerformance

SalesforceOutcome

Performance

SalesforceCharacteristics

SalesforceControlSystem

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Sales Organization AuditSales Organization Audit

Comprehensive, systematic, diagnostic andprescriptive tool.

Assesses the a firms sales managementprocess

Provides direction for improved performanceand prescription for needed changes.

Should be performed regularly, Should be conducted by someone from outside

the sales organization.

Although it is an expensive and time-consumingprocess, the sales organization audit generatesbenefits that usually outweigh the costs.

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Sales Organization Audit FrameworkSales Organization Audit Framework

SALES ORGANIZATION PLANNINGSYSTEMObjectivesSales Management ProgramImplementation of the Program

Sales ForceManagement

Auditor

SALES MANAGEMENTFUNCTIONSSales force OrganizationRecruitment and SelectionSales TrainingCompensation and ExpensesSupervision, Morale, and Motivation

Sales ForecastingBudgetingQuotasTerritories and RoutingSales AnalysisCost/Profitability AnalysisSales force Evaluation

SALES ORGANIZATIONENVIRONMENTExtra-organizational Factors Economic-Demographic Political-LegalTechnological Competitive Market Customer

Intra-organizational Factors Company Organization Sales-Marketing Department Links Sales-Other Department Links Marketing Mix

SALES MANAGEMENTEVALUATIONAdequacy of Sales ManagersAdequacy of Management Practices

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BenchmarkingBenchmarking

Benchmarking is an ongoing

measurement and analysisprocess that compares anorganizations currentoperating practices with thebest practices used byworld-class organizations.

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Benchmarking ProcessBenchmarking Process

Plan Identify what tobenchmark.

Identify comparativecompanies or sales forces.

Gather Data Determine data

collection method andcollect data.

Analyze & Communicate Determine currentperformance gap.

Project future performance levels.

Communicate benchmark findings

and gain acceptance.

Implement & Control toImprove Performance

Establish functional goals.

Develop action plans.

Implement specific action plansand monitor progress.

Recalibrate benchmark.

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Sales OrganizationEffectiveness Evaluations

Sales OrganizationEffectiveness Evaluations

No one summary measure of salesorganization effectiveness.

Multiple factors must be assessed Four types of analyses are typically

necessary to develop acomprehensive evaluation of anysales organization

Conducting analysis in each ofthese areas is a complex task

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Sales OrganizationEffectiveness Framework

Sales OrganizationEffectiveness Framework

SalesAnalysis

Cost

Analysis

ProfitabilityAnalysis

Productivity

Analysis

SalesOrganizationEffectiveness

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When should we count an order as a sale?

When an order is placed

When an order is shipped

When payment is received What is the primary metric?

Dollars

Units

Sales AnalysisSales Analysis

What if the

order iscancelled?

What if the

shipment isrefused?

Is it possible tohave higher sales

dollars with fewerunits sold andlower profits?

Is it possible tohave an increase in

units sold withoutan increase in

sales dollars orprofits?

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Sales Analysis FrameworkSales Analysis Framework

Sales Analysis

OrganizationalLevel of Analysis Type of Sales Type of Analysis

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Sales Analysis


Sales Organization

Zones

Regions

Districts

Territories

Accounts

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Total Sales

Type of Product

Type of Account

Sales Analysis


Type of Distribution

Order Size

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Comparisons with Forecasts

Comparisons with Sales quotas Comparisons with Previous period

Comparisons within Sales Organization

Comparisons with Industry/Competitors

Sales Analysis


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Example of Hierarchical Sales AnalysisExample of Hierarchical Sales Analysis

Region 1

Sales

Organization

Region 2 Region 3 Region 4

District 1

Territory 1 Territory 2 Territory 3 Territory 4 Territory 5 Territory 6

District 5District 4District 3District 2

Sales

Sales

Sales

$62,000,000 $62,000,000 $56,000,000 $73,000,000

$11,000,000 $12,000,000 $13,500,000 $7,000,000 $12,500,000

$1,100,000 $1,300,000 $1,250,000 $1,400,000 $750,000 $1,200,000

AdditionalAnalysis

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Example of Type-of-Sales AnalysisExample of Type-of-Sales Analysis

ProductType A

ProductType B

ProductType C

AccountType A

AccountType C

AccountType Sales

ProductType Sales

Sales $175,000 $275,000 $300,000 $290,000 $175,000 $285,000

AccountType B

Territory 5

AdditionalAnalysis

AdditionalAnalysis

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Cost AnalysisCost Analysis

Assess the costs incurred by the salesorganization to generate the achieved levels of

sales.

Compare the costs incurred with plannedbudget.

Corporate resources earmarked for personal

selling expenses for a designated periodrepresent the total selling budget.

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Selling BudgetsSelling Budgets

Developed at all levels of the sales organizationand for all key expenditure categories.

Objective is to determine the lowest expenditurelevel necessary to achieve the sales quotas.

Two approaches to setting the selling budget:

percentage of sales method objective and task method

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Selling Expense CategoriesSelling Expense Categories

Compensation expensesSalariesCommissionsBonuses

Total

Travel expensesLodgingFoodTransportationMiscellaneous

Total

Administrative expensesRecruitingTrainingMeetingsSales offices

Total

Classification Actual2002

Original

Budget2003

AprilRevision JulyRevision OctoberRevision

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Cost Analysis ExamplesCost Analysis Examples

Region 1

Region 2

Region 3

Region 4

$3,660,000

$3,500,000

$3,150,000

$4,200,000

$3,600,000

$3,700,000

$3,400,000

$3,900,000

$60,000

($200,000)

($250,000)

$300,000

Actual Budget Variance

$985,000

$2,110,000

$830,000

$2,3400,000

$1,030,000

$2,040,000

$1,060,000

$2,160,000

($45,000)

$70,000

($230,000)

$180,000

Actual Budget Variance

Compensation Costs Training Costs

Region 1

Region 2

Region 3

Region 4

Actual % Sales Budgeted % Sales

6.1

5.8

5.4

6.0

6.0

6.0

6.0

6.0

Actual % Sales Budgeted % Sales

2.9

3.1

2.6

3.1

3.0

3.0

3.0

3.0

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Profitability AnalysisProfitability Analysis

Analyzing the profitability of differentorganizational levels of different types ofsales.

Income Statement Analysis

Activity-Based Costing

Return on Assets Managed

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Profitability Analysis:Income Statement Analysis

Profitability Analysis:Income Statement Analysis

Full Cost Approach: Allocate shared costs toindividual units based on some type of costallocation procedure.

Percentage of Sales: Expenditure percentagemultiplied by sales forecast.

Objective and Task: Budgets andobjectives/tasks are tied together during

planning. Contribution Approach: Include only direct costs

in the profitability analysis.

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Profitability Analysis ExampleProfitability Analysis Example

Sales

Cost of Goods Sold

Profit Contribution

Net Profit

Gross Margin

District Selling Expenses

Allocated Portion of Shared Zone Costs

Regional Direct Selling Expenses

Region

$ 24,000,000

$ 8,000,000

$ 45,000,000

$255,000,000

$300,000,000

$ 11,000,000

$ 16,000,000

$ 10,000,000

Full CostApproach

$180,000,000

District 1 District 2 District 3

$ 6,500,000 $ 8,000,000 $19,500,000

$ 11,500,000 $11,500,000 $22,000,000

$28,000,000

$50,000,000

$58,500,000

$70,000,000

$168,500,000

$ 8,250,000$ 3,500,000$ 5,000,000

---------

Contribution Approach

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Profitability Analysis:Activity-Based Costing (ABC)

Profitability Analysis:Activity-Based Costing (ABC)

Allocates costs to individual units on thebasis of how the units actually expend orcause these costs.

Places greater emphasis on more accuratelydefining unit profitability by tracing activitiesand their associated costs directly to a

specific unit.

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ROAM = Profit contribution as percentage of sales X Asset turnover rate

= `Profit contribution / Sales) X (Sales / Assets managed)

Profitability Analysis: Return onAssets Managed Analysis (ROAM)

Profitability Analysis: Return onAssets Managed Analysis (ROAM)

Calculations provide an assessment ofprofitability and useful diagnostic

information.

ROAM is determined by both profitcontribution percentage and asset turnover.

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Return on Assets Managed (ROAM)Return on Assets Managed (ROAM)

District 1

8,000,000

12,000,000

12,000,000

$24,000,000

7,200,000

$24,000,000


4,000,000 16,000,000

12,000,000 10,000,000 10,000,000

14,000,000

$24,000,000

14,000,000

$24,000,000

12,000,000

8,800,0005,200,0009,600,000

Profit Contribution 4,800,000 2,400,000 4,800,000 1,200,000

8,000,000 4,000,000 16,000,000

16,000,000 8,000,000 32,000,000

4,000,000

4,000,000

8,000,000

20% 10% 20%

1.5 3.0 .75

Sales

Cost of Goods Sold

Accounts Receivable

Gross Margin

District Selling Expenses

Inventory

Total Assets ManagedProfit Contribution Percentage

Asset Turnover

ROAM 30% 30% 15%

5%

3.0

15%

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Productivity AnalysisProductivity Analysis

Compares profits and asset investments

Expressed in terms of ratios of inputs to

output Productivity improvements are obtained

in one of two basic ways:

1. Increasing output with the same level of input

2. Maintaining the same level of output butusing less input

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Productivity Analysis ExampleProductivity Analysis Example

Sales

Selling Expenses

Sales/Salesperson

Sales Calls

Proposals

District 1

$ 1,000,000

9,000

2,000,000

$20,000,000

200

$24,000,000


$ 800,000 $1,000,000

7,500 8,500 10,000

3,000,000

$24,000,000

3,000,000

$20,000,000

2,400,000

270260180

Number of Salespeople 20 30 20 30

Expenses/Salesperson $ 100,000 $ 80,000 $ 150,000

Calls/Salesperson450 250 425

$ 800,000

$ 100,000

333

Proposals/Salesperson 11 6 13 9

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6e SM Module09

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