CHAPTER 15

Evaluating Sales force Performance

THE SALES AUDIT

...a comprehensive, periodic review and evaluation of the sales function

THE SALES AUDIT

The audit includes an appraisal of
objectives personnel tactics

STEPS IN THE SALES AUDIT

Find out what happened Find out why it happened Decide what to do about it

EVALUATING EFFECTIVENESS
Sales Volume Analysis Cost Analysis Profitability Analysis Productivity Analysis

SALES VOLUME ANALYSIS

A study of the net sales section of the profit and loss statement. Examine sales by product lines, territories, key accounts, and general classes of customers.

SALES VOLUME ANALYSIS

Two approaches:
Hierarchical Sales Analysis Effectiveness Analysis

HIERARCHICAL SALES ANALYSIS

A multistage analysis which proceeds from one sales organization level to the next by
identifying major deviations investigating these in more detail at the next lower level.

Example of Hierarchical Sales Analysis

Main Office

Region 1 $40,000,000

Region 2 $ 45,000,000

Region 3 $ 35,000,000

District 1 $ 7,000,000

District 2 $ 8,000,000

District 3 $ 7,500,000

District 4 $ 4,000,000

Territory 1 $ 700,000

Territory 2 $ 800,000

Territory 3 $ 750,000

Territory 4 $ 850,000

Territory 5 $ 200,000

Additional Analysis

EFFECTIVENESS INDEX
Examine territory performance relative to potential

STEPS IN AN EFFECTIVENESS ANALYSIS

Select a market index that indicates what percentage of total sales should be obtained from each sales territory.

STEPS IN AN EFFECTIVENESS ANALYSIS

Determine the companys actual total sales in dollars or units during the period being studied.

STEPS IN AN EFFECTIVENESS ANALYSIS

Multiply the territorial index by the total sales figure to determine the goal in each district.

STEPS IN AN EFFECTIVENESS ANALYSIS

Compare actual regional sales with the regional goals to see how much variation has occurred.

Example Effectiveness Analysis

Region Market Actual Sales Index Sales Goals A 27% $900 $1,215 B C D E Total 22% 15% 20% 16% 1,230 828 852 690 $4,500 990 675 900 720 % 74% 124 123 95 96 Dollar Variance $-315 240 153 -48 -30

HIERARCHICAL AND EFFECTIVENESS ANALYSIS

Territories Different products Sales by accounts Channels of distribution

MARKETING COST ANALYSIS

A study of marketing expenses to determine profitability of marketing segments in the firm. Two Approaches
Variance Analysis Percentage of Sales

VARIANCE ANALYSIS
Variance represents the difference between actual costs and budgeted costs. High variances should be examined further.

PERCENTAGE OF SALES
Examines costs as a percentage of sales.

PROFITABILITY ANALYSIS
Return on Assets Managed (ROAM)

RETURN ON ASSETS MANAGED (ROAM)

Measures how productively the assets in each segment of the business have been employed.
ROAM= Profit contribution/Assets Managed

ROAM Example
District 1 Sales $ 12,000,000 COGS 6,000,000 Gross Margin 6,000,000 Selling Expenses 3,600,000 Profit Contrn 2,400,000 Accts Receivable 4,000,000 Inventory 4,000,000 Assets Managed 8,000,000 Profit Contrn % 20% Asset Turnover 1.5 ROAM 30% District 2 $ 12,000,000 6,000,000 6,000,000 4,800,000 1,200,000 2,000,000 2,000,000 4,000,000 10% 3.0 30% District 3 $12,000,000 7,000,000 5,000,000 2,600,000 2,400,000 8,000,000 8,000,000 16,000,000 20% .75 15%

PRODUCTIVITY ANALYSIS
Additional productivity analysis may be required to get a fuller picture of organizational effectiveness. Measured in terms of inputs and outputs.

Example Productivity Analysis

District 1 Sales Expenses Sales Calls Proposals Salespeople Sales/Person Expenses/Person Calls/Person Proposals/Person 1,000,000 5,000 100 10 1,000,000 100,000 500 10 District 2 1,200,000 4,500 105 15 800,000 80,000 300 7 District 3 $ 10,000,000 1,500,000 4,500 120 10 1,000,000 150,000 450 12 $ 10,000,000 $ 12,000,000

WHAT IS DONE WITH THIS INFORMATION?

Adjust territorial boundaries Adjust product line Change classes of customers

FROM THE TEXT

Read everything except Residual Income Analysis on pages 724 to 726.