Part V

SALES FORCE LEADERSHIP

Chapter 13:
Sales Person Performance
Evaluation
Why Evaluate 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.
A Sales Force Evaluation Model
Take Corrective Action
Measure results
against standard
Set product performance standards for:
Organization Salespeople
Regions Accounts
Districts
Design sales plan
Set goals and objectives for
sales force, including:
Revenues
Contribution profits
Market share
Expense ratios
Table 13-1 Output Measures Used in Sales Force Evaluation

Sales Profit
Sales volume dollars Net profit
Sales volume previous years 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
Force Evaluation
Output Measures Used in Sales
Force Evaluation
Performance Measure
Percent
Using Performance Measure
Percent
Using
Sales
Sales volume dollars
Sales volume previous years 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
79%
76
65
55
48
44
42
35
27
69
33
27
Profit
Net profit
Gross margin percentage
Return on investment
Net profit as a percentage of sales
Margin by product category
Gross margin dollars
Orders
Number of orders
Average size of order
69%
34
33
32
28
25
47
22
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
Input or Behavior Bases Used in
Sales Force Evaluation
Base
Percent
Using Base
Percent
Using
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
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
Base
Percent
Using Performance Measure
Percent
Using
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 Share
Year ($ millions) Previous Year ($ millions) (percent)


2008 26 + 8.3 300 8.6
2007 24 +14.3 219 10.9
2006 21 +23.5 165 15.7
2005 17 --- 125 13.6
Sales Data for Bear Computer
Comparing Dollar and Unit Sales at
the Bear Computer Company


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---------- ----------2008 Sales----------
Expense Analysis by Product Line,
Bear 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 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: Cost Analysis

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 and software
Evaluating Sales Force
Performance: Product Costs
A Model of Salesperson Evaluation
Input-based System
Results
Sales revenues
Sales growth
Sales/quota
Sales/potential
New accounts
Contribution margins
Contribution
percentage
Output-based System
Salesperson
Evaluation
Behavior
Calls
Reports
Complaints
Demonstrations
Dealer meetings
Display set up
Travel/entertainment
expenses
Measuring Sales Force Output for
Bear Computer Company
1 2 3 4 5 6 7 8
Market
Sales 07 Sales 08 Potential Sales Percentage Sales
Jan-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% $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
Net 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
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
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
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
Millions
$
Contribution Margin (%)
34.8 35.1 36.0 36.6 37.2 37.8 38.7
S
A
L
E
S

Y
R
2
Avg Sales $3.17
Avg contribution $1.13
Avg contribution % 35.8
Age 45
Calls 1122
Number of salespeople 18
COMPROMISERS
Avg Sales 2.91
Avg contribution 1.09
Avg contribution % 37.4
Age 37
Calls 888
Number of salespeople 11
STARS
Avg Sales 1.78
Avg contribution 0.64
Avg contribution % 35.8
Age 44
Calls 958
Number of salespeople 11
LAGGARDS
Avg Sales 2.03
Avg contribution 0.75
Avg contribution % 37.1
Age 35
Calls 921
Number of salespeople 16
SLOWPOKES
Relative Performance Efficiency
for Sales Rep 22
Variable Type Variable name
Value
Measured
Value of 100%
Efficient Slack
Output Percent Quota Attained (%) 100 120 20
Output Supervisor Evaluation 5 5 0
Output Sales Volume ($) 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 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
Sales to Account = Dollar Sales
# Accounts

Average Order Size = Dollar Sales
# Orders

Growth Ratio = # New Accounts
Total #
Accounts

Account Success = Accounts Sold
Total #
Accounts
Call Productivity Ratios

Expense to Sales = Expenses
Sales

Cost per Call = Total Costs
# of Calls
Expense Ratios
Sales to Account = Dollar Sales
# Accounts

Average Order Size = Dollar Sales
# Orders

Growth Ratio = # New Accounts
Total # Accounts

Account Success = Accounts Sold
Total # Accounts
Account Related Ratios
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
Models Combining Input & Output
Controls: Ranking Procedures
Cost Analysis
Cost By Territory By 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:

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

Revenue from Account
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
Evaluating Sales Force Performance:
Fleet Car Management -- A Motivator
Four Factor Model







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?
Models Combining
Input and Output Controls

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

$ Sales = Days worked x Call Rate


Batting
Average
Average
Order Size