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09.IngramSM8Ch9.pptxEvaluating the Effectiveness of the Organization
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
1
Learning Objectives
Differentiate between sales organization effectiveness and salesperson performance.
Define a sales organization audit and discuss how it should be conducted.
Describe how to perform different methods of sales analyses for different organizational levels and types of sales.
Describe how to perform a cost analysis for a sales organization.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
2
Learning Objectives
Describe how to perform an income statement analysis, activity-based costing, and return on assets managed to assess sales organization profitability.
Describe how to perform a productivity analysis for a sales organization.
Define benchmarking and Six Sigma and discuss how each should be conducted.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
3
Sales Organization Effectiveness vs. Salesperson Performance
Organizational
Factors
Sales
Organization
Effectiveness
Salesforce
Nonselling
Behavior
Performance
Environmental
Factors
Salesforce
Selling
Behavioral
Performance
Salesforce
Outcome
Performance
Salesforce
Characteristics
Salesforce
Control
System
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
4
Sales Organization Audit
Comprehensive, systematic, diagnostic and prescriptive tool.
Assesses the a firm’s sales management process.
Provides direction for improved performance and 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-consuming process, the sales organization audit generates benefits that usually outweigh the costs.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
5
3
Sales Organization Audit Framework
Sales Force Management Auditor
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
6
4
SALES ORGANIZATION ENVIRONMENT
SALES MANAGEMENT EVALUATION
SALES MANAGEMENT FUNCTIONS
Extra-organizational Factors
Economic-Demographic; Political-Legal; Technological; Competitive; Market; Customer
Intra-organizational Factors
Company Organization
Sales-Marketing Department Links
Sales-Other Department Links
Marketing Mix
Adequacy of Sales Managers
Adequacy of Management Practices
Sales force Organization; Recruitment and Selection
Sales Training; Compensation and Expenses
Supervision, Morale, and Motivation
Sales Forecasting; Budgeting; Quotas
Territories and Routing; Sales Analysis
Cost/Profitability Analysis; Sales force Evaluation
Implementation of the Program
Sales Management Program
Objectives
SALES ORGANIZATION PLANNING SYSTEM
Sales Organization Effectiveness Evaluations
Multiple factors must be assessed
Four types of analyses are typically necessary to develop a comprehensive evaluation of any sales organization
Conducting analysis in each of these areas is a complex task
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
7
5
Sales Organization Effectiveness Framework
Sales Analysis
Cost Analysis
Profitability Analysis
Productivity Analysis
Sales Organization Effectiveness
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
8
5
Sales Analysis
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
What if the order is cancelled?
What if the shipment is refused?
Is it possible to have higher sales dollars with fewer units sold and lower profits?
Is it possible to have an increase in units sold without an increase in sales dollars or profits?
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
9
9
Note: this slide is constructed with layers. It won’t print correctly, but it will play correctly in the slideshow.
Sales Analysis Framework
Sales Analysis
Organizational
Level of Analysis
Type of Sales
Type of Analysis
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
10
10
Sales Analysis Framework
Sales Analysis
Organizational
Level of Analysis
Type of Sales
Type of Analysis
Sales Organization
Zones
Regions
Districts
Territories
Accounts
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
11
10
Sales Analysis Framework
Total Sales
Type of Product
Type of Account
Sales Analysis
Organizational
Level of Analysis
Type of Sales
Type of Analysis
Type of Distribution
Order Size
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
12
10
Sales Analysis Framework
Comparisons with Forecasts
Comparisons with Sales quotas
Comparisons with Previous period
Comparisons within Sales Organization
Comparisons with Industry/Competitors
Sales Analysis
Organizational
Level of Analysis
Type of Sales
Type of Analysis
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
13
10
Example 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 5
District 4
District 3
District 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
Additional
Analysis
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
14
11
Example of Type-of-Sales Analysis
Product
Type A
Product
Type B
Product
Type C
Account
Type A
Account
Type C
Account
Type Sales
Product
Type Sales
Sales
$175,000
$275,000
$300,000
$290,000
$175,000
$285,000
Account
Type B
Territory 5
Additional Analysis
Additional Analysis
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
15
11
Types of Analysis Examples
Sales
District 1
District 2
District 3
District 4
District 5
Sales Quota
$11,250,000
Sales Growth
3%
9%
6%
3%
16%
Market Share
26%
29%
29%
18%
27%
Effectiveness
Index
98
104
102
70
109
$11,000,000
$11,000,000
$12,000,000
$10,000,000
$7,000,000
$12,750,000
$13,000,000
$11,500,000
$12,000,000
Sales Last Year
$10,700,000
$10,350,000
$6,800,000
$12,250,000
$11,000,000
Industry Sales
$42,000,000
$45,000,000
$40,000,000
$45,000,000
$42,000,000
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
16
13
Cost Analysis
Assess the costs incurred by the sales organization to generate the achieved levels of sales.
Compare the costs incurred with planned budget.
Corporate resources earmarked for personal selling expenses for a designated period represent the total selling budget.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
17
9
Selling Budgets
Developed at all levels of the sales organization and for all key expenditure categories.
Objective is to determine the lowest expenditure level necessary to achieve the sales quotas.
Two approaches to setting the selling budget:
percentage of sales method
objective and task method
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
18
9
Selling Expense Categories
Compensation expenses
Salaries
Commissions
Bonuses
Total
Travel expenses
Lodging
Food
Transportation
Miscellaneous
Total
Administrative expenses
Recruiting
Training
Meetings
Sales offices
Total
Classification
Actual 2007
Original Budget 2008
April Revision
July Revision
OctoberRevision
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
19
15
Cost 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
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
20
15
Profitability Analysis
Analyzing the profitability of different organizational levels of different types of sales.
Income Statement Analysis
Activity-Based Costing
Return on Assets Managed
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
21
16
Profitability Analysis: Income Statement Analysis
Full Cost Approach: Allocate shared costs to individual units based on some type of cost allocation procedure.
Percentage of Sales: Expenditure percentage multiplied by sales forecast.
Objective and Task: Budgets and objectives/tasks are tied together during planning.
Contribution Approach: Include only direct costs in the profitability analysis.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
22
16
Profitability 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 Cost
Approach
$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
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
23
18
Profitability Analysis: Activity-Based Costing (ABC)
Allocates costs to individual units on the basis of how the units actually expend or cause these costs.
Places greater emphasis on more accurately defining unit profitability by tracing activities and their associated costs directly to a specific unit.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
24
17
ROAM = Profit contribution as percentage of sales X Asset turnover rate
= (Profit contribution / Sales) X (Sales / Assets managed)
Profitability Analysis: Return on Assets Managed Analysis (ROAM)
Calculations provide an assessment of profitability and useful diagnostic information.
ROAM is determined by both profit contribution percentage and asset turnover.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
25
17
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
District 2
District 3
District 4
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
8,800,000
5,200,000
9,600,000
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 Managed
Profit Contribution Percentage
Asset Turnover
ROAM
30%
30%
15%
5%
3.0
15%
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
26
18
Productivity 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:
Increasing output with the same level of input
Maintaining the same level of output but using less input
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
27
19
Productivity 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
District 2
District 3
District 4
$ 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
270
260
180
Number of Salespeople
20
30
20
30
Expenses/Salesperson
$ 100,000
$ 80,000
$ 150,000
Calls/Salesperson
450
250
425
$ 800,000
$ 100,000
333
Proposals/Salesperson
11
6
13
9
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
28
20
Benchmarking
Benchmarking is an ongoing measurement and analysis process that compares an organization’s current operating practices with the “best practices” used by world-class organizations.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
29
7
Benchmarking Process
Plan
Identify what to benchmark.
Identify comparative companies or salesforces.
Gather Data
Determine data collection method and collect data.
Analyze & Communicate
Determine current performance gap.
Project future performance levels.
Communicate benchmark findings and gain acceptance.
Implement & Control to Improve Performance
Establish functional goals.
Develop action plans.
Implement specific action plans and monitor progress.
Recalibrate benchmark.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
30
8
Six Sigma
Data-driven methodology that attempts to eliminate defects in any process.
Six Sigma – 3.4 mistakes per million opportunities.
Improve processes by reducing variation
Credited with saving large companies hundreds of millions of dollars.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
31
Ethical Issues
A salesperson has been on the road for a week and incurs laundry expenses. He knows that if he places the laundry expenses under the miscellaneous expense category in his expense report, he will have to provide receipts. He decides that he can include them under the meals category because receipts are not required for this category as long as he stays under his per-diem allowance.
A salesperson is trying to get the customer to purchase a new product. He decides to take three individuals from the customer’s firm to dinner and a basketball game, even though he knows that he has exceeded his entertainment budget for the month. He thinks about hiding these entertainment expenses in different categories in his expense report.
Chapter 9: Evaluating the Effectiveness of the Organization
Ingram
LaForge
Avila
Schwepker Jr.
Williams
Sales Management: Analysis and Decision Making
32
