Sales Force Management
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Chapter12MKTG341.pptMcGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Mark W. Johnston | Greg W. Marshall
Evaluation and Control of the Sales Program
Part 3
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12
Cost Analysis
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Real Cost Analysis Lead to Real Benefits
Source: HR Chally Group (2009)
Greater
customer
satisfaction
Operational
excellence/
improved
performance
Effective
cost analysis
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- Select appropriate cost allocation method for various sales management situations
- Describe how to implement methods
- Discuss importance of (ROAM) and calculate
- Apply financial cost analyses to sales management situations to make decisions
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12.1 Customer Lifetime Value Analysis
- Determine real costs associated with each customer
- Some portion of overhead
- Salesperson’s time
- Customer service contact
- Sales terms
- Payment schedules
- Largest customers may not be most profitable
- Allows companies to assign resources strategically
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Cost Analysis Development
- Sales managers need accurate knowledge of profitability of
- Customers
- Geographic areas
- Products
- Markets
- Three approaches
- Full costing
- Contribution analysis
- Activity-based costing (ABC)
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Full Cost vs. Contribution Margin
- Full-cost (net profit) - many of the indirect costs can be assigned on the basis of a demonstrable cost relationship
- Contribution margin - direct product costs identified associated with revenue to yield a true Gross Profit
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12.1
Differences in perspective between full-cost and contribution margin approaches to marketing cost analysis
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12.2
Profit and loss statement by department using a full-cost approach
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12.3
Profit and loss statement if department 1 were eliminated
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12.4
Contribution margin by departments
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ABC Accounting
- Activity-based costing (ABC)
- Allocates costs to activities
- Identifies fixed cost components for production and sales and associates them with the products sold
- Costs once assumed to be fixed in the short-run can be associated with operating units such as a sales office
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Source: Adapted from James M. Reeve, “Activity-Based Cost Systems for Functional Integration and Customer Value,” in Competing Globally through Customer Value: The Management of Strategic Suprasystems, eds. Michael J. Stahl and Gregory M. Bounds (New York: Quorum Books, 1991), p. 501.
12.5
A diagram of activity-based costing
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Source: Robert A. Dwyer and John F. Tanner, Jr., Business Marketing: Connecting Strategy Relationships and Learning (New York: McGraw-Hill, 1999).
12.6
Comparison of contribution and ABC methods
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12.7
Steps in conducting a marketing profitability analysis
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12.8
Major functional accounts that are useful in marketing cost analysis
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Functional cost groups and bases of allocation
12.9a
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Functional cost groups and bases of allocation
12.9b
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Functional cost groups and bases of allocation
12.9c
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Functional cost groups and bases of allocation
12.9d
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12.2 The T&E Expense Account
- Travel and entertainment account
- Fraud related to T&E has increased
- Two common frauds
- Mischaracterized expenses
- Overstated expenses
Sources: Jay Boehmer, “Expense Fraud Explodes,” Business Traveler News, August 11, 2003, pp. 1, 68–69. Ronald Jelinek and Michael Ahearne, “The ABC’s of ACB: Unveiling a Clear and Present Danger in the Sales Force,” Industrial Marketing Management 35, no. 4 (May 2006), p. 457. ———, “The Enemy Within: Examining Salesperson Deviance and Its Determinants,” The Journal of Personal Selling & Sales Management 26, no. 4 (Fall 2006), p. 327.
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12.10
Example profit and loss statement
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12.11
Allocation of natural accounts to functional accounts
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12.12
Basic data used for allocations
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12.13
Profitability analysis by salesperson
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12.14
Activities of Tucker broken down by account
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12.15
Profitability analysis for Tucker broken down by customer
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Marketing Cost Analyses +/-
- Benefit - isolates most/least profitable segments of business
- Combined with effective sales analysis, provides a formidable tool for managing personal selling
- Improves planning and control
- Required data may be costly to acquire, maintain
- Cost allocation decisions can be difficult
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Return on Assets Managed
- Sales analysis - measures the results achieved by the sales force.
- Cost analysis - measures the cost of producing those results.
- ROAM = Contribution as a percentage of sales x Asset turnover rate
- Contribution as percentage of sales = ratio of net contribution divided be sales
- Asset turnover rate = sales divided by the assets needed to produce those sales
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12.16
Analysis of return on assets managed
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Expanded return on assets managed (ROAM) model
12.17
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Impact of a reduction in accounts receivable to $250,000 in branch A
12.18
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McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Mark W. Johnston | Greg W. Marshall
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