Chapter - 16 Sales and Cost Analysis

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Learning Objectives

Understand the concept, features, and methods of sales analysis Appreciate the importance of sales quota and guidelines for setting the sales quota Know the methods of determining the sales quota Understand the concepts and objectives of cost analysis Identify the areas of cost control in improving sales Learn the methods of determining cost
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Definition of Sales Analysis

Morris (1992) defined sales analysis as breaking down of sales, costs, and profit levels by products, product line, territory, customer segments, salespeople, and distributor types to generate a complete frame of sales performance in a geographic area within a limit.

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Features of Sales Analysis

Comprehensive study made to evaluate sales performance. Integral step of sales audit. Gives accuracy in sales forecasting. Controls sales activities. Reveals strengths and weaknesses of sales plans. Helps to understand the efficacy of sales operations.

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Features of Sales Analysis

It is necessary to study cost effectiveness and efficiency of sales operations. It is a tool to measure sales productivity. It is important to understand the sales potential of a geographic area. It is important to classify territories into high, moderate and low potential units.

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Features of Sales Analysis

Guides in detecting the sales problems in an area. Helps to estimate a companys actual market share. It is a part of companys strategic sales management programme.

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Sales Analysis at Individual Units

Salespeople as a unit. Product/Product line as a unit. Customers as a selling unit. Territory as a selling unit.

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Methods of Sales Analysis

Sales variance analysis. Unit-based sales variance. Sales effectiveness index. Sales growth. Market Share analysis.

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Definition of Sales Quota

Kurtz and Boone (2009) defined sales quota as the specified sales or profit targets that the firm expects salespeople to achieve.

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Sales Quota- A Tool for Sales Analysis

A quota is a quantitative standard being allocated to the sales units and is expressed in absolute terms. Quotas help compare actual sales with target sales. Quota is the benchmark which sales managers use to perform sales analysis.

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Types of Sales Quota

Sales volume quota. Financial quota. Activity quota. Combination quota

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Sales Volume Quota

Sales in monetary terms ( rupees, dollars, etc.) Sales in units (number of pieces) Sales in quantity (kilograms, pounds, etc.)

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Financial Quota
Gross margin or net profit. Budget quota can consider selling expenses as well. Ideal to use when companies handle low and high margin products.

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Activity Quota
Number of sales calls. Number of new customers procured. Number of sales demonstrations made. Number of intermediaries handled. Number of installations or commissioning works completed in customer premises. Number of missionary-selling activities undertaken. Oxford University Press 2011

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Cost Analysis

Cost analysis is the review and evaluation of a companys cost data and its comparison with the anticipated cost data furnished in the annual budget.

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Classification of Costs
Selling overheads. Distribution overheads. Expired costs. Deferred costs. Fixed and variable costs

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Cost Control
Spot the redundant expense items. Route plans. Travelling costs. Time schedules. Product/service quality. Proper selection and training of salespeople.

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Cost Control
Cost of sales force supervision. Planning promotional budget carefully. Control of costs of logistics.

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Methods of Cost Analysis

Gross Profit and Net Profit Ratios. Expense Ratios. Break-even Analysis. Achieving Target Profits. Preparation of Income Statement. Return on Investment (ROI) Return on Assets managed (ROAM)

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