LECTURE 6

CONTROLLING THE SALES TEAM

Content
Chapter 15 Analysis of Sales and Marketing Costs
Chapter 16 Evaluation of Salespeople's Performance

2
Outline of Chapter 15
1. MARKETING AUDIT
2. NET SALES VOLUME ANALYSIS
3. MARKETING COST ANALYSIS

4
MARKETING AUDIT
The marketing audit is an evaluation tool designed
to appraise the entire marketing operation in a
systematic and comprehensive manner.

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MARKETING AUDIT
Sales Force Audit
A sales force audit involves the same six factors the
marketing audit measures but is designed to evaluate selling
strategy and to improve overall sales force effectiveness.
Some questions a sales force audit answers:
1. Are motivational techniques contributing to overall goals?
2. What are the target markets characteristics, and how is the
company/ the competition responding to them?
3. What are the product lines characteristics, and how competitive
are the product lines and sales policies of salespeople?
4. Are adequate controls available to direct the selling effort?
5. How well defined are the sales strategies, and how effectively are
they contributing to the sales divisions objectives?

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MARKETING AUDIT
Sales Force Audit
The 80/20 or concentration principle states that the
majority of a companys sales (or profits) may result
directly from a very small number of the companys
accounts, product or price lines, or geographic areas.

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MARKETING AUDIT
Directing the marketing effort
Marketing dollars must be allocated in a way that best
generates high sales volume and net profits by
concentrating marketing effort in the most profitable
areas.
Iceberg Principle: The iceberg principle refers to the
effect that averaging, summarizing, and aggregating data
can have on presenting the true sales or profit picture and
underlying problems.

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MARKETING AUDIT
Directing the marketing effort
Analysis is necessary to uncover the reason for poor
performance:
1. Was the quota set too high?
2. Are salespeople having trouble with a particular product line?
3. Can the problem be narrowed down to a particular
salesperson, sales district, product, or price line?
4. Do any sales divisions or districts have poor management?

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NET SALES VOLUME ANALYSIS
What is sales analysis?
Sales analysis is the detailed examination of a companys sales
data and involves assimilating, classifying, comparing, and
drawing conclusions.
Accumulation of Sales Analysis Information
Product lines
Geographic areas
Customer classes
Order sizes
Time periods
Methods of sale
Organizational units
Salespeople

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NET SALES VOLUME ANALYSIS
What is sales analysis?
Uses of Sales Analysis
Establishment of the sales forecasting system.
Development of sales performance measures.
Evaluation of market position.
Production planning and inventory control.
Maintaining appropriate product mixes.
Modifying the sales territory structures.
Planning sales force activities.
Evaluation of salespeoples performance.
Measuring the effect of advertising and other sales promotional activities.
Modifying channels of distribution.
Evaluating channels of distribution.

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NET SALES VOLUME ANALYSIS
Analyzing sales volume
1. Total sales volume is the first indication of how the
company is faring in the marketplace.
2. Sales by region: district. Retail sales index is a
relative measure of the dollar volume of retail sales
that normally occur in each respective district.
3. Sales by salesperson
4. Sales by customer classifications
5. Sales by product

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Sales by region

Imperial Home Appliance Corp.: Total Sales Volume (Millions)

13
 Sales by region

Imperial Home Appliance Corp.: Regional Breakdown of Sales Volume

(Thousands)
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Sales by region

Imperial Home Appliance Corp.: Pacific Regional (Thousands)

15
 Sales by Salesperson

Imperial Home Appliance Corp.: Pacific Regional, N. California District (Thousands)

16
Sales by Customer Classification

Imperial Home Appliance Corp.: Sales Performance by Customer, R. Stevens,

N. California District (Thousands)

17
Sales by Product

Imperial Home Appliance Corp.: Sales Performance by Product Line, R. Stevens,

N. California District (Thousands)

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MARKETING COST ANALYSIS
What is marketing cost analysis?
Marketing cost analysis, or distribution cost analysis, is
the analysis of costs that affect sales volume, with the
purpose of determining the profitability of different
segment operations.
Profitability is determined by sales volume and its
associated costs and expenses.

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MARKETING COST ANALYSIS
What is marketing cost analysis?
Marketing costs analysis can be invaluable in determining
answers to these questions:
Which customers/accounts are unprofitable because of order size or
geographic location?
What is the minimum order size that can be filled profitably?
Which distribution channel will be the most profitable for the firm
to use?
Which territories are potentially most profitable?
What profit contribution does each salesperson make?
Can cost improvements be made in physical distribution facilities?
Which product lines are unprofitable or could be improved in their
profitability?

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MARKETING COST ANALYSIS
Uses of marketing cost analysis
An integral part of the decision-making process.
Serves as the basis for management decisions.
Accountability.

Objectives of marketing cost analysis

The major objectives of marketing cost analysis are to
determine the isolated contributions made to profitability
and to evaluate the efficiency of all phases of the
companys marketing structure in terms of corporate
goals and objectives.
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MARKETING COST ANALYSIS
Objectives of marketing cost analysis
Two important uses of marketing cost analysis are:
1. Determining which marketing strategies are the best.
2. Isolating problem areas.

Assigning marketing costs. Marketing vs. Production

Costs
A production cost is the cost incurred by processing a product
from its raw elements to a finished state.
Marketing, or distribution costs, can be broken down into two
distinct categories:
. Costs incurred by getting orders.
. Costs incurred by filling orders.

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Figure 15.1. Categories of marketing costs

Marketing (Distribution) Costs

Order-Getting Costs Order-Filling Costs

Direct Selling Physical Distribution
Sales Promotion Shipping
Advertising Transportation
Market Research Warehousing
Sales Promotion Material Handling
Administrative Credit and Collection
Administrative

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MARKETING COST ANALYSIS
Methods for determining profitability
With the full cost (or net profit) approach, all costs
(variable and fixed) are allocated among the market
segments using the categories of goods sold (production
costs) and operating expenses (nonproduction costs,
including marketing costs).
In the contribution margin approach, costs are
separated according to controllability.

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MARKETING COST ANALYSIS
Methods for determining profitability
Commonly Used Cost Classifications
Direct cost
Indirect cost
Fixed cost
Variable cost
Standard cost
Controllable cost
Uncontrollable cost

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MARKETING COST ANALYSIS
Techniques of cost analysis
1. Direct expenses are measured and assigned to their respective
segments.
2. Indirect expenses are allocated to functional cost groups.
3. Assignable fixed costs are included in the functional cost
groups.
4. A variable activity is chosen for a cost allocation basis, and total
variable activity is measured.
5. The variable-activity share of each of the functional cost groups
is noted.
6. A segments relative profitability is determined by gross margin
less direct expenses and costs assignable to functional cost
groups.

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MARKETING COST ANALYSIS
Return On Investment
Return On Investment (ROI) also called return on
assets, a measurement firms use to determine how
effectively the assets of a given operation are used. By
definition:

The equation may be rewritten as follows for an isolated

segment:

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MARKETING COST ANALYSIS
Increasing Productivity
Productivity may be increased for marketing operations in three
ways:
1. Sales increases
2. Cost reductions
3. Eliminate or reduce emphasis on unprofitable products

Problems in cost analysis

1. Less emphasis and cost are much more difficult to allocate
fairly, since functional classifications are used.
2. Difficulty in predicting the effect on sales volume if cost
fluctuates.
3. Also constrained by the marketing manager's limitations.

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MARKETING COST ANALYSIS
Variance Analysis
Variance analysis identifies the factors that cause the
discrepancy between standard and actual costs, with the
ultimate goal of resolving the inefficiencies.

The variances may be computed as price variances and

quantity variances:

Price Variance = (Standard Price Actual Price) x Standard Units

Quantity Variance = (Budgeted Work Units Actual Work Units)

x Standard Price

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THE BOTTOM LINE OF THE CHAPTER
Net sales volume analysis and marketing cost analysis are
useful to the marketing manager for planning and
controlling the marketing program.
A marketing audit is a systematic appraisal of the
marketing operations as a whole, which aids in effective
control and in developing new strategies.
Misdirected marketing effort occurs when management
ignores the effects of the 80/20 and iceberg principles.
Sales analysis is the detailed analysis of a companys sales
data and may incorporate breakdowns by account,
customer class, territory, product line, and other
categories.
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THE BOTTOM LINE OF THE CHAPTER
Sales volume analysis alone is insufficient as a basis for
marketing decisions.
Marketing cost analysis is primarily concerned with marketing
costs.
Commonly used cost classifications include direct versus indirect
costs, fixed versus variable costs, standard costs, and controllable
versus uncontrollable costs.
Two separate approaches may be taken for determining aggregate
or segment profitability: full cost or contribution margin.
The productivity of marketing operations can be increased by
minimizing unit costs and maximizing net profit.
Variance analysis is useful for cost control.

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CHAPTER 16.
EVALUATION OF SALESPEOPLES
PERFORMANCE

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Outline of Chapter 16
1. PERFORMANCE APPRAISAL--WHAT ARE
THEY?
2. PERFORMANCE APPRAISAL'S
RELATIONSHIP TO BEHAVIOR
3. PERFORMANCE APPRAISAL PROCESSES
AND PROCEDURES
4. THE LEGAL ASPECTS OF PERFORMANCE
APPRAISALS
5. RULES TO PERFORMANCE APPRAISALS
6. CONDUCTING THE APPRAISAL SESSION
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PERFORMANCE APPRAISALS WHAT
ARE THEY?
Performance Appraisal a formal, structured
system of measuring and evaluating a salesperson's
activities and performance.
The Purpose and Importance of Performance
Appraisals.
Numerous specific reasons for performance appraisals
exist:
Compensation Penalties
Development Personnel
Feedback Planning
Goals Promotion
Legal Compliance Training
Motivation
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Table 16.1. Comparison of Evaluative and Developmental Aspects of
Performance Appraisal

COMPARISON EVALUATIVE ROLE DEVELOPMENTAL ROLE

FACTORS
Time Past sales performance Future performance
Objective Improve performance by Improve performance through self-
rewarding based on learning, e.g., taking selling
performance courses
Method Use of evaluation forms Management by objective (MBO)
approach to goal setting, career
planning
Managers role Evaluate performance Encourage and help salesperson
Salespersons Explain past performance; Active involvement in developing
role react to evaluation future career and performance
plans
PERFORMANCE APPRAISAL'S
RELATIONSHIP TO BEHAVIOR
The performance level a salesperson attains results
from a combination of the individuals effort and
ability. Ability, in turn, reflects the individuals
skills, training, information, and talents.
After determining the equity of and satisfaction
from the rewards resulting from the appraisal, the
individual again asks these four questions:
1. What is the probability of success?
2. Will I be rewarded for success?
3. Are the rewards worth it?
4. Are the rewards fair?

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Figure 16.1. The Performance Appraisals Influence on Sales Personnel Motivation,
Behavior, and Performance

P er fo r m a n ce
A p p ra isa l

M o tiv a tio n P er fo r m a n ce E q u ity

E ff o r t R ew a r d s S a tisfa ctio n
to W o rk L ev el D eter m in a tio n

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PERFORMANCE APPRAISAL
PROCESSES AND PROCEDURES
Figure 16.2. The Salesperson Performance Appraisal System with Its Numerous
Parts, Processes, and Procedures
Purpose of
Performance
Evaluation
Jo b Evaluative
D e s c rip tio n Compensation
P la n n i n g Legal
Penalties
J o b A n a ly s is Jo b P e rfo r m a n c e Personnel
R e q u ir e m e n ts I m p le m e n tin g
D im e n s io n s C rite ria Promotion
Developmental
E v a lu a tin g Development
Jo b
S p e c i fi c a t i o n s Feedback
Goals
Motivation
Planning
Training

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PERFORMANCE APPRAISAL
PROCESSES AND PROCEDURES
Planning, implementing, and evaluating the
performance appraisal system involves:
1. Who should evaluate salespeople?
2. When should salespeople be evaluated?
3. Are the criteria appropriate?
4. What forms should be used for gathering information?
5. What may influence the appraisals accuracy?
6. How should the appraisal be conducted?
7. How can the appraisal process be evaluated?

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PERFORMANCE APPRAISAL
PROCESSES AND PROCEDURES
A. Who should evaluate salespeople?
The primary evaluator should be the salespersons
immediate supervisor because this person has direct
knowledge, having actually worked with the salesperson.
B. When should salespeople be evaluated?
Salespeople should be evaluated at the end of each
performance cycle.
A performance cycle is a period related to specific
product goals or job activities.

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Figure 16.3. Possible Management Input into the salespersons Performance Evaluation

Regional Manager

D is tric t D is tric t H o m e O ff i c e S a l e s p e r s o n s I m m e d i a t e D is tric t D is tric t

M anag er M an ag er P e rs o n n e l S p e c ia lis t D is tric t M a n a g e r M an ag er M an ag er

S a le s p e r s o n

D ire c t in p u t p e rfo r m a n c e e v a lu a tio n

I n d i r e c t i n p u t p e r f o r m a n c e e v a lu a t i o n

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PERFORMANCE APPRAISAL
PROCESSES AND PROCEDURES
C. Are the performance criteria appropriate?
A criterion is a standard on which a judgment or
decision may be based.
Guidelines for Performance Criteria
Measurable
Practical
Relevant
Discriminating
Stable
Development of performance criteria
Quantitative performance criteria
Qualitative performance criteria
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Development of performance criteria -
Quantitative Performance Criteria
Sales volume
a) Percentage of increase
b) Market share
c) Quotas obtained
Average sales calls per day
New customers obtained
Gross profit by product, customer, and order size
Ratio of selling costs to sales
Sales orders
a) Daily number of orders
Total
By size, customer classification, and product
b) Order to sales-call ratio
c) Goods returned

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Development of performance criteria -
Qualitative Performance Criteria
1. Sales Skills
a. Finding selling points
b. Product knowledge
3. Personal traits
c. Listening skills
a. Attitude
d. Obtaining participation
b. Empathy
e. Overcoming objections
c. Human relations
f. Closing the sale
d. Team spirit
2. Territorial management
e. Appearance
a. Planning
f. Motivation
b. Utilization
c. Records
g. Care of car
d. Customer service h. Self-improvement
e. Collections
f. Follow-up

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PERFORMANCE APPRAISAL
PROCESSES AND PROCEDURES
D. Performance Evaluation Forms For Gathering
Information
1. Graphic appraisal scales are a way of evaluating
sales people's performance in which the manager fills
out a form appraising all performance criteria.
2. Descriptive statements are a method for performance
appraisal requiring the manager to provide a detailed
written description of each salesperson's performance.

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PERFORMANCE APPRAISAL
PROCESSES AND PROCEDURES
D. Performance Evaluation Forms For Gathering
Information
3. Management by objectives (MBO) is an evaluation
program in which salespeople are given objectives and
their actual results are compared with the objectives to
evaluate performance on a performance index.
4. Behaviorally anchored rating scales (BARS) is an
evaluation program in which the manager determines a
salesperson's performance in very specific areas,
compares it with others, and rates the performance,
providing feedback to the salesperson.
5. 360-Degree feedback
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PERFORMANCE APPRAISAL
PROCESSES AND PROCEDURES
E. Influences On Performance Appraisals Accuracy
1. New sales managers
2. False performance results
3. Personalities enter in
Central tendency errors are the tendencies of managers to rate all of their
salespeople as average on all performance criteria.
Different evaluation standards
The halo effect is a positive or negative "aura" associated with an
individual.
The recent performance error is a tendency to evaluate total
performance on the last or most recent part of an individual's performance.
4. The Managers Attitudes
5. Salespeoples Expectations

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RULES FOR PERFOMANCE
APPRAISALS
Be Objective
Set Goals and Standards
Be Honest
Be Consistent
Use Proper Documentation
Follow Company Policy

48
CONDUCTING THE APPRAISAL
SESSION
Possibly the most challenging part of a managers
job is effectively conducting the performance
appraisal session.
1. Both manager and salesperson should be prepared for
the interview.
2. Be positive.
3. Actually review performance.
4. Finalize the performance evaluation.
5. Summarize the total performance evaluation.
6. Develop mutually agreed upon objectives.
7. Formalize the evaluation and objectives.
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CONDUCTING THE APPRAISAL
SESSION
The following are important when reviewing
performance:
An open discussion of each performance criterion.
The salespersons discussion of performance.
The salespersons evaluation of his or her own
performance.
The managers view of performance.
Mutual agreement on the performance level that must be
established.
If disagreement occurs, the managers careful
explanation of why a low evaluation was given.
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 Table 16.5. DOS AND DONTS ON TERMINATION
DOS
Put everything in writing. Leave a paper
trail. Use a witness to the discussions on
unacceptable performance.
Sit down one-on-one with the individual
in a private office.
Complete a termination session within
15 minutes.
Provide a written explanation of
severance benefits.
Provide outplacement services away
from company headquarters.
Be sure the employee hears about his or
her termination from a manager, not a
colleague.
Express appreciation for what the
employee has contributed, if appropriate.
DONTS
Dont leave room for confusion about
the firing. Tell the individual in the
first sentence that he or she is
terminated.
Dont allow time for debate during the
termination session.
Dont make personal comments when
firing someone; keep the
conversation professional.
Dont rush a fired employee offsite
unless security is an issue.
Dont fire people on significant dates,
like the 25th anniversary of their
employment or the day their mother
died.
Dont fire employees when they are on
vacation or have just returned.
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Evaluate the evaluation system
The specific evaluation of a sales forces appraisal system
requires the examination of several aspects of the entire
system.
The following questions can provide an assessment of the
specific components:
1. What does the sales force want its performance appraisal system
to do? Does the firm have goals and objectives for the system?
2. Do procedures exist for gathering data to measure how well the
goals and objectives are being met?
3. Do the appraisal forms really elicit the information to serve
these goals and objectives?
4. Are the appraisal interviews done effectively?

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 Figure 16.6 the relationship of marketing to sales force management

M a rk e tin g M a n a g e m e n t
P ro d u c t

s
e
M a rk e t E n tr y

g
D e fi n e M a r k e t

a
ti
e
S eg m en ts an d

Sr
t
T a rg e t M a rk e ts

M x
C o rp o ra te P r ic e

i
s

g
er

n -
E n v ir o n m e n ta l M i s s io n M a r k e t in g
m

e
o

ti
A n a ly s is an d O b j e c t iv e s

k
t

M
us

ar
O b j e c t iv e P la c e a n d
C

D is trib u tio n

p
E s t im a te M a r k e t

o
e
P o te n tia l a n d

v
e
Dl
F o r e c a s t S a le s
P r o m o t io n

53
 Figure 16.6. The relationship of marketing to sales force management
continued

S a le s F o r c e M a n a g e m e n t
F eed b ack
D e fi n e
R o le s a n d S t a ff i n g
M a rk e ts
o f S a le s F o r c e
M a r k e tin g -
C o rp o ra te
P la n S a le s M ix
S a le s F o r c e P e rfo rm an c e

rs
F o rc e E v a lu a t i o n

me
T r a in in g P e rfo rm an c e ROA
O b j e c t iv e s , P ro d u ct

o
A n a ly s is S a le s

st
S tra te g ie s, P r o m o tio n

u
M ark e t

C
a n d E v a lu a tio n
T a c tic s P r ic e S h are
C h a n n e ls
E s t a b li s h
O r g a n iz a tio n a l D ir e c t i n g
D e s ig n
a n d S tr u c tu re
F eed b ack
F eed b ack

F eed b ack

54
THE BOTTOM LINE OF CHAPTER 16
Effective job performance is essential for
organizations to stay in business and for salespeople to
keep their jobs.
Managers must be aware of the legal repercussions of
performance appraisals.
Companies must develop, relevant, discriminating, and
stable criteria.
Performance evaluations serve to reward effective
performers and penalize ineffective salespeople.
Many difficulties can be corrected if performance
evaluations are effectively conducted.
55