Copyright 2006 by The McGraw-Hill Companies, Inc.

McGraw-Hill/Irwin
 Chapter 5

The Strategic Role of Information

in Sales Management

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives
• Discuss the differences between market potential, sales potential,
sales forecast, and sales quota.
• Understand the various methods by which sales managers develop
sales forecasts.
• Outline the process of setting a sales quota.
• Explain the various types of quotas used in sales management.
• Discuss key approaches to determining sales force size.
• Describe the sales territory design process.
• Understand the importance of sales analysis for managerial decision
making.
• Conduct a sales analysis.

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 Information Drives Management
Decision Making and Planning
• Sales forecasts
• Territory estimates
• Quotas
• Sales force size
• Sales territory design

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 Market Opportunity Analysis
• Market potential –estimate of possible sales of
a commodity, a group of commodities, or a
service for an entire industry in a market during
a stated period under ideal conditions
• Sales potential – the portion of the market
potential that the firm can expect to reasonably
achieve
• Sales forecast – an estimate of the dollar or unit
sales for a specified future period
• Sales quotas – sales goals assigned to a
marketing unit for use in managing sales efforts

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 Subjective Methods of Sales
Forecasting
• User expectations – buyer indicates
intention to purchase
• Sales force composite – sales force
opinions
• Jury of executive opinion - key experts’
opinions
• Delphi technique – each participant
prepares an estimate, and these are
compared anonymously and iteratively

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 Objective Methods of Sales
Forecasting
• Market test – place product in select
areas
• Time series analysis – relies on historical
data to develop predictions for the future
• Statistical demand analysis – attempts
to make a comparison to determine the
relationship between sales and factors that
influence sales

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 Forms of Time Series Analysis
• Moving average – averaging sales results over
previous time periods to forecast into the future
• Exponential smoothing – a type of moving
average where most recent years are given
more weight
• Decomposition – applied to monthly or
quarterly data where seasonal pattern is evident
• A critical adjustment is that of seasonality and
cyclical factors

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 Choosing a Forecasting Method
• Which forecasting method should be used and
how accurate is the forecast likely to be?
• In general, the various forecast comparisons
suggest that no method remains superior under
all conditions.
• Good forecasters apply multiple forecasting
methods to the problem
• Scenario planning prepares a series of “what-if”
questions and produces possible outcomes

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 Developing Territory Estimates
• Territory estimates effect:
– The design of sales territories
– Procedures for identifying potential customers
– The establishment of sales quotas
– Compensation and its subcomponents
– The evaluation of salesperson performance

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 Planning Tools
• North American Industry Classification System
(NAICS)
– Developed by the US Bureau of the Census,
organizes the reporting of business information
– Each industry in the US is assigned a two-digit
number
• Buying Power Index (BPI)
– Generated and published by Sales Marketing
Management Magazine, considers income,
population and retail sales
– Most useful with low-priced convenience goods

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 Sales Quotas
• Goals assigned to salespeople
• Apply to specific periods and may be
expressed in dollars or physical units
• Tool for sales managers’ planning and
controlling field selling activities and
results
• Benchmark for evaluating sales
effectiveness
• Motivate sales people

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 Purpose of Quotas
• Quotas facilitate planning and control of
the field selling effort
– Provide incentives for sales representatives
– Provide measures to evaluate salespeople’s
performance.

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 Characteristics of a Good Quota
• Attainable
• Easy to understand
• Complete
• Timely

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 Types of Quotas
• Those that emphasize sales or some
aspect of sales
• Those that focus on sales activities
• Those that examine financial criteria such
as gross margin or contribution to
overhead

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 Sales Volume Quotas
• Often based on past sales.
• Related directly to market potential, thus
credible and easily understood.
• May be expresses in dollars, physical
units, or points.

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 Activity Quotas
• Reflect territorial conditions
• Require a detailed analysis of the work
required for effective territorial coverage
• Customers influence activity quotas
through:
– Account and order size
– Purchasing patterns
– Support required for satisfaction

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 Financial Quotas
• Reflect the financial goals of the firm
– Sales volume
– Gross margin
– Intended profit margin
– Additional sales potential
– Cost of support and service

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 Determining Sales Force Size
• Salespeople are among the most
productive assets of a company, and they
are also among the most expensive!
• How can an optimal sales force be
established?
• Breakdown method:
Sales Volume
Number of sales
personnel needed =
Productivity

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 Determining Sales Force Size
• Workload method uses the buildup
method to estimate the work required to
serve the entire market
• Incremental method suggests that sales
representatives should be added as long
as the incremental profit produce by their
addition exceeds the incremental cost

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McGraw-Hill/Irwin 5-24 Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
 Sales Analysis
• Simple sales analysis - facts are listed and
not measured against any standard
• Bases for sales comparison
– Quotas
– Comparative sales forecast
– Forecast vs. actual
• Reports can focus on exceptions or
significant deviations from the financial
norms or budget.

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 Key Terms
• market potential •North American Industry
• sales potential Classification System (NAICS)
• sales forecast •sales volume quotas
• sales quotas •activity quotas
• subjective forecasting methods •financial quotas
– user expectations method •sales force deployment
– sales force composite •breakdown method
– jury of executive opinion •workload method
– Delphi technique •incremental method
• objective forecasting methods •account analysis
– market test •sales analysis
– time-series analysis
•80:20 principle
• moving average
• exponential smoothing •enterprise resource planning (ERP)
• decomposition •Buying Power Index (BPI)
• seasonality •iceberg principle
– statistical demand analysis •isolate and explode
– scenario planning

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 Mark W. Johnston Greg W. Marshall
Rollins College Rollins College
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