CH 4 Sales Management

Sales Organization Structure
and Salesforce Deployment
Sales Management:
Analysis and Decision Making
Module 4:
Sales Organization Structure and Salesforce Deployment
Ingram
LaForge Avila
Schwepker Jr. Williams
Learning Objectives
1. Define the concepts of specialization, centralization,
span of control versus management levels, and line
versus staff positions.
2. Describe the ways salesforces might be specialized.
3. Evaluate the advantages and disadvantages of sales
organization structures.
4. Name the important considerations in organizing
strategic account management programs.
5. Explain how to determine the appropriate sales
organization structure for a given selling situation.
Sales Management:
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Learning Objectives
6. Discuss salesforce deployment.

7. Explain three analytical approaches for determining
allocation of selling effort.
8. Describe three methods for calculating sales force
size.
9. Explain the importance of sales territories and list
the steps in the territory design process.
10. Discuss the important people considerations in
salesforce deployment.
Sales Management:
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Sales Organization Concepts
Specialization
The degree to which individuals perform some of the required
tasks to the exclusion of others.
Individuals can become experts on certain tasks, leading to
better performance for the entire organization.
Centralization
The degree two which important decisions and tasks performed
at higher levels in the management hierarchy.
Centralized structures place authority and responsibility at higher
management levels.
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Sales Force Specialization Continuum
Generalists
All selling activities
and all products to
all customers
Sales Management:
Some specialization
of selling activities,
products, and/or
customers
Specialists
Certain selling
activities for certain
products for certain
customers
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Span of Control vs. Management Levels
Flat Sales Organization
District
Sales
Manager
District
Sales
Manager
District
Sales
Manager
District
Sales
Manager
District
Sales
Manager
Management Levels
National
Sales
Manager
Span of Control
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Span of Control vs. Management Levels

Tall Sales Organization
National Sales
Manager
District
Sales
Manager
District
Sales
Manager
District
Sales
Manager
Regional Sales
Manager
District
Sales
Manager
District
Sales
Manager
District
Sales
Manager
Management Levels
Regional Sales
Manager
Span of Control
Sales Management:
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Line vs. Staff Positions

National Sales Manager
Sales Training Manager
Regional Sales Managers

Sales Training Manager
District Sales Managers
Staff Position
Salespeople
Sales Management:
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Line Position
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Selling-Situation Factors and

Organizational Structure
Organizational
Structure
Environmental
Characteristics
Task
Performance
Performance
Objective
Specialization
High
Environmental
Uncertainty
Nonroutine
Adaptiveness
Centralization
Low
Environmental
Uncertainty
Repetitive
Effectiveness
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Customer and Product Determinants

of Sales Force Specialization
Customer Needs Different
Simple
Product
Offering
Complex
Range of
Products
Customer Needs Similar

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Geographic Sales Organization
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Product Sales Organization
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Market Sales Organization
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Functional Sales Organization
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Identifying Strategic Accounts
Size of Account
Large
Small
Large
Account
Strategic
Account
Regular
Account
Complex
Account
Simple
Complex
Complexity of Account
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Strategic Accounts Options
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Comparison of
Sales Organization Structures
Organizational
Structure
Geographic
Product
Sales Management:
Advantages
Low Cost
No geographic duplication
No customer duplication
Fewer management levels
Salespeople become experts
in product attributes &
applications
Management control over
selling effort
Disadvantages
Limited specialization
Lack of management
control over product or
customer emphasis
High cost
Geographic duplication
Customer duplication
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Comparison of
Sales Organization Structures
Organizational
Structure
Market
Functional
Sales Management:
Advantages
Disadvantages
Salespeople develop better

understanding of unique
customer needs
Management control over
selling allocated to different
markets
High cost
Efficiency in performing
selling activities
Customer duplication
Need for coordination
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Hybrid Sales Organization Structure
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Salesforce Deployment
Salesforce deployment decisions can be viewed as
providing answers to three interrelated questions.
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Interrelatedness of
Salesforce Deployment Decisions
Allocation of
Selling Effort
Salesforce
Size
Territory
Design
Sales Management:
How much selling effort is needed to cover

accounts and prospects adequately so that sales
and profit objectives will be achieved?
How many salespeople are required to provide the

desired amount of selling effort?
How should territories be designed to ensure proper

coverage of accounts and to provide each
salesperson with a reasonable opportunity for
success?
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Interrelatedness of
Salesforce Deployment Decisions
Allocation of
Selling Effort
Salesforce
Size
Territory
Design
Sales Management:
2,000 accounts x 25 sales calls/account = 50,000

sales calls required to cover accounts
50,000 sales calls required 1,250 sales calls/

salesperson = 40 salespeople needed
40 territories needed to provide each salesperson with

opportunity for success and to ensure proper
coverage of accounts (e.g. 50 accounts per territory)
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Analytical Approaches to
Allocation of Selling Effort
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Single Factor Models
Easy to develop and use; low analytical rigor

Accounts classified into categories based on one
factor, such as market potential
All accounts in the same category are assigned the
same number of sales calls
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Single Factor Model Example
Market Potential
Categories
Average Sales Calls to

an Account Last Year
Average Sales Calls to

an Account Next Year
25
32
23
24
20
16
16
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Portfolio Models
Account Opportunity - an accounts need for

and ability to purchase the firms products
Competitive Position - the strength of the
relationship between the firm and an
account
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Portfolio Model Segments and Strategies
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Decision Models
Simple Basic Concept - to allocate sales calls

to accounts that promise the highest sales
return from the sales calls
Optimal number of calls in terms of sales or
profit maximization
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Sales Force Size: Key Considerations

Sales Productivity
Ration of Outputs to Inputs
Sales Growth as a Result of Adding Salespeople is Curvilinear
Diminishing Marginal Returns
Salesforce Turnover
Usually Very Costly
Should be Anticipated and Managed
Organizational Strategy
Growth Targets
Selling Costs
Market Share
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Salesforce Size Decisions
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Analytical Tools: Breakdown Approach

Uses sales forecast to determine salesforce size
Easy to use and understand
Conceptually weak - assumes sales drives the
need for salespeople
Best suited in stable selling environments
Salesforce size = Forecasted sales / Average sales per salesperson
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Analytical Tools: Workload Approach

Estimation of selling effort needed is used to
determine salesforce size
Estimating selling effort needed may be simple
or complex
Conceptually sound
Total selling effort needed
Number of salespeople =
Average selling effort per
salesperson
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Analytical Tools: Incremental Approach

Uses Marginal Profit Contribution and Marginal
Costs to Determine Salesforce Size
Quantifies Important Relationships Between
Salesforce Size, Sales, and Costs,
Most Rigorous Method and Difficult to Develop
Not appropriate for New Salesforces
# of Salespeople
100
101
102
103
Sales Management:
Marginal Contribution
$85,000
$80,000
$75,000
$70,000
Module 4:
Marginal Cost
$75,000
$75,000
$75,000
$75,000
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Salesforce Size: Other Considerations

Turnover
Salesforce Size Calculations Should Incorporate
Turnover Rates
Example: Desired Size is 100; Annual Turnover is
20%; Recruiting, Selecting, and Training Should be
Based on Salesforce Size of 120.
Outsourcing the Salesforce

Need salesforce quickly and/or for short period
Flexible
Contractual arrangements vary
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Calculating Turnover
For any given time frame (e.g., month quarter,

year), divide the number of salespeople leaving
their jobs (e.g., terminated, quit, promoted) by
the total number of salespeople employed at the
mid-point of the time frame.
Example:
Sales Management:
Time Frame 1 Year

Separations 50 Salespeople
# of Salespeople at Mid-Point 200
Salesforce Turnover = 25%
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Designing Territories
Territories consist of whatever specific

accounts are assigned to a specific
salesperson. The territory can be viewed
as the work unit for a salesperson.
Territory Considerations
Trading areas
Present effort
Recommended effort
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Territory Design Procedure
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Territory Design: Using Technology

Software Optimizes Territory Design Using
Multiple User-Defined Criteria
Compare Multiple Methods Quickly and Easily
Examples
Sales Territory Configurator

Tactician
TerrAlign
Alignstar
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People Considerations
Analytical models dont account for people
considerations
Individual differences in buyers and accounts
Salesperson intuition
Sales managers should temper the analytical results with
people considerations before making final deployment
decisions.
Sales Management:
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Developing Forecasts
Sales Management:
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Why Forecast?
Determining Sales Force Size

Designing Territories
Establishing Sales Quotas and Selling Budgets
Determining Sales Compensation Levels
Evaluating Salesperson Performance
Evaluating Prospective Accounts
Sales Management:
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Types of Forecasts
Best
Possible Results
Expected Results
for Given Strategy
Industry Level
Market Potential
Market Potential
Firm Level
Sales Potential
Sales Potential
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Top-Down vs. Bottom-Up Forecasting
Top
Down
Bottom
Up
Sales Management:
Forecast made at the business

unit level then broken down by
zone, region, district, territory,
and account forecast.
Forecast made at the frontline level and then aggregated

up the levels of the organization
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Top-Down Approach
Sales Management:
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Bottom-Up Approach
Company Sales Forecast
Combined into district, region,

and zone forecasts
Combined into territory forecasts
Salespersons forecasts
of accounts
Sales Management:
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Company Forecasting Methods

Moving Averages
Uses historical averages to forecast future sales
Averages are calculated using a predetermined number of
previous periods (e.g., two-year moving average; four-year
moving average)
Exponential Smoothing
Weighted moving average
Usually most recent period is weighted heavier
Decomposition Methods
Breakdown historical sales data into four components (trend,
cycle, seasonal, erratic)
Evaluate the components and then reincorporate to create
forecast
Sales Management:
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Moving Averages Forecast Example

Year
Actual Sales
2002
$8,400,000
2003
$8,820,000
2004
$8,644,000
$8,610,000
2005
$8,212,000
$8,732,000
2006
$8,622,000
$8,428,000
$8,520,000
2007
$9,484,000
$8,418,000
$8,574,000
2008
$9,674,000
$9,054,000
$8,740,000
2009
$10,060,000
$9,579,000
$8,998,000
$9,868,000
$9,460,000
2010
Sales Management:
Two-Year
Four-Year
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Exponential Smoothing Forecast Example

Year
Actual Sales
= 0.2
= 0.5
= 0.8
2002
2003
2004
2005
2006
2007
2008
2009
2010
$8,400,000
$8,820,000
$8,644,000
$8,212,000
$8,622,000
$9,484,000
$9,674,000
$10,060,000
?
$8,400,000
$8,484,000
$8,516,000
$8,455,000
$8,488,000
$8,687,000
$8,884,000
$9,119,000
$8,400,000
$861,000
$8,627,000
$8,420,000
$8,521,000
$9,003,000
$9,339,000
$9,700,000
$8,400,000
$8,736,000
$8,662,000
$8,302,000
$8,558,000
$9,299,000
$9,599,000
$9,968,000
Sales Management:
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Moving Averages Forecast Example

$11,000,000
$10,000,000
$9,000,000
$8,000,000
$7,000,000
$6,000,000
2002 2003 2004 2005 2006 2007 2008 2009 2010
Actual Sales
Sales Management:
Two-Year
Four-Year
Exp. Smoothing
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Breakdown Methods
Use factors influencing sales at

the region, district, and territory
levels to adjust forecasts made at
the business unit level (top-down
method).
Buying Power Index (BPI) is often
used to adjust forecasts.
Factors should be continuously
evaluated.
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Even Allocation vs. Breakdown Methods
Company Sales
Forecast =
$1,000,000
Company Sales
Forecast =
$1,000,000
Sales Management:
Region A Portion= .33
Forecast = $333,333
Region B Portion = .33
Forecast = $333,333
Region C Portion = .34
Forecast = $333,334
Region A Breakdown
Factor = .20
Forecast = $200,000
Region B Breakdown
Factor = .30
Forecast = $300,000
Region C Breakdown
Factor = .50
Forecast = $500,000
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Bottom-Up Approach Methods

Survey buyer intentions
Survey buyers purchasing intentions
Aggregate
Jury of executive opinion

Executives or other experts estimate sales at the account level
Estimates are averaged or otherwise agreed upon to generate
forecast
Delphi (A form of jury of executive opinion)

jury is anonymous and estimates are redistributed for revision
jury review and revise estimates until consensus is reached
Sales force composite

Salespeople create forecasts for the accounts and territories
Forecasts are aggregated
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Forecasting with Regression Analysis

Statistical technique using predictor variables
(factors) to forecast sales
May be complex
Requires collection of
predictor variable data
Analysis may be
linear or logarithmic
Sales Management:
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Sales Organization Structure

and Salesforce Deployment

6. Discuss salesforce deployment.

Sales Organization Concepts

Sales Force Specialization Continuum

Span of Control vs. Management Levels

Flat Sales Organization

Span of Control vs. Management Levels

Line vs. Staff Positions

Regional Sales Managers

Selling-Situation Factors and

Customer and Product Determinants

Customer Needs Similar

Geographic Sales Organization

Product Sales Organization

Market Sales Organization

Functional Sales Organization

Identifying Strategic Accounts

Strategic Accounts Options

Salespeople develop better

Hybrid Sales Organization Structure

How much selling effort is needed to cover

How many salespeople are required to provide the

How should territories be designed to ensure proper

2,000 accounts x 25 sales calls/account = 50,000

50,000 sales calls required 1,250 sales calls/

40 territories needed to provide each salesperson with

Single Factor Models

Easy to develop and use; low analytical rigor

Single Factor Model Example

Average Sales Calls to

Average Sales Calls to

Account Opportunity - an accounts need for

Portfolio Model Segments and Strategies

Simple Basic Concept - to allocate sales calls

Sales Force Size: Key Considerations

Salesforce Size Decisions

Analytical Tools: Breakdown Approach

Salesforce size = Forecasted sales / Average sales per salesperson

Analytical Tools: Workload Approach

Analytical Tools: Incremental Approach

Salesforce Size: Other Considerations

Outsourcing the Salesforce

For any given time frame (e.g., month quarter,

Time Frame 1 Year

Territories consist of whatever specific

Territory Design Procedure

Territory Design: Using Technology

Sales Territory Configurator

Determining Sales Force Size

Top-Down vs. Bottom-Up Forecasting

Forecast made at the business

Forecast made at the frontline level and then aggregated

Company Sales Forecast

Combined into district, region,

Combined into territory forecasts

Company Forecasting Methods

Moving Averages Forecast Example

Exponential Smoothing Forecast Example

Moving Averages Forecast Example

Use factors influencing sales at

Even Allocation vs. Breakdown Methods

Region A Portion= .33