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Evaluating the Effectiveness of the Organization

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Sales Organization Audit

A comprehensive, systematic, diagnostic, and prescriptive tool Purpose - "...to assess the adequacy of a firm's sales management process and to provide direction for improved performance and prescription for needed changes."

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Observations

Sales Organization Audit

Performed on a regular basis Performed by someone from outside the sales organization Expensive and time-consuming

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Sales Organization Audit Framework

Benchmarking ...is an ongoing measurement and analysis process that compares an organizations current operating practices with the best practices used by worldclass organizations.

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Sales Organization Effectiveness Evaluations

Complex task because:

Separate sales analyses need to be performed for the different levels in the sales organization Many different types of analyses can be performed to evaluate sales, cost, profitability, and productivity

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Sales Organization Effectiveness Evaluations

Sales Analysis
Evaluation of sales generated throughout the sales organization

Organizational level of analysis Two reasons for performing at all levels:

Sales managers at each level need sales analyses at their level and the next level below for evaluation and control Taking a top-down perspective from which to analyze a sales organization, a hierarchical sales analysis, provides an useful way to identify problem areas

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Sales Analysis Framework

(Figure 10.5)

Sales Analysis

Organizational Level of Analysis

Sales Organization Zones Regions Districts Territories Accounts

Type of Sales
Total Sales Type of Product Type of Account Type of Distribution Order Size

Type of Analysis
Comparisons
within organization with forecasts with sales quotas with previous period with industry/ competitors

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Example of Hierarchical Sales Analysis

(Figure 10.6)
Sales Organization

Region 1 Sales $50,000,000

Region 2 $55,000,000

Region 3 $45,000,000

Region 4 $60,000,000

District 1 Sales $8,000,000

District 2 $9,000,000

District 3 $8,500,000

District 4 $5,000,000

District 5 $9,500,000

Territory 1 Sales $800,000

Territory 2 $900,000

Territory 3 $850,000

Territory 4 $950,000

Territory 5 $300,000 Additional Analysis

Territory 6 $800,000

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Example of Type-of-Sales Analysis

(Figure 10.7)
Territory 5

Product Type Sales

Account Type Sales

Product Type A Sales $35,000

Product Type B $85,000

Product Type C $200,000

Account Type A $100,000

Account Type B $35,000

Account Type C $95,000

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Sales Organization Effectiveness Evaluations

Types of Analysis Examples
(Exhibit 10.5)
District 1 Sales $8,000,000 Sales Quota $8,250,000 Effectiveness Index 97 Sales Last Year $7,750,000 Sales Growth 3% Industry Sales $32,000,000 Market Share 25% District 2 $8,000,000 $8,250,000 106 $8,250,000 9% $32,000,000 28% District 3 $8,000,000 $8,250,000 103 $8,000,000 6% $35,000,000 24%

District 4 $8,000,000 $8,250,000 63 $4,850,000 3% $30,000,000 17%

District 5 $8,000,000 $8,250,000 112 $8,250,000 15% $35,000,000 27%

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Sales Organization Effectiveness Evaluations

Cost Analysis
Evaluation of costs incurred in generating sales throughout the sales organization

Comparison of actual to budgeted Comparison of actual to budgeted as a percentage of sales

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Establishing Selling Budgets

Selling Budget

The total resources earmarked for personal selling

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Selling Expense Categories

Compensation Expenses Salaries Commissions Bonuses Travel Expenses Lodging Food Transportation Miscellaneous

Administrative Expenses Recruiting Training Meetings Sales Offices

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Methods for Determining the Selling Budget

Percentage of Sales Method Objective and Task Method

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Sales Organization Effectiveness Evaluations

Cost Analysis Examples
(Exhibit 10.8)
Compensation Costs Region 1 Region 2 Region 3 Region 4 Actual Cost Budgeted Cost $3,660,000 $3,600,000 $3,500,000 $3,700,000 $3,150,000 $3,400,000 $4,200,000 $3,900,000 Variance +$ 60,000 - $200,000 - $250,000 +$300,000

Training Costs Actual Cost Budgeted Cost Variance $ 985,000 $1,030,000 -$ 45,000 $2,110,000 $2,040,000 +$ 70,000 $ 830,000 $1,060,000 - $230,000 $2,340,000 $2,160,000 +$180,000 Training Costs Actual % Sales 2.9% 3.1% 2.6% 3.1% Budgeted % Sales 3% 3% 3% 3%

Compensation Costs Region 1 Region 2 Region 3 Region 4 Actual % Sales 6.1% 5.8% 5.4% 6.0% Budgeted % Sales 6% 6% 6% 6%

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Sales Organization Effectiveness Evaluations

Profitability Analysis

Evaluation of sales/cost relationships throughout the sales organization

Income Statement Analysis

Full cost approach - attempts to allocate the shared costs to individual units based on some type of cost allocation procedure Contribution approach - only the direct costs are included in the profitability analysis

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Sales Organization Effectiveness Evaluations

(Exhibit 10.10)
Full Cost Approach Region Sales $300,000,000 Cost of Goods Sold $235,000,000 Gross Margin $ 45,000,000 District Selling Expenses $ 11,000,000 Regional Direct Selling Expenses $ 11,000,000 Profit Contribution $ 24,000,000 Allocated Portion of Shared Zone Costs $ 16,000,000 Net Profit $ 8,000,000

Profitability Analysis Example

Contribution Approach District 1 $180,000,000 $168,500,000 $ 11,500,000 $ 5,000,000 --$ 6,500,000 District 2 $70,000,000 $58,500,000 $11,500,000 $ 3,500,000 --$ 8,000,000 District 3 $50,000,000 $28,000,000 $22,000,000 $ 8,250,000 --$19,500,000

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Sales Organization Effectiveness Evaluations

Productivity Analysis

Evaluation of output/input relationships throughout the sales organization

Productivity improvements are obtained in one of two basic ways:

Increasing output with the same level of input Maintaining the same level of output but using less input

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Sales Organization Effectiveness Evaluations

(Exhibit 10.13)
District 1 $20,000,000 2,000,000 9,000 200 20 $ 1,000,000 $ 100,000 450 11 District 2 $24,000,000 2,400,000 7,500 180 30 $ 800,000 $ 80,000 250 6 District 3 $20,000,000 3,000,000 8,500 260 20 $1,000,000 $ 150,000 425 13

Productivity Analysis Example

Sales Selling Expenses Sales Calls Proposals Number of Salespeople Sales/Salesperson Expenses/Salesperson Calls/Salesperson Proposals/Salesperson District 4 $24,000,000 3,000,000 10,000 270 30 $ 800,000 $ 100,000 333 9