Part V
SALES FORCE LEADERSHIP
Chapter 13:
Evaluating Performance
Why Evaluate Salespeople?

To link compensation and rewards to
performance.

To identify salespeople capable of promotion.

To identify training and counseling needs.

To identify criteria for recruitment and selection.

To clarify work expectations.

To motivate salespeople.

To help salespeople set career goals.
A Sales Force Evaluation Model
Set goals and objectives for
sales force, including:
Revenues
Contribution profits
Market share
Expense ratios
Design sales plan
Set product performance standards for:
Organization
Salespeople
Regions
Accounts
Districts
Measure results
against standard
Take Corrective Action
Output Measures Used in Sales
Force Evaluation
Table 13-1 Output Measures Used in Sales Force Evaluation
Sales
Profit
Sales volume dollars
Net profit
Sales volume previous year’s growth
Gross margin percentage
Sales to quota
Return on investment
Sales growth
Net profit as a percentage of sales
Sales volume by product
Gross margin dollars
Sales volume by customer
Margin by product category
New account sales
Accounts
Sales volume in units
Number of new accounts
Sales volume to potential (market share)
Number of accounts lost
Orders
Number of orders
Average order size
Batting average (orders/calls)
Number of accounts sold
Number of accounts buying full line
Output Measures Used in Sales
Force Evaluation
Performance Measure
Sales
Sales volume dollars
Sales volume previous year’s sales
Sales to quota
Sales growth
Sales volume by product
Sales volume by customer
New account sales
Sales volume in units
Sales volume to potential
Accounts
Number of new accounts
Number of accounts lost
Number of accounts buying full line
Percent
Using Performance Measure
79%
76
65
55
48
44
42
35
27
69
33
27
Percent
Using
Profit
Net profit
Gross margin percentage
Return on investment
Net profit asa percentage of sales
Margin by product category
Gross margin dollars
69%
34
33
32
28
25
Orders
Number of orders
Average size of order
47
22
Input or Behavior Bases Used in
Sales Force Evaluation
Table 13-2 Input or Behavior Measures Used in Sales Force Evaluation
Expenses
Effort
Total expenses
Number of calls
Selling expenses to budget
Number of calls per day
Selling expenses as a percentage of sales
Number of calls to quota
Nonselling Activities
Number of days worked
Advertising displays set up
Number of reports turned in
Number of service calls
Number of prospecting phone calls
Number of customer complaints
Selling time vs. non-selling time
Input or Behavior Bases Used in
Sales Force Evaluation
Base
Selling expenses to budget
Total expenses
Selling expenses as a % of sales
Number of calls
Percent
Using
55%
53
49
48
Base
Number of calls per day
Number of reports turned in
Number of days worked
Selling time vs. nonselling time
Percent
Using
42%
38
33
27
Qualitative Bases Used in Sales
Force Evaluation
Table 13-7 Qualitative Bases Used in Sales Force Evaluation
Attitudinal and Personality Factors
Time management
Attitude
Ability to plan
Enthusiasm
Appearance and manner
Cooperation
Knowledge
Creativity and resourcefulness
Product knowledge
Initiative and aggressiveness
Pricing knowledge
Motivation
Knowledge of competition
Selling Skills
Ethical and moral behavior
Communication Skills
Team player
Qualitative Bases Used in Sales
Force Evaluation
Base
Communication skills
Product knowledge
Attitude
Selling skills
Initiative and aggressiveness
Appearance and manner
Knowledge of competition
Team player
Enthusiasm
Percent
Using
88%
85
82
79
76
75
71
67
66
Performance Measure
Time management
Cooperation
Judgment
Motivation
Ethical/Moral behavior
Planning ability
Pricing knowledge
Report preparation and submission
Creativity
Percent
Using
63%
62
62
61
59
58
55
54
54
Sales Data for Bear Computer
Year
1
Company
Volume
($ millions)
2008
2007
2006
2005
26
24
21
17
2
Percentage
Change from
Previous Year
+ 8.3
+14.3
+23.5
---
3
Industry
Volume
($ millions)
4
Company
Market Share
(percent)
300
219
165
125
8.6
10.9
15.7
13.6
Comparing Dollar and Unit Sales at
the Bear Computer Company
Products
Computers
----------2007 Sales---------Thousands
Avg Price
of Dollars
Units
Per Unit
----------2008 Sales---------Thousands
Avg Price
Of Dollars
Units
Per Unit
$16,800
560
$30,000
$18,200
520
$35,000
Accessories
4,800
4,000
1,200
5,200
4,727
1,100
Software
2,400
1,200
2,000
2,600
1,280
2,031
Total
$24,000
5,760
$26,000
6,527
Expense Analysis by Product Line,
Bear Computer Company, 2008
CGS and
Commission
$
CGS as a
Percentage
Of Sales
$18,200
$12,740
70
$5,460
30
Accessories
5,200
3,120
60
2,080
40
Software
2,600
520
20
2,080
80
Total
$26,000
$16,380
Products
Computers
2008 Sales
(000)
63%
Contribution
Margin
$9,620
Contribution
Margin
Percentage
37%
Evaluating Sales Force
Performance: Cost Analysis
 What costs are relevant?
Net Sales
Less Variable Costs: Cost of Goods Sold
Sales Commissions
Equals:
Contribution Margin
Less:
Direct Fixed Selling Costs
Equals:
Profit Contribution
Evaluating Sales Force
Performance: Product Costs

CGS + Commissions higher for computers
–
–
–
paying too much for parts
competition has driven down selling prices
salespeople cutting computer prices to make deals -possible actions:



limit price negotiation capabilities
shift to a gross margin commission
change commission structure to emphasize
accessories and software
A Model of Salesperson Evaluation
Input-based System
Output-based System
Behavior
Calls
Reports
Complaints
Demonstrations
Dealer meetings
Display set up
Travel/entertainment
expenses
Results
Sales revenues
Sales growth
Sales/quota
Sales/potential
New accounts
Contribution margins
Contribution
percentage
Salesperson
Evaluation
Measuring Sales Force Output for
Bear Computer Company
1
2
3
4
5
6
7
8
Sales
Quota
(000)
Percentage
of Quota
Achieved
Sales
Variance
(000)
$943
87%
– $118
Market
Territory
Sales ‘07 Sales ‘08
Jan-Sept Jan-Sept
(000)
(000)
Dollar
Change
Sales
Growth
Potential
Index
(percent)
10.0%
26%
Jones
$750
$825
+ $75
Smith
500
570
+ 70
14.0
15
543
105
+ 27
Brown
1,025
1,110
+ 85
8.3
32
1,160
96
-50
960
1,000
+ 40
4.2
27
977
102
+ 23
$3,235
$3,505
$270
West
100%
$3,623
Measuring Territory Profit Output
for Bear Computer Company
Territory Performance (thousands)
Jones
Smith
Brown
West
$825
$570
$1,100
$1,000
Less CGS and Commissions
495
428
744
660
Contribution margin
330
142
356
340
40%
25%
32%
34%
55
35
55
65
Travel
15.5
4.1
3.5
5
Food and lodging
12.5
4
3.2
4.5
Entertainment
11.4
0.3
0.5
1
4.5
2.3
2
4.5
$231.10
$96.30
$291.80
$260.00
28%
17%
26%
26%
Net Sales
CM as a percentage of sales
Less direct selling costs
Sales force salaries
Home sales office expense
Profit contribution
PC as a percentage of sales
Ranking Salespeople on 10
Input/Output Factors
Ranking Factors
Dollar Sales
Ford
Bell
1
2
3
4
5
Sales to Potential
5
3
4
2
1
Sales to Quota
5
4
2
1
3
Sales per Order
5
1
4
3
2
Number of Calls
2
5
1
3
4
Orders per call
4
2
5
3
1
Gross Margin Percent
5
1
3
4
2
Direct Selling Costs
4
3
5
1
2
New Accounts
1
4
2
5
3
Number of Reports Turned In
4
3
1
5
2
36
28
30
31
25
Total of Ranks
Shaw
Mann
Gold
Ranking Salespeople on 10
Input/Output Factors
Performance factors
Pete Jones
Ann Smith
Sales (annual)
$1,400,000
$1,100,000
210
225
1,200
1,500
480
750
$19,000
$14,900
5.7
6.7
40%
50%
Sales per order
$2,916
$1,466
Expenses per call
$15.83
$9.93
Expenses per order
$39.58
$19.86
Expenses as % of sales
1.35%
1.35%
Days worked
Calls
Orders
Expenses
Calls per day
Batting average (orders per calls)
Ranking Salespeople on
10 Input/Output Factors
Millions
$
3.87
3.66
3.44
S
A
L
E
S
Y
R
2
3.23
COMPROMISERS
STARS
Avg Sales
$3.17
Avg Sales
2.91
Avg contribution
$1.13
Avg contribution
1.09
Avg contribution %
37.4
Avg contribution %
35.8
3.02
Age
2.80
Calls
2.59
Number of salespeople
18
2.38
Avg Sales
Avg contribution
Avg contribution %
Age
Calls
Number of salespeople
1.78
2.16
1.95
1.74
1.53
1.31
1.10
45
1122
0.64
35.8
44
958
11
Age
37
Calls
888
Number of salespeople
Avg Sales
Avg contribution
Avg contribution %
Age
Calls
Number of salespeople
35.1
2.03
0.75
37.1
35
921
16
SLOWPOKES
LAGGARDS
34.8
11
36.0
36.6
37.2
Contribution Margin (%)
37.8
38.7
Relative Performance Efficiency
for Sales Rep 22
Variable Type
Output
Output
Output
Input
Input
Input
Input
Value
Measured
100
5
45,000
5
20,000
3
60,500
Variable name
Percent Quota Attained (%)
Supervisor Evaluation
Sales Volume ($)
Sales Training
Salary ($)
Management Ratio
Territory Potential ($)
Reference Set
Influence
Salesperson 7
0.49
Salesperson 20
0.43
Salesperson 45
0.08
Value of 100%
Efficient
120
5
50,500
5
18,000
2
50,000
Efficiency=0.85
Iterations=10
Slack
20
0
5,500
0
2,000
1
10,500
Conditions when Outcome versus
Behavioral Systems are preferred
Outcome Systems(OS)
•
•
•
•
Customers need
information
Customers trust the
salesperson
There are ways to
close the deal
Sales environment is
competitive
Behavioral System(BS)
•
•
•
•
Salespeople lack
experience
No need to protect
the brand image
Nonselling behaviors
are a priority
Difficult to assign
sales credit
The additional slides below are
not covered in IM
Call Productivity Ratios
Sales to Account
=
Average Order Size
Growth Ratio
=
Accounts
Account Success =
Accounts
Dollar Sales
# Accounts
=
Dollar Sales
# Orders
# New Accounts
Total #
Accounts Sold
Total #
Expense Ratios
Expense to Sales
= Expenses
Sales
Cost per Call
Total Costs
# of Calls
=
Account Related Ratios
Sales to Account
=
Average Order Size
Growth Ratio
=
Account Success =
Dollar Sales
# Accounts
=
Dollar Sales
# Orders
# New Accounts
Total # Accounts
Accounts Sold
Total # Accounts
Models Combining Input & Output
Controls: Ranking Procedures
 Widely used, simple to use, easy to understand
 Add ranks for overall performance measure
 Alternatives to sales/salesperson





Sales to potential -- good coverage of (limited) market
Sales to quota -- ability to increase revenue
Sales per order -- profitability relative to size of customer
Batting average -- efficiency of calls
Gross margin percentage -- ability to control price
selling best mix of products
 Variation -- weight importance of each criterion
Cost Analysis

Object affects direct vs. indirect cost classification:
Cost
By Territory
By Product
P-O-P Display
Direct
Direct
Salesperson Salary
Direct
Indirect
Product Manager Salary
Indirect
Direct
VP Operations Salary
Indirect
Indirect
Evaluating Sales Force
Performance: Account Cost to Serve
Cost to Serve =
Total Cost to Serve Account
Revenue from Account

Usually decline with revenue

Help identify best accounts

Downsizing & Profits

Consider using DEA (Programming)
Evaluating Sales Force Performance:
Fleet Car Management -- A Motivator

Salesperson owned car (per mile travel allowance)
–
–

Company owned & managed cars
–
–

Salesperson gets car preference
Allowances rarely cover full salesperson car costs
Ties up a lot of cash
Costs less than salesperson owned car
Leased sales fleet of cars
–
–
Frees up cash
Company performs routine maintenance
Models Combining
Input and Output Controls

Four Factor Model
$ Sales = Days worked x
$ Sales = Days worked x
–
–
–
–
Calls
Orders
Sales $
Days Worked
Calls
Orders
Batting
Average
Average
Order Size
Call Rate
How can sales be increased?
Optimum number of sales calls to maximize profits?
Who is doing better? Ann or Pete?
What management strategies for Pete? for Ann?