Part V
SALES FORCE LEADERSHIP
Chapter 13:
Evaluating Performance
SALLES PERFORMANCE REVIEW :




At first glance , evaluating salesperson's performance seems
simple : merely measure sales volume . The thinking behind this
theory is that higher volume means increased performance . But
the focus on sales volume can be misleading .
We define evaluation as a comparison of sales force goals and
objectives with actual achievements in the field . A general
model of the evaluation process on shown in Figure 13-1.
The most common objectives are the attainment of specific
sales revenues , contribution profits , market shares , and
expense levels . Then ,a sales plan must be prepared to show
how the goals are to to be achieved . The next step is to
performance standards for individual products for different
levels in the organization .
Differences between the performance standards and the results
attained are determind .
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
Selecting Performance Measures


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The task of selecting performance measure for a firm is
difficult because so many unique factors can be used. Most
experts agree that performance measures should be tailored to
the goals and objectives of each organization .
A great unresolved controversy in sales management is whether
output measures Table 13 -1 , input factors such as those in
Table 13-2 , or qualitative criteria are best for evaluating sales
performance .
Qualitative measures include attitude , communication skills ,
and product knowledge . Research indicates that qualitative
factors are the most widely used , but they are difficult to
measure and often lead to biased evaluations .
One explanation is that sales organizations rely less on input
performance measure , when there are more people to evaluate
.
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
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
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
THE BIG PICTURE

A logical first step in a sales analysis to
look at aggregate sales figures for
accompany or division .
Sales Data for
Bear Computer Company
Year
1
Company
Volume
($ millions)
2
Percentage
Change from
Previous Year
2006
2005
2004
2003
26
24
21
17
+ 8.3
+14.3
+23.5
---
3
Industry
Volume
($ millions)
300
219
165
125
4
Company
Market Share
(percent)
8.6
10.9
15.7
13.6
Dollar versus Unit Sales :


Sales can also be broken out in terms of
number of solutions sold (Table 13-4 ) . Unit
sales can be useful when inflation and other
price changes distort dollar sales figures .
A decline in the number of units installed is
serious problem in an expanding market , so
adjustments should be made in the wage and
quota systems to achieve more balanced
growth . Unit sales growth is desirable
because it keeps production lines and
employees busy .
Comparing Dollar and Unit Sales at
the Bear Computer Company
2005 Sales
Units
Avg Price
Per Unit
Thousands
Of Dollars
Units
Avg Price
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
Products
Computers
Thousands
of Dollars
2006 Sales
Sales by Customer Type :

Another useful approach is to break
down sales by individual customer.
EXPENSE ANALYSIS :
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

Although a sales analysis provides useful data on the
operation of a field sales force , it dose not tell the
whole story . Sales figures show trends , but they do
not reveal the effects of price – cutting or the
differences in selling expenses , potential , and
saturation that exist across products or territories .
What Expenses Are Relevant ?
We believe that controllable expenses such as wages
and travel are the figures that are relevant to field
sales managers . Thus , national advertising and
production costs , which are not directly controlled by
sales manages , should not be used o judge the
efficiency of the sales organization .
Product Expenses :

A logical first step in an expense
analysis is to look the differences
associated with each product line .
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
Expense Analysis by Product Line,
Bear Computer Company, 2006
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
2006 Sales
(000)
63%
Contribution
Margin
$9,620
Contribution
Margin
Percentage
37%
EVALUATING SALESPEOPLE :
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
One of the most difficult tasks you will face as a sales
manager is evaluating the performance of
salespeople under your control . Although appraisals
are opportunities to motivate salespeople to higher
levels of achievement , they also provide evidence for
disciplinary action . Thus , performance reviews
demand that sales managers play the role of coach
and judge .
It is the most difficult job of the sales mangers
because of the difficulty of finding the optimal level
of monitoring and the difficulty of eliminating biases
in the evaluation process .
EVALUATING SALESPEOPLE :


Why Are Performance Reviews Needed ?
Performance reviews are usually conducted on an
annual basis , although many firms conduct
evaluations semiannually or quarterly . While these
reviews are difficult to administer , they do provide
valuable information for staffing decisions and serve
as a basis to improve salesperson performance . The
result of performance reviews can be used to answer
a number of important questions such as :
Who should receive raises , bonuses , prizes , and
etc.
Behavior versus Output Performance
Measures :

Although behavior control systems are
more widely used than output measures
, there is considerable debate as to
which approach is better .
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
Salesperson
Evaluation
Sales revenues
Sales growth
Sales/quota
Sales/potential
New accounts
Contribution margins
Contribution
percentage
BEHAVIOR – BASED EVALUATION :



Behavioral systems are concerned with keeping track
of what happens at each stage of the sales operation
. This means that management must closely monitor
sales force Activities and direct and intervene to
improve customer relations .
Behavior – based systems usually require managers
to make some subjective evaluations about
individual salespeople . The most common qualitative
factors used in these performance evaluations are
given in table 13- 6 .
Since behavioral –based evaluations focus on the
activities and procedures of successful selling these
systems can enhance salesperson knowledge and
commitment .
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
Using behavior based systems :



Successful implementation of behavioral evaluations
requires periodic analysis of data on sales force
activities . one widely used way to gather this
information is through the completion of daily
,weekly ,or monthly call reports by salespeople .
These reports detail who was called on ,at what
stage he prospect is within the sales cycle ,and what
follow up activities are needed in the future .
Some manager use the 10-3-1 rule ,meaning that for
every 10 qualified prospects, 3 will entertain a
proposal and 1 will become a customer .
BEHAVIOR – BASED EVALUATION :


Management by objectives :
A common behavioral system is management by
objectives (MBO) also called development and
performance management .with this method
,salesperson and sales managers jointly set personal
development goals for the subordinate that can be
completed within a specific time period . salespeople
then develop an action plan to reach each goal .
written performance appraisal are presented to sales
people during review sessions with sales managers .
Reps react favorably to MBO systems because they
can see where they stand and know that progress
toward their goals will be rewarded .
BEHAVIOR – BASED EVALUATION :
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
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Behavioral observation scales :
An improvement on MBO is an approach called
behavioral observation scales (BOS) which focus on
identifying a list of critical incidents that lead to job
success. This approach assumes that some of
salesperson's job requirements are more critical to
job success than are others , and the key to
evaluating people is to focus on these factors .
One advantage of the BOS is that this system
requires an extensive analysis of the salesperson's
job responsibilities that lead to success .
Results based evaluations

in which managers set performance
standards for each salesperson and
evaluate the results against the present
standards .results based evaluations
have been shown to improve
salesperson job attitudes when the
salesperson understands what is
expected and is able to modify his or
her work strategy to meet the expected
goals .
Measuring Sales Force Output for Bear Computer
Company
Differences in potential
1
2
Sales ‘05 Sales ‘06
Jan-Sept Jan-Sept
Territory
(000)
(000)
Jones
$ 750
$ 825
Smith
500
Brown
West
3
Dollar
Change
4
Sales
Growth
5
Market
Potential
index
(percent)
6
7
8
Sales Percentage Sales
Quota
of Quota Variance
(000)
Achieved
(000)
10.0%
26.0%
570
+
70
14.0
15
543
105
+
27
1025
1110
+
85
8.3
32
1160
96
–
50
960
1000
+
40
4.2
27
977
102
+
23
$3235
$3505
+$270
8.3%
100.0%
$ 943
87.0% – $118
+ $75
$3623
Measuring Territory Profit Output for
Bear Computer Company
Contribution based evaluations
Territory Performance (thousands)
Jones
Smith
Brown
West
$825
$570
$1100
$1000
Less CGS and Commissions
495
428
744
660
Contribution margin
330
142
356
340
Net Sales
CM as a percentage of sales
40%
25%
32%
34%
Sales force salaries
Travel
55.0
15.5
35.0
4.1
55.0
3.5
65.0
5.0
Food and lodging
Entertainment
12.5
11.4
4.0
0.3
3.2
0.5
4.5
1.0
4.5
2.3
2.0
4.5
$231.1
28%
$ 96.3
17%
$291.8
26%
$260.0
26%
Less direct selling costs
Home sales office expense
Profit contribution
PC as a percentage of sales