Evaluating and Controlling Salespeople

Input system -- Behavioral-based

Subjective evaluations
Qualitative measures (Table 16-2)
Use rating scales -- e.g., Likert
Can have bias & halo effects
Generating data
Computerized Call Reports (Fig. 16-3)
Management by Objectives (MBO)(Fig. 16-4)
non-quantitative -- difficult in solution sales
Behavioral Observation Scales (BOS) (Fig 16-5)
Job Dimensions -- critical incidents for job success
Evaluating and Controlling Salespeople
Combining Input & Output Measures
Call Productivity Ratios
Calls per day = # Calls _
# Days worked

Calls per account = # Calls_
# of Accounts

Planned Call = # Planned calls
Total # Calls

Batting Average = # Orders__
Total # Calls
Evaluating and Controlling Salespeople
Combining Input & Output Measures

Expense Ratios

Expense to Sales = Expenses
Sales


Cost per Call = Total Costs
# of Calls
Evaluating and Controlling Salespeople
Combining Input & Output Measures
Account Related Ratios
Sales to Account = Dollar Sales _
# Accounts

Average Order Size = Dollar Sales
# Orders

Growth Ratio = # New Accounts
Total # Accounts

Account Success = Accounts sold_
Total # Accounts
Evaluating and Controlling Salespeople
Models Combining Input & Output Controls
Inputs

Attitude
Motivation
Skills
Abilities
Job Perception
Inputs
Behavior
# Calls
Days worked
Expenses
Selling vs. non-
selling time
Quotas
Outputs

# Orders
Order Size
# New, lost,
or active
accounts
Evaluating and Controlling Salespeople
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
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
Cost Analysis
Object affects direct vs. indirect cost class:
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
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 & software
Evaluating Sales Force Performance
District Costs
Sales managers vary in ability to control expenses
3-way: district by product by cost
watch for price cutting by salespeople
watch for excessive emphasis on low margin goods
Evaluating Sales Force Performance
Account Cost to Serve
Total Cost to serve account
Cost to Serve =

Usually decline with revenue
Help identify best accounts
Downsizing & Profits (T 15-7)
Consider using DEA (Programming)
Revenue from Account
Table 15-1 Output Measures Used in Sales Force Evaluation
Performance Measure
Percent
Using Performance Measure
Percent
Using
Sales
Sales volume dollars
Sales volume previous years 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
79%
76
65
55
48
44
42
35
27
69
33
27
Profit
Net profit
Gross margin percentage
Return on investment
Net profit as a percentage of sales
Margin by product category
Gross margin dollars
Orders
Number of orders
Average size of order
69%
34
33
32
28
25
47
22
Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, Examining the Bases Utilized for Evaluating
Salespeoples performance, Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 61.
Table 15-2 Input or Behavior Bases used in Sales Force
Evaluation
Base
Percent
Using Base
Percent
Using
Selling expenses to budget
Total expenses
Selling expenses as a % of sales
Number of calls
55%
53
49
48
Number of calls per day
Number of reports turned in
Number of days worked
Selling time vs. nonselling time
42%
38
33
27
Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, Examining the Bases Utilized for Evaluating
Salespeoples performance, Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 62.
Table 15-4 Comparing Dollar and Unit Sales at the Bear
Computer Company
Products
Thousands
of Dollars Units
Avg Price
Per Unit
Thousands
Of Dollars Units
Avg Price
Per Unit
Computers
Accessories
Software
$16,800
4,800
2,400
560
4,000
1,200
$30,000
1,200
2,000
$18,200
5,200
2,600
520
4,727
1,280
$35,000
1,100
2,031
Total $24,000 5,760 $26,000 6,527
1996 Sales 1997 Sales
Table 15-5 Expense Analysis by Product Line, Bear Computer
Company, 1997
Products
1997 Sales
(000)
CGS and
Commission
$
CGS as a
Percentage
Of Sales
Contribution
Margin
Contribution
Margin
Percentage
Computers
Accessories
Software
$18,200
5,200
2,600
$12,740
3,120
520
70
60
20
$5,460
2,080
2,080
30
40
80
Total $26,000 $16,380 63% $9,620 37%
Table 15-6 Qualitative Bases used in Sales Force Evaluation
Base
Percent
Using Performance Measure
Percent
Using
Communication skills
Product knowledge
Attitude
Selling skills
Initiative and aggressiveness
Appearance and manner
Knowledge of competition
Team player
Enthusiasm
88%
85
82
79
76
75
71
67
66
Time management
Cooperation
Judgment
Motivation
Ethical/Moral behavior
Planning ability
Pricing knowledge
Report preparation and submission
Creativity
63%
62
62
61
59
58
55
54
54
Source: Donald W.Jackson, John L. Schlacter, and William G. Wolfe, Examining the Bases Utilized for Evaluating
Salespeoples performance, Journal of Personal Selling & Sales Management, Vol. 15, No. 4 (Fall 1995), p. 63.
Table 15-8 Measuring Territory Profit Output for Bear Computer
Company
Territory Performance (thousands)
a
Jones Smith Brown West
Net Sales $825 $570 $1100 $1000
Less CGS and Commissions 495 428 754 660
Contribution margin 330 142 356 340
CM as a percentage of sales 40% 25% 325 345
Less direct selling costs
Sales force salaries 55 35 55 65
Travel 15.5 4.1 3.5 5.0
Food and lodging 12.5 4.0 3.2 4.5
Entertainment 11.4 .3 5 1.0
Home sales office expense 4.5 2.3 2.0 4.5
Profit contribution $231.1 $ 96.6 $291.8 $260.0
PC as a percentage of sales 28% 17% 26% 26%
a
Sales figures are from Table 15-7.
Table 15-9 Evaluating Performance Using Behavior and
Outcome Data
Performance factors Pete Jones Ann Smith

Sales (annual) $1,400,000 $1,100,000
Days worked 210 225
Calls 1,200 1,500
Orders 480 750
Expenses $19,000 $14,900
Calls per day 5.7 6.7
Batting average (orders per calls) 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%

Table 15-10 Ranking Salespeople on 10 Input/Output factors
Dollar Sales 2 3 4 5
Sales to Potential 5 3 4 2
Sales to Quota 5 4 2 3
Sales per Order 5 4 3 2
Number of Calls 2 5 3 4
Orders per call 4 2 5 3
Gross Margin Percent 5 3 4 2
Direct Selling Costs 4 3 5 2
New Accounts 4 2 5 3
Number of Reports Turned In 4 3 5 2
Total of Ranks 36 28 30 31 25

Ranking Factors Ford Bell Shaw Mann Gold
Figure 15-3 Ranking Salespeople on 10 Input/Output factors
3.87
3.66
3.44
3.23
3.02
2.80
2.59
2.38
2.16
1.95
1.74
1.53
1.31
1.10
COMPROMISERS

Avg sales $3.17
Avg contribution $1.13
Avg contribution % 35.8
Age 45
Calls 1122
Number of salespeople 18
STARS

Avg sales $2.91
Avg contribution $1.09
Avg contribution % 37.4
Age 37
Calls 888
Number of salespeople 11
Avg sales $1.78
Avg contribution $ .64
Avg contribution % 35.8
Age 44
Calls 958
Number of salespeople 11

LAGGARDS
Avg sales $2.03
Avg contribution $ .75
Avg contribution % 37.1
Age 35
Calls 921
Number of salespeople 16

SLOWPOKES
Millions
$
Contribution Margin (%)
34.8 35.1 36.0 36.6 37.2 37.8 38.7
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Table 15-11 Relative performance efficiency for Sales Rep 22
Value if
Value 100%
Variable Type Variable Name Measured Efficient Slack
Output Percent Quota Attained (%) 100 120 20
Output Supervisor Evaluation 5 5 0
Output Sales Volume ($) 45,000 50,500 5,500
Input Sales Training 5 5 0
Input Salary ($) 20,000 18,000 2,000
Input Management Ratio 3 2 1
Input Territory Potential ($) 60,500 50,000 10,500

Influence
Salesperson 7 0.49
Salesperson 20 0.43
Salesperson 45 0.08
Reference Set Efficiency = 0.85

Iterations = 10
Source: James S. Boles, Naveen Donthu, and Ritu Lohtia, Salesperson Evaluation Using Relative Performance
Efficiency: The Application of Data Envelopment Analysis, Journal of Personal Selling & Sales Management, Vol.
15, No. 3 (Summer 1995), p. 44.
Figure 15-2 A Model of Salesperson Evaluation
Input-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
Output-based System
Salesperson
Evaluation
Table 15-7 Measuring Sales Force Output for Bear Computer
Company
1 2 3 4 5 6 7 8
Market
Sales 96 Sales 97 Potential Sales Percentage Sales
Jan-Sept Jan-Sept Dollar Sales index Quota of Quota Variance
Territory (000) (000) Change Growth (percent) (000) Achieved (000)
Jones $ 750 $ 825 + $75 10.0% 26.0% $ 943 87.0% $118
Smith 500 570 + 70 14.0 15 543 105 + 27
Brown 1025 1110 + 85 8.3 32 1160 96 50
West 960 1000 + 40 4.2 27 977 102 + 23
$3235 $3505 +$270 8.3% 100.0% $3623
Figure 15-1: 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
Evaluating Sales Force Performance
Fleet Car Management -- A Motivator
Salesperson owned car (per mile travel allowance)
Salesperson gets car preference
Allowances rarely cover full salesperson car costs
Company owned & managed cars
Ties up a lot of cash
Costs less than salesperson owned car
Leased sales fleet of cars
Frees up cash
Company performs routine maintenance
Evaluating and Controlling Salespeople
Models Combining Input & Output Controls
Four Factor Model





How can sales be increased?
Optimum Number of sales calls to maximize profits?
Who is doing best? Ann or Pete?
What management strategies for Pete? for Ann?
$ Sales = Days worked x
Calls Orders Sales $
Days Worked Calls Orders
$ Sales = Days worked x Call Rate
Batting
Average
Average
Order Size
Evaluating Sales Force Performance
Profitability Analysis
Full Cost
Sales
Less: C of GS

Equals: Gross Margin
Less: Operating Expenses
(Direct +
Indirect Allocated)
Equals: Profit Contribution
Contribution Margin
Sales
C of GS & Other
Variables Costs
Contribution Margin
Direct Allocable
Fixed Selling Costs

Profit Contribution
Evaluating Sales Force Performance
Profitability Analysis
Full Cost Approach
charge recruiting, training, sales promo &
other marketing expenses to sales manager
allocation is somewhat arbitrary
not under sales manager control
Evaluating Sales Force Performance
In-Class Exercise 15-1 -- Which Profits?
1. Why would a company that used to use only
sales as a performance criteria for its sales force
wish to consider profitability?
2. What criteria should be established to construct
a workable performance evaluation system?
3. What are the pros and cons of alternative profit
measures?
4. What other problems need to be considered?
Evaluating and Controlling Salespeople
In-Class Exercises 16-1
I Know These Sales Figures Stink
1. What activities should be completed in the
performance evaluation process?
2. What should take place prior to a performance
review meeting?
3. What is covered in the meeting?
4. What to do if an employee disagrees with the
performance ratings?
5. What are additional suggestions for providing
feedback to others?
Evaluating and Controlling Salespeople
In-Class Exercises 16-1
I Know These Sales Figures Stink
6. How do you handle hostile reactions?
7. What additional questions should Sherrie ask of
the veteran sales manager?
8. What consideration should be given to a large
customer going out of business?
9. Is sales, the bottom line, the only measure that
should be used for evaluating performance?
10. What are the companies responsibilities in this
role play?
Evaluating and Controlling Salespeople
Input vs. Output Systems
Salary Compensation Commission
Input System favored Output
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
1. How do the six salespeople compare with one
another? -- Rank them for 1 to 6 overall.
2. Which of the six would you promote to Field
Sales Supervisor (sales manager position)?
3. If you were opening a new territory which is
promising to be quite high in sales potential and
thus both lucrative and challenging, and you had
to assign one of the six to that territory, which
salesperson would you transfer to that territory?
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
4. If you had to reduce the sales force to only 5
salespeople, and thus had to terminate one of the
salespeople, which one would you terminate?
Why?
5. If you had a $10,000 budget for bonuses for your
sales force and had to pay it all out, how much of
the $10,000 would you give to each of the
salespeople? You may allocate the $10,000 in any
manner you wish, as long as the total is exactly
$10,000.
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
Results of a sample of 242 sales managers
How do your results compare with the
managers?
Situation specific evaluations
Overall evaluations
Situation Specific Predictive Ability
which model works best?
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
1. How do the six salespeople compare with one
another? -- Rank them for 1 to 6 overall.
2. Which of the six would you promote to Field
Sales Supervisor (sales manager position)?
3. If you were opening a new territory which is
promising to be quite high in sales potential and
thus both lucrative and challenging, and you had
to assign one of the six to that territory, which
salesperson would you transfer to that territory?
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
4. If you had to reduce the sales force to only 5
salespeople, and thus had to terminate one of the
salespeople, which one would you terminate?
Why?
5. If you had a $10,000 budget for bonuses for your
sales force and had to pay it all out, how much of
the $10,000 would you give to each of the
salespeople? You may allocate the $10,000 in any
manner you wish, as long as the total is exactly
$10,000.
Evaluating and Controlling Salespeople
Using Judgment Models -- Ranking Procedures
Results of a sample of 242 sales managers
How do your results compare with the
managers?
Situation specific evaluations
Overall evaluations
Situation Specific Predictive Ability
which model works best?
Evaluating and Controlling Salespeople
Summarizing Sales force Performance
Performance Matrix
Shows interaction of 3 or more variables at a time
Identifies reps for rewards and punishments
Helps find subtle interactions
Findings in Figure 16-6
Reps begin career selling high margin mix of products
Reps end career by sacrificing margins for revenue
Laggards represent a plateauing problem
Laggards should make more contractor calls
If looking for $$ -- reward compromisers
If looking for profits -- reward the stars
Evaluating Sales Force Performance
Profitability Analysis
Residual Income Analysis
Sales growth is desirable as long as
profits exceed cost of capital
Most comprehensive single measure of
sales force performance
Existing control factors all included
Expressed in dollars makes it easier to set
sales manager incentives
Directly related to corporate objectives
Evaluating Sales Force Performance
Profitability Analysis
Return on Assets Managed (ROAM)
Profit Contrib. Sales
Sales Assets Managed
Assets under sales management control
District Analysis
Assets managed poorly in District 4
Profit contribution greatest in District 1
X
Evaluating Sales Force Performance
Profitability Analysis
ROAM disadvantages
focus on lower assets (inventory + acct. receivable)
does not consider sales level or growth
Solution: Residual Income Analysis (RIA)
Profit Contribution
Less: Acct receivable costs
Inventory carrying costs
Equals Residual Income
Evaluating Sales Force Performance
Sales Force Evaluation Model
Sales Analysis Principles
80/20 -- 20% of customers yield 80% sales
Iceberg -- sales figures tip of iceberg -- need more
Gathering Sales Data
DSS
hand held computers for field
Steps in Sales Analysis
Pick unit for analysis - by division, district, etc.
Select variables for cross classification - by product
Choose performance measures -- sales to quota, etc.
Evaluating Sales Force Performance
The Big Picture
Start with aggregate sales by year
Look for changes and trends -- market share, volume
Refining through Cross Classification
Sales by Region
reward areas of strength?
move into areas of weakness
Sales by Product Line
Are you selling what firm wants? or what
salespeople want?
Balance long vs. short term goals
Evaluating Sales Force Performance
Refining Through Cross Classification
Dollar Vs. Unit Sales
When price change (inflation) distorts dollar
figures
Good for big ticket items
Sales by Distribution Channel
tends to change over time
asks who customers really are
Sales by Customer Type
illustrates 80/20 principle
how to deal with small accounts
Evaluating Sales Force Performance
Cross Classification Techniques
Multi-way Tables
Varying Customer Classifications
Product Lines vs. Product Categories
Brands as Product Class
Table 15-3 Sales Data for Bear Computer Company
1 2 3 4
Company Percentage Industry Company
Volume Change from Volume Market Share
Year ($ millions) Previous Year ($ millions) (percent)


1997 26 + 8.3 300 8.6
1996 24 +14.3 219 10.9
1995 21 +23.5 165 15.7
1994 17 --- 125 13.6
Table 15-7 Measuring Sales Force Output for Bear Computer
Company
1 2 3 4 5 6 7 8
Market
Sales 96 Sales 97 Potential Sales Percentage Sales
Jan-Sept Jan-Sept Dollar Sales index Quota of Quota Variance
Territory (000) (000) Change Growth (percent) (000) Achieved (000)
Jones $ 750 $ 825 + $75 10.0% 26.0% $ 943 87.0% $118
Smith 500 570 + 70 14.0 15 543 105 + 27
Brown 1025 1110 + 85 8.3 32 1160 96 50
West 960 1000 + 40 4.2 27 977 102 + 23
$3235 $3505 +$270 8.3% 100.0% $3623
Figure 15-3 Ranking Salespeople on 10 Input/Output factors
3.87
3.66
3.44
3.23
3.02
2.80
2.59
2.38
2.16
1.95
1.74
1.53
1.31
1.10
COMPROMISERS

Avg sales $3.17
Avg contribution $1.13
Avg contribution % 35.8
Age 45
Calls 1122
Number of salespeople 18
STARS

Avg sales $2.91
Avg contribution $1.09
Avg contribution % 37.4
Age 37
Calls 888
Number of salespeople 11
Avg sales $1.78
Avg contribution $ .64
Avg contribution % 35.8
Age 44
Calls 958
Number of salespeople 11

LAGGARDS
Avg sales $2.03
Avg contribution $ .75
Avg contribution % 37.1
Age 35
Calls 921
Number of salespeople 16

SLOWPOKES
Millions
$
Contribution Margin (%)
34.8 35.1 36.0 36.6 37.2 37.8 38.7
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