(Mt) – Personal Selling and Sales Management

BUSI 3334: Personal Selling & Sales Management Lecture 3: Sales Force Organization, Demand Estimation & Metrics © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS Key Points in this Lecture  Know how to organize a sales force using geographic, product, customer and function layouts  Know when to use sales territories and how to design them  Know when to revise sales territories  Understand both objective and subjective methods of estimating demand  Know how to develop a quota plan  Be able to apply marketing metrics for sales and sales management © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS      Customer lifetime value Sales force size Sales forecasting Quota setting Quota achievement 2 Sales Forecasts 1) Specific in numerical terms 2) Related to a time period 3) Measurable at the end of that time period 4) Realistic: not overly optimistic 5) Potential sales forecast is the best case scenario if all goes according to plan 6) Actual sales are usually less than potential sales; they will only be more if a windfall occurs, or if the sales potential was not accurately analyzed. © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS 250 200 Industry Potential Industry Sales Company’s Potential Company’s Sales 150 100 50 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 3 Demand Estimation Methods Subjective Methods Sales Force Composite Jury of Executive Opinion Objective Methods Buying Power Index SIC Codes Regression Analysis Time Series Analysis Market Tests ***Buyers Intentions Survey*** Delphi Technique Buyers Intentions Surveys (market surveys)are objective if done according to the rigours of scientific market research. Otherwise, they are subjective. © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS 4 Purposes of Sales Force Organization  Specialization of Labour  When the task is complex, the sales force can be broken up by function/activity. When the selling task is not complex, the organization must be broken up by area of responsibility in order to insure timely completion of tasks, and efficient allocation of resources.  Stability and Continuity  The organization is structured by activity…not people. The tasks are built into the structure and people are hired to complete the tasks. This allows the organization to be less dependent on individuals and personalities and to grow as an independent entity over time. People come and go but organizations can last a very long time (Hudsons Bay Co.) © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS  Coordination and Integration  All organizations must be integrated & co-ordinated to accomplish the same objectives. This happens on three levels: 1) Tasks integrated with customer needs (shouldn’t need to spend hours waiting for service, etc.) 2) Selling activities coordinated between departments (order processing must work with shipping, accounting, etc.) 3) Functions integrated when a structure is organized by function (prospecting force must coordinate with sales force, etc.) 5 Types of Sales Force Organization Horizontal Structure     Geographic Product Customer Function © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS Vertical Structure  Line organization  Staff organization  Span of control 6 Span of Control  The flatter organization on top, has a higher span of control, therefore less supervision for each representative (5 reps to 1 manager). This can save money because there is less hierarchy, and it may be suitable for experienced reps who require a minimum amount of guidance. However, if less management means lower sales, this is not a bargain.  The steeper organization, on the bottom, has a lower span of control (3 reps to 1 manager). This is suitable for complex selling situations and/or inexperienced sales people. It is more costly, but may be more profitable. © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS Manager A Subordinate A Subordinate B Subordinate C Subordinate D Subordinate E Manager A Assistant Manager A Subordinate A Subordinate B Subordinate C 7 Line vs. Line & Staff Organizations Line Organization Line & Staff Organization Line organizations have all of the managers with the appropriate authority do all of the work: supportive and managerial. This can eat up time as well as result in conflicts of interest (eg: marketing research for sales may involve reporting on one’s own efficiency as a manager which may stifle objectivity & reporting). Vice President Marketing Advertising Director Sales Director Staff departments have no line authority, and offer support to the line managers. They should answer direct to the head of the unit in order to see that all relevant managerial implications flow to the top. He/she can then handle the department the way they feel is best if improvements are to be made. This is more costly, but frees up valuable time and may result in more qualified people doing the work. Marketing Research Vice President Marketing Advertising Director Research and Development Director Subordinates Sales Director Subordinates Research & Development Director Subordinates Training and Development © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS 8 Geographic Organization Structure President & Chief Executive Officer Advertising Director Sales Manager Western Division Vice President Marketing Vice President Finance Sales Director Research & Development Director Sales Manager Central Division Sales Manager Eastern Division Sales Representative New Brunswick Sales Representative Nova Scotia & Prince Edward Island © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS Vice President Operations Strengths: •Simplicity •Low cost of overhead & sales •Direct customer/representative interaction Weaknesses: •No specialization by task •Less managerial control over sales effort Sales Representative Newfoundland •The most commonly used org structure •Often combined with other methods 9 Product Organization Structure President & Chief Executive Officer Vice President Marketing Vice President Finance Advertising Director Sales Director Research & Development Director Sales Manager Western Division Sales Manager Central Division Sales Manager Eastern Division Sales Manager Nova Scotia & Prince Edward Island Sales Manager Computer Equipment Sales Manager Office Equipment Sales Representatives Sales Representatives © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS Vice President Operations Strengths: •Allows specialized knowledge to occur •Meets tight logistical deadlines •Allows greater level of managerial control Weaknesses: •Many reps interact with a single user •Costly •Great level of co-ordination needed •Rivalry between divisions may occur 10 Customer Organization Structure President & Chief Executive Officer Vice President Marketing Vice President Finance Advertising Director Sales Director Research & Development Director Sales Manager Western Division Sales Manager Central Division Sales Manager Eastern Division Sales Manager Nova Scotia & Prince Edward Island Sales Manager Business Division Sales Manager Consumer Division Sales Representatives Sales Representatives © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS Vice President Operations Strengths: •A natural extension of the marketing orientation designed to provide for customers’ needs •High level of managerial control over selling Weaknesses: •Many reps interact with a single user •Costly •Hard to co-ordinate selling activities •Rivalry may occur between divisions 11 Functional Organization Structure President & Chief Executive Officer Vice President Marketing Vice President Finance Advertising Director Sales Director Research & Development Director Sales Manager Western Division Sales Manager Central Division Sales Manager Eastern Division Vice President Operations Sales Manager Nova Scotia & Prince Edward Island Sales Manager Prospecting Division Sales Manager Selling Division Sales Manager Service Division Sales Prospecting Representatives Selling Representatives Service Representatives © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS Strengths: •Allows different abilities for different selling tasks •Morale can be high because people can do what they do best Weaknesses: •Many reps interact with a single customer •Costly •Difficult to co-ordinate selling tasks •Rivalry possible between divisions 12 Why Use Sales Territories? Customer Related Reasons • Can increase market coverage • Can enhance customer service • May increase sales • Can enhance customer satisfaction Sales Person Related Reasons • Creates enthusiasm..like running their “own business” • Better performance evaluations • Less turnover among reps • Reward related to effort • Standardized basis for comparing reps Managerial Reasons • Enhanced cost control • Coordinated promotion • Expense reduction related to operations and promotion Do Not Use Sales Territories When: •When the firm is too small: needs flexibility of market coverage •When product/service is sold on social basis (eg: insurance, investments, etc.) •When there are only a small number of potential users for the product © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS 13 Bases for Creating Sales Territories 1) Geographic – uses geographic boundaries to divide territories. Usually done, but often in combination with some other criteria like those below. 2) Potential – territories are usually created to allow “equal” sales potential for reps, an “even playing field”, which is also essential to allow standardized performance evaluation & motivation. 3) Servicing requirements – territories designed on the basis of the time needed to service current & future clients. This is a good idea. 4) Workload – territories designed according to travel time, number and type of accounts, competition etc… An ideal system, but complicated to do. To some extent all of these bases should be addressed for good territories. © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS 14 The Six Step Approach to Designing Sales Territories 1. 2. 3. 4. 5. 6. Select the Control Unit Estimate Market Potential Form Tentative Territories Perform a Workload Analysis Adjust Tentative Territories Assign Sales Reps to Territories Control units are basic building blocks that can be combined to form tentative territories, often based on geographic boundaries. Smaller is better…easier to combine & break apart small units than divide larger ones. Small units also make it easier to see & measure the sales potential of each, when larger units can hide small areas of potential. (eg: CMA, CA, census tracts, postal code areas, counties, etc.). Combine adjacent units into larger ones of approximately equal sales potential. Consider future growth as much as possible. Some firms violate the equal potential rule by having territories with varying potential for training and then promotion. Territories should also be contiguous. Perform a workload analysis. Adjust territories to allow for workload to be approximately equal. Assign sales reps to territories, such that his/her relative contribution to profit is the highest. Try to consider differential sales ability in the assignment. © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS 15 Methods of Determining Sales Force Size Breakdown Method • Simple • Treats each sales person as a sales person “unit” that can produce a certain amount of sales • Sales force size = Company sales forecast/Sales from one salesperson • Example: The sales forecast is $1,000,000. Each sales person can sell $250,000 per year. Therefore, you need 4 sales people. Workload Method Incremental Method • Complex • Need to analyze workload to get a realistic estimate of what the sales person can sell • The workload analysis addresses: • Number of prospects • Prospect classification into A, B and C accounts • Amount of time to spend with each • Amount of time spent nonselling (travel, record keeping, etc.) • Amount of time needed to service market (existing and new business) • Sales force size = Time required to service market/Selling time for single sales rep • See example on subsequent slide in this presentation • Complex • Determines how much extra sales (incremental sales) will be achieved by adding one additional rep • The more reps you add, the less they will add to sales • Stop adding reps when incremental cost = incremental profit • See example in subsequent slide in this presentation. © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS 16 Classifying Potential Accounts into A, B and C Prospects You will use arbitrary methods of deciding what constitutes an A, B, or C account. You will also use arbitrary means to determine how much time to spend per meeting and how many meetings to have annually with each account. Who are Your KEY Customers? “A” accounts may be very labour intensive. Sometimes B accounts are easier to build and maintain. “C” accounts may not be profitable enough to keep. © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS • Who is most profitable • Who takes most of your time? • Where is the greatest return on investment (time & money) The Pareto Principle Time % 20% 30% 50% Sales % A B C 80% 15% 5% Check company records 17 Example for Workload Method of Determining Sales Force Size Workload Analysis: The average rep needs the following time each week: Selling time: 10 appointments – 15 hours Travel time: (30 minutes each meeting) – 5 hours Paperwork: 2 hours Servicing clients: 8 hours Prospecting: 5 hours Total time: 35 hours weekly Total for Selling and travel time weekly = 20 hours Total Selling and travel time annually (based on 50 work weeks per year) = 1,000 hours ABC Account Classification: Accounts: 10,000 businesses in region: 20% (2,000) are A’s: 2,000, 30% (3,000) are B’s and 50% (5,000) are C’s Time Allocation: Call on A’s once monthly (2,000 calls monthly/24,000 calls yearly) Call on B’s once every two months (3,000 x 6 calls yearly=18,000) Call on C’s once every three months (5,000 x 4 calls yearly=20,000) Total time for servicing market: A’s: 24,000 x 1.5 hours = 36,000 hours, B’s: 18,000 x 1 hour = 18,000 hours, C’s: 20,000 x 30 minutes = 10,000 hours, = Total time required to service the market: 64,000 hours Calculate Sales Force Size: Number of Reps required at 1,000 hours each: 64,000 / 1,000 = 64 reps Time per call: A’s: 1.5 hours, B’s: 1 hour, C’s: Half-hour © Dr. Karen Blotnicky (2015). Mount Saint Vincent University, Halifax, NS 18 Example for Incremental Method of Determining Sales Force size Total Reps Total Revenue Incremental Revenue Profit Incremental Incremental Profit Total Cost Cost 1 $250,000 $250,000 $75,000 $75,000 $25,000 $25,000 2 $375,000 $125,000 $112,500 $37,500 $50,000 $25,000 3 $450,000 $75,000 $135,000 $22,500 $75,000 $25,000 Decision: Stop adding reps after the second rep Why? Because the incremental profit for Rep 3 is less than the incremental cost: $22,500

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