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Chapter 13. Sales Volume, Costs, and Profitability Analysis. PowerPoint presentation prepared by Dr. Rajiv Mehta New Jersey Institute of Technology. Chapter Outline. Framework for Sales Force Organizational Audit Sales Volume, Marketing Costs, and Profitability Analysis

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Chapter 13

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Chapter 13

Chapter 13

Sales Volume, Costs, and Profitability Analysis

PowerPoint presentation prepared by

Dr. Rajiv Mehta

New Jersey Institute of Technology


Chapter outline

Chapter Outline

  • Framework for Sales Force Organizational Audit

  • Sales Volume, Marketing Costs, and Profitability Analysis

  • Increasing Sales Force Productivity and Profits

Source: Flying Colours Ltd.


Learning objectives

Learning Objectives

After reading this chapter, you should be able to do the following:

  • Understand the framework for a sales force organization audit.

  • Discuss the sources of information and need for sales volume, costs, and profitability analyses.

  • Outline the procedures for conducting sales analyses by territory, sales representative, product line, and customer.

  • Describe the procedure for marketing costs and profitability analyses.

  • Articulate the arguments for using contribution costs versus full costs.

  • Illustrate the concept of and ways to improve return on assets managed (ROAM).


Framework for sales force organization audit

Framework for Sales Force Organization Audit

  • A sales force audit is a “comprehensive, systematic, diagnostic, and prescriptive tool designed to assess the adequacy of a firm’s sales management process and to provide direction for improved performance and the prescription for needed changes.”

  • The audit entails an analysis of the overall sales organization performance.


Conceptual model for a sales force organizational audit

Conceptual Model for a Sales Force Organizational Audit


Sales volume costs and profitability analysis

Sales Volume, Costs, and Profitability Analysis


Sales volume analysis key considerations

Sales Volume Analysis: Key Considerations

Collecting, classifying, comparing, and evaluating an organization’s sales figures is a process referred to as sales volume analysis.

(a) when an order is taken, (b) when it is shipped, or (c) when the customer pays

in dollars or physical units

invoices, cash receipts, accounts receivable

sales in prior periods, the fiscal period’s sales forecast, sales quota, competitors’ sales

analysis by region, district, territory, or overall organization

by territory, product line, customer type


Sources of sales information

Sources of Sales Information

  • sales invoices

  • salesperson’s call reports

  • salesperson’s expense accounts

  • individual prospect/customer records

  • internal financial records

  • warranty cards

  • store audits

  • consumer diaries

  • test markets


Websites of firms specializing in sales volume analysis

Websites of Firms Specializing in Sales Volume Analysis

  • Peruse the websites of various firms that specialize in conducting sales analyses at

    • http://www.seatab.com/Solutions/Forecast?gclid=COL7_7PplpACFRGCGgodCGVl8w

    • http://www.figtree.com/sf-sa.htm

    • http://www.cosmic-solutions.com/content/salesanalysis.php

    • http://www.ncodeconsultant.com/case_04jc.html


Major types of sales analysis

Major Types of Sales Analysis

  • sales analysis by salesperson

  • sales analysis by territory (geographic area)

  • sales analysis by product/product line (autos, motorcycles, generators, lawnmowers, jet skis)

  • sales analysis by customer type (airlines, banks, government agency)


Subcategories of a sales territory

Subcategories of a Sales Territory


Chapter 13

Hierarchical Analysis of

Sales Volume by Market Segments


Microcomputer solutions corporation illustration of minimum average costs

MicroComputer Solutions Corporation: Illustration of Minimum Average Costs


Microcomputer solutions corporation illustration of minimum average costs1

MicroComputer Solutions Corporation: Illustration of Minimum Average Costs


Chapter 13

Cooperation Between Marketing and Accounting Departments: Average Per Unit Sales Cost Curve for Direct Selling

average cost curve

unitcost

C1

C3

C2

S3

S1

S2

sales calls


Software for conducting sales volume analysis

Software for Conducting Sales Volume Analysis

  • Peruse the following websites to learn about software for conducting different types of sales analyses at

    • http://www.dynamacs.com

    • http://www.hornungllc.com/salesanalysis.htm

    • https://www.lucidera.com

    • http://www.vai.net/Products/Distribution/Features/Sales-Analysis.html

    • http://www.microstrategy.com/Software/Applications/SAM/


Marketing profitability analysis procedure

1.

Specify the

purpose of

the analysis.

4.

Allocate

functional

costs to

segments.

3.

Convert

natural

expenses

into

functional

costs.

5.

Determine

profit

contribution

of segments.

2.

Identify

functional

cost centers.

Marketing Profitability Analysis Procedure


Specify the purpose

Specify the Purpose

  • Costs tend to be specific and directly related to volume output; aka production costs.

  • Expensesare more general or indirect expenditures; aka marketing expenses.

  • Classify expenses as direct or indirect costs and as fixed or variable costs.

Source: C Squared Studios


Identify functional cost centers

Functional

cost centers

2.

Order-filling

costs

1.

Order-getting

costs

Identify Functional Cost Centers

  • product packing and shipping

  • transportation and delivery

  • customer service

  • warehousing

  • inventory control

  • material handling

  • accounts receivable

  • sales promotion and publicity

  • product and package design

  • advertising

  • sales discounts and allowances

  • sales administration

  • credit


Convert natural expenses into functional accounts

Convert Natural Expenses into Functional Accounts

  • Natural accounting expenses (traditional expense categories like salaries, rent, depreciation) must be reassigned to expense categories.

  • With this data, a basic profit-and-loss (or income) statement, can be calculated using this formula:

    sales

    − cost of goods sold

    gross margin

    − expenses_______

    net profit (loss)


Allocate functional costs to segments

Allocate Functional Costs to Segments

  • For profitability of each unit or market segments, allocate the functional costs incurred by the unit in serving the segment.

  • Full costs or contribution margin?

    • Since marketing costs contain direct, indirect, fixed, and variable amounts, allocate full costs or only marginal costs (direct and variable) to the segments.

    • Costs that are fixed and indirect are usually impossible to assign to segments except arbitrarily.

  • The contribution margin (the sales price less direct costs and variable costs equals the amount the sale contributes to profits) approach entails allocating uncontrollable costs, thus not considered in marketing decisions.


Determine profit contribution of segments

Determine Profit Contribution of Segments

  • Identify unprofitable customer accounts, products, or territories that can be served less frequently or dropped.

  • Profit contributions can be examined by segments in two basic ways:

    • by individual segments

    • by cross-classification of segments

Source: C Squared Studios


Return on assets managed roam

Return on Assets Managed (ROAM)

  • ROAM measures how productively the assets have been employed.

  • When applied to segment analysis on the basis of the contribution margin, the formula becomes


Improving return on assets managed roam

Improving Return on Assets Managed (ROAM)


Return on investment roi

Return on Investment (ROI)

  • Learn about using another financial measure, ROI, in sales analysis at

    • http://www.justsell.com/salestools/returnoninvestment.aspx

  • For articles and case studies on ROI visit

    • http://www.customer.com/ccgsite/pages/roi_measurement.html#articles


Articles on sales volume analysis

Articles on Sales Volume Analysis

  • To read various articles on sales analysis, go to

    • http://www.contentspool.com/tag/measuring+sales+performance/

    • http://www.destinationcrm.com/articles/default.asp?ArticleID=2668

    • http://www.comportone.com/score/articles/analysis.htm

    • http://ezinearticles.com/?Sales-Analysis-and-How-They-Can-Benefit-Your-Business&id=843938

    • http://ezinearticles.com/?Sales-Metrics-Tell-More-Than-You-Know&id=723644


Sales force training that pays

Sales Force Training That Pays

  • To see a video on how to determine the effectiveness of training salespeople, go to

    • http://www.sellingpower.com/video/index.asp?date=11/7/2006


Ethical situation what would you do

Ethical Situation: What Would You Do?

Discussion Question

As the national sales manager for a medium-sized electrical parts manufacturer, you have a lot of pressure on you to make the company’s annual calendar year sales forecast, which is set by the CEO and the vice president of marketing with some input from you. They always push together for an ambitious sales forecast, and you feel you have no option but to go along with them. It is now the end of September and you’ve just gone over the sales data for the past three quarters. Sales are running about 10 percent behind what will be necessary to make the year’s sales forecast. Last year, you missed achieving the company sales forecast by nearly 12 percent, and you realize that your job may be in jeopardy if your sales force isn’t able to reach this year’s sales forecast. The CEO may come under fire himself from the executive board if company sales again miss forecasts, and he will most likely blame you for the failure. Normally, a sale isn’t tabulated until the product is actually shipped to the customer, but about 85 percent of all customer orders move on to the next stage and are shipped. Only about 15 percent are cancelled for various reasons. You recognize that your sales force could still make the annual sales quota if (1) salespeople are ordered to start aggressively pushing inventory onto customers and (2) you change the way a sale is booked from the date the product is shipped to the date the order is received from the customer. Before making these two decisions, you try to think through the potential pros and cons.


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