Sales Management

Sales Management Budgeting and Evaluation Budgeting and Evaluation

Outline: Purpose of budgeting How sales budget is derived and its purpose How standards of performance are set Set qualitative and quantitative measures of performance Budgeting and Evaluation

I ) Budgeting Purpose of Budgeting • An organization needs to budget in order to: • Ensure the expenditure does not exceed the planned income (limit the spending) • A means of control Sales forecast is the starting for business planning activities. From forecast then the budgets are apportioned to departments. Budgeting and Evaluation

Forecast vs Budgeting Consequence of an incorrect medium-term forecast is immediate: If forecast is pessimistic, co achieves more sales than forecast  lose potential sales because of unprepared and insufficient working finance If the forecast is optimistic, sales revenue does not match anticipated sales,  the revenue problem arises, co may need a lending to fund its short-term working capital. Budgeting and Evaluation

Expenses Vs Income Income: Sales Revenue Expenses: Costs Selling expenses: sales personnel salaries, commission, sales expenses, training Advertising budget: TV promotion, coupon Administrative budget: Expenditure of running the sales office, sales administration and support staff Budgeting and Evaluation

Types of Budgeting Affordable method base the budget on funds available after all other expenses have been paid. I.e leftover funds to advertising. How about healing the decreasing sales with increasing advertising? Return on investment method Assume that advertising is a tangible item and long term investment that extends beyond the budget period. Discount the return on these expenditures. Incrementalbase future expenditures on the present budget. Assume the last unit of money spent on advertising should bring in an equal unit of revenue. difficult to measure the benefits(i.e.increase brand loyalty) from advertising expenses. Budgeting and Evaluation

Types of Budgeting Competitive parityuse competition as a guideline. i.e. adjust the advertising expenses in lines with competitor/market leader. Assume status quo within marketplace Percentage of salestie promotion to a % of last year’s sales revenue the more the sales, the more the promotion. How about decrease in sales? Decrease in promotion? Objective and taskfirst define the level of promotion/advertising expenses needed to accomplish marketing objective,then set the budget. Marketing objective sometimes not related to profits. Budgeting and Evaluation

II) Evaluation of sales person Purpose of evaluation To attain company objectives by measuring actual performance against objectives. Weakness of a sales person can be identified. Appropriate action can be taken to improve performance. Improve salesperson’s motivation and skills. (1) Salesperson is informed what is the company’s expectation and what is considered good performance. (2) increase confidence and motivation if the good performance is recognized by the evaluation. Evaluation is important in an effective training program. Evaluation information decides compensation plan. Budgeting and Evaluation

The role of evaluation in sales management Attainment & Setting objective Salesforce evaluation Training Compensation Motivation Budgeting and Evaluation

Measures of Performance I) Quantitative measures of performance Output / Input measures: Output measures: Sales revenue achieved Profits generated Sales per potential/active account Numbers of orders Sales to new customers Number of new customers Budgeting and Evaluation

Measures of Performance I) Quantitative measures of performance Input measures: Number of calls made Calls per potential account Calls per active account Number of quotations Number of visits Budgeting and Evaluation

Measures of Performance No. of quotations Output/input measures of performance (con’t) hybrid ratios can be determined by combining output & input: Strike rate: No.of orders Sales revenue per call ratio Profit per call ratio Order per call ratio Prospecting success ratio: Number of new customers Number of prospects visited Budgeting and Evaluation

Measures of Performance Output/input measures of performance hybrid ratios help to answer the following questions: Is the salesperson achieving a satisfactory level of sales? Is sales success reflected in profit achievement? Is the salesperson“buying” sales by giving excessive discount? Is time spent prospecting being rewarded by orders? Is the salesperson making a satisfactory number of calls? Is the salesperson making enough repeat calls on different customer categories? Is he/she making too many calls on low potential customers? Are calls being reflected in sales success? How are the sales being achieved? A large of small order or a few large orders? Budgeting and Evaluation

Measures of Performance Output/input measures of performance These ratio also provide possible reasons for the sales: Is the salesperson lazy, not making enough calls? Call rate is satisfactory but low call effectiveness lack of skills May be too many calls on established accounts and not enough new prospects Low strike rate suggests the need for an analysis of why orders are not following quotations. Poor call effectiveness suggests investigation of sales technique to identify specific area of weakness(training may be needed). Budgeting and Evaluation

Measures of Performance 2. Expenses and compensation measures Expenses Ratios include: Expenses/sales revenue generated Expenses/profit generated Expenses per call Expenses per square mail of territory These measures should give an indication of when the level of expenses is excessive Budgeting and Evaluation

Measures of Performance • 2. Expenses and compensation measures • Compensation Ratios include: • Total salary (including commission)/sales revenue • Total salary (including commission)/profits • The compensation analysis is valuable when • A large part of salary is fixed • Salespeople are on different levels of fixed salary • These ratios: • Show when a compensation has gone out of control • Allow changes made before low-paid higher-achiever leaves for jobs Budgeting and Evaluation

Measures of Performance II) Qualitative measures of performance Sales skills Handling the opening/developing rapport Identification of customer needs, questioning ability Quality of sales presentation Use of visual aids Ability to overcome objections Ability to close the sale Customer relationships Are customers well satisfied with the service, advice, reliability of the salesperson, any complaints? Any repeat buying from the customers? Budgeting and Evaluation

Measures of Performance II) Qualitative measures of performance Self-recognition Prepare calls Keep customer records up-to-date? Provide market information to headquarters Conduct self-analysis of performance to improve weakness Product knowledge The company’s products and their customer benefits and application Competitor’s products and their benefits and applications Relative strengths and weakness btw own and competitors products Budgeting and Evaluation

Measures of Performance II) Qualitative measures of performance Co-operation and attitudes Respond to the objectives determined by management in order to improve performance Co-operate with suggestions made during training (on job training) for improve sales technique Initiative, hard-working, polite Budgeting and Evaluation

Measures of Performance Lynch(1992) suggests four scenarios of evaluation results: Good quantitative/good qualitative evaluation: -Praise and monetary reward/ promotion Good quantitative/poor qualitative evaluation: -Good quantitative results mean that performance in from of customers is good but the qualitative part, i.e.attitudes, may need further advice and education Poor quantitative/good qualitative evaluation: - Good qualitative input is failing to be reflected in quantitative success. Training and guidance needed to improve the possible causes such as lack of persistence, poor closing technique, too many/too few calls Poor quantitative/poor qualitative evaluation: - Critical discussion with the salesperson needed. Training may be required to improve the overall standard. More seriously, punishment or even dismissal may be required. Budgeting and Evaluation

Measures of Performance Fig. Salesperson evaluation matrix Budgeting and Evaluation

Sales Management